ECB uses legal word games to dodge bailout accountability

The European Parliament sent a questionnaire to the Eurozone bailout “Troika” members (ECB, IMF, and European Commission) so as to better understand their specific roles in the 4 lending programme countries (Ireland, Greece, Portugal, and Cyprus). The ECB has published its response. One set of questions and answer is as follows –

5. How much leeway did the countries concerned have to decide upon the design of the necessary measures (consolidation or structural reforms)? Please explain for each country.
See below answer to question 6.
6. Did any of the Member States (EL, IE, PT, CY) put forward, as a precondition for their approval of the MoU (statement of country policies and conditions), a claim for specific measures as part of the MoU? If so, please elaborate on these requests.
Joint answer for 5 and 6:
• In line with the EFSM Regulation, EFSF Agreement and the ESM Treaty, the MoU lays down the commitments assumed by the respective Member State in return for receiving financial assistance, as a result of technical discussions between the country concerned and the troika institutions. The respective government has ownership of, and responsibility for, these commitments, including all specific measures …
• On the European side, the decision whether to grant financial assistance based on these commitments lies, in political terms, with the Eurogroup and the supporting Member States. In legal terms the decision is taken by the Council under the EFSM Regulation, by the EWG and the guarantor Member States under the EFSF Agreement, and by the ESM Board of Governors under the ESM Treaty, with the respective Member States acting in accordance with their respective constitutional requirements.
This has recently been confirmed by the Court of Justice of the EU in its judgment in the Pringle case, where the Court stated that “the duties conferred upon the Commission and the ECB within the ESM Treaty, important as they are, do not entail any power to make decisions of their own.”

The referenced Pringle case involves a court challenge brought by Thomas Pringle, an independent member of the Iriish parliament. He argued that the European Stability Mechanism (ESM, the permanent bailout mechanism for Eurozone countries) was improperly established and operated, essentially because its structure as a Eurozone club conflicted with the way the broader European Union had been designed. Although Priingle faced scepticism about the prospects of his case, it did end up marshalling a considerable amount of legal firepower and reasoning at the European Court of Justice (after he lost in Irish courts). He lost at the ECJ too, but not without some clarification of the basis on which the Troika entities operate within the ESM framework. Here’s the relevant section of the judgement:

The ESM Treaty allocates various tasks to the Commission and to the ECB …

157 The tasks allocated to the ECB consist of assessing the urgency of requests for stability support (Article 4(4)), participating in the meetings of the Board of Governors and the Board of Directors as an observer (Articles 5(3) and 6(2)) and, in liaison with the Commission, assessing requests for stability support (Article 13(1)), negotiating an MoU (Article 13(3)) and monitoring compliance with the conditionality attached to the financial assistance (Article 13(7))  …

160 First, the activities of the ESM fall under economic policy. The Union does not have exclusive competence in that area.

161 Secondly, the duties conferred on the Commission and ECB within the ESM Treaty, important as they are, do not entail any power to make decisions of their own. Further, the activities pursued by those two institutions within the ESM Treaty solely commit the ESM.

162 Thirdly, the tasks conferred on the Commission and the ECB do not alter the essential character of the powers conferred on those institutions by the EU and FEU Treaties ….

165 As regards the tasks allocated to the ECB by the ESM Treaty, they are in line with the various tasks which the FEU Treaty and the Statute of the ESCB [and of the ECB] confer on that institution. By virtue of its duties within the ESM Treaty, the ECB supports the general economic policies in the Union, in accordance with Article 282(2) TFEU. Moreover, it is clear from Article 6.2 of the Statute of the ESCB that the ECB is entitled to participate in international monetary institutions. Article 23 of that Statute confirms that the ECB may ‘establish relations … with organisations’.

Consider what the ECB has done. The European Parliament asked it to explain whether it had some role in determining which conditions made it into the final bailout programme (the obvious point of interest being conditions regarding illiquid and insolvent banks). The ECB’s response: Well, the ECJ said that we don’t make any specific decisions on our own, as legally they are all decisions of the ESM, not us — so there’s nothing to explain! So even in cases of conditions related to core ECB functions, like banks, they can hide behind this formulation. Did the ECJ really intend that as it explained how the role of the ECB could be fit within the existing treaty framework, the ECB would turn around and use this to avoid having to account for its recommendations within that framework?

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