International Trade and Human Rights: An Unfinished Debate

GERMAN LAW JOURNAL Review of Developments in German, European and International Jurisprudence Editors–in-Chief: Russell A. Miller & Peer C. Zumbansen Advisory Board: Gregor Bachmann; Nina Boeger; Matthias Casper; Helge Dedek; Hans Michael Heinig; Florian Hoffmann Senior Editors: Betsy Baker; Gralf-Peter Calliess; Matthias Casper; Patrycja Dabrowska; Morag Goodwin; Felix Hanschmann; Jen Hendry; Karen Kaiser; Alexandra Kemmerer; Malcolm MacLaren; Stefan Magen; Ralf Michaels; Moritz Renner, Christoph Safferling; Frank Schorkopf; Emanuel Towfigh; Floris de Witte Associate Editors: Christian Altgen; Elisa Hoven www.germanlawjournal.com © Copyright 2000 - 2013 by German Law Journal GbR. All rights reserved. ISSN: 2071-8322 / ISSNL: 2071-8322 Vol. 14 No. 01 Pages 1-338 01 January 2013 Table Of Contents Special Section The ESM Before the Court Susanne K. Schmidt A Sense of Déjà Vu? The FCC’s Preli i ary European Stability Mechanism Verdict 1-20 Mattias Wendel Judicial Restraint and the Return to Openness: The Decision of the German Federal Constitutional Court on the ESM and the Fiscal Treaty of 12 September 2012 TABLE OF CONTENTS PAGE I 21-52 Table Of Contents Special Section The ESM Before the Courts [continued] Karsten Schneider Yes, But . . . O e More Thi g: Karlsruhe’s ‘uli g o the European Stability Mechanism 53-74 Erich Vranes German Constitutional Foundations of, and Limitations to, EU Integration: A Systematic Analysis 75-112 Vestert Borger The E“M a d the Europea Court’s Predica e t i Pringle 113-140 Pieter-Augustijn Van Malleghem Pringle: A Paradigm Shift in the European Union's Monetary Constitution 141-168 Jonathan Tomkin Contradiction, Circumvention and Conceptual Gymnastics: The Impact of the Adoption of the ESM Treaty on the State of European Democracy 169-190 Articles Matej Avbelj Differentiated Integration—Farewell to the EU-27? TABLE OF CONTENTS PAGE II 191-212 Table Of Contents Developments Christian Tomuschat Ger a y’s Mixed-Member Electoral System: A Victim of its Sophistication? 213-238 Kathrin Hamenstädt The Protection of Turkish Citizens Against Expulsion—This Far and No Further? The Impact of the Ziebell Case 239-268 David A. Hurst Conference Report—US & German Bench and Bar Gatheri g: A New Bridge Across the Atla tic : The Future of American Patent Litigation 269-278 Julinda Beqiraj The Delicate Equilibrium of EU Trade Measures: The Seals Case 279-320 Abadir M. Ibrahim International Trade and Human Rights: Unfinished Debate TABLE OF CONTENTS PAGE III An 321-338 Special Section The ESM Before the Courts A Sense of Déjà Vu? The FCC’s Preli i ary Europea Stability Mechanism Verdict By Susanne K. Schmidt * A. Introduction Over the summer of 2012, the pending verdict of the German Federal Constitutional Court (FCC) was a topic of much speculation not only in Germany and in the European Union (EU), but also on the international level. Christine Lagarde, the managing director of the International Monetary Fund (IMF) was quoted as threatening to leave a meeting, were 1 she to hear agai Bu des erfassu gsgericht. That decisions of a German nonmajoritarian institution have such transnational repercussions while being guided by Ger a laws a d atio al co sideratio s is othi g ew. The Bu des a k’s D-Mark rule was comparable and effectively pushed the introduction of the euro along. But also previous landmark rulings of the FCC on European integration raised cross-border attention, given that the Constitutional Court has the final say on German politics, and the biggest member state and economy of the EU can hardly be ignored. Moreover, being one of the most powerful constitutional courts in Europe, and certainly the one whose judgments receive most attention, rulings of the FCC are not only often cited but may also serve as a role model for other constitutional courts. Protest coming from this angle may therefore multiply. The FCC’s ajor ruli gs o Europea i tegratio thus ha e a fla or of a achro is . Assessing the merits of European integration with the help of a purely German benchmark cannot lead to acceptable results. After all, they reinforce a predicament European integration is set to overcome. With an integrated economy, political decisions directed at one member state are likely to carry externalities for other member states, not reflected in the decision-making process. Such externalities of nationally-oriented decisions, Christian 2 Joerges argues, necessarily carry a legitimacy deficit. * BIGSSS, University of Bremen. I would like to thank Michael Blauberger, Philipp Genschel, Rike Krämer, and Waltraud Schelkle for comments and suggestions. Email: [email protected]. Submitted Oct. 20, 2012. 1 Veit Medick & Philipp Wittrock, Karlsruhe lässt Kanzlerin zappeln, DER SPIEGEL, July 16, 2012, available at http://www.spiegel.de/politik/deutschland/esm-und-fiskalpakt-bundesverfassungsgericht-laesst-sich-mit-eurourteil-zeit-a-844573.html. 2 Christian Joerges, Deliberative Political Processes’ Revisited: What Have We Learnt About the Legitimacy of Supranational Decision-Making, 44 J. COMMON MKT. STUDS. 779–802 (2006) (arguing that the CJEU can compensate for forcing member states to consider the effects of their policies on other member states). 2 German Law Journal [Vol. 14 No. 01 A perspective focusing on the cross-border implications of national decisions is particularly needed, given the multiple externalities involved in monetary integration. It has brought about a situation of diffuse reciprocity among the member states. In contrast to specific reciprocity, where the e efits to e e cha ged are precisely specified a d o trust is 3 re uired, diffuse reciprocity is more demanding, requiring mutual trust and obligation. For example, German government bonds are in high demand, despite the weakness of the southern euro. The German industry profited from its comparative undervaluation given that southern countries cannot devalue their currencies. But southern countries benefited from low interest rates right after the introduction of the euro, facilitating the financing of debt and fueling public and private indebtedness. Right after the introduction of the euro, Ger a y was still the sick a of Europe, faci g high i terest rates duri g eco o ic recession. Having restored its competitiveness through wage deflation, its trade surpluses were the “outher ers’ deficits. Now, Norther ers are helpi g to fi a ce “outher ers’ debts, profiting from the margin between the lower northern and higher southern interest rates. But are they covering southern debts or alleviating the losses of northern banks with risky southern investment? It is hardly possible to attempt a balance sheet in such a situation of diffuse reciprocity with a north-south dimension that is intertwined with a public-private one. Plus, within the crisis-stricken countries, some actors profit from the crisis. The dramatic development of the euro crisis certainly put the FCC in a difficult situation. This resulted in an unusual summary examination of the case on the merits, even though the court had been expected to rule only on a temporary injunction. There would not have been the option to back out of the international treaties for the establishment of the European Stability Mechanism and the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (fiscal compact) after ratification. At the same time, acceptance of the request for a temporary injunction would have thrown the markets into turmoil. The FCC thus carried an unusually heavy burden of responsibility in a situation where German economists were deeply split about the right policy reactions to the challenge and the public felt very insecure and frightened. In the following section, I will start by explaining the way political science conceptualizes courts. I will then go on to put the ruling in its context of the previous rulings of the FCC on European integration and the euro crisis. After discussing the major points the FCC makes in its preliminary European Stability Mechanism (ESM) judgment, I will conclude on the FCC's role in the current system of European governance, while taking into account the externalities of its rulings. 3 Robert O. Keohane, Reciprocity in International Relations, 40 INT’L ORG. 1, 4f (1986). 2013] Déjà Vu? The ESM and the Constitutional Court 3 B. Courts as Political Actors As is characteristic of the discipline, there are multiple political science perspectives on courts as political actors. Next to more interpretive approaches focusing on different judgments, the field is situated between the recognition, on the one hand, that constitutional courts can be veto players in political games and, on the other hand, their essential passiveness. They rely on being called upon and on being followed in their judgments. Given these two sides, the power of courts as veto players hinges on important preconditions. Focusing on these constraints, there are several crucial institutional provisions that need exploring. Among them is the question of how judges are appointed and possibly re-appointed; how broad their mandate is; who has standing at the court (and how that determines the case load and possible development of case law); how easy it is to ignore the court's judgments and change the underlying laws; and the e te t to which the courts’ rules of procedure a d udgets ca e altered to further rei i courts. Compared to the United States, where courts, and particularly the Supreme Court, are an important topic of research, European political science has neglected the subject of 4 5 courts. This is also true for the study of the German FCC. It is less true, however, for research on the Court of Justice of the European Union (CJEU), whose influence is well 6 documented. Just some results of the research on courts shall be summarized here. Legal texts are essentially incomplete contracts. Being the result of political compromises, they are being read by different parties in different ways—and they are therefore subject to judicial interpretation. The legislatively adopted laws are complemented by their judicial interpretation. Influential has been the theory of Alec Stone Sweet on judicialization, by which he analyzes the increasing importance of the judiciary compared to the legislature in 7 the determination of collectively binding decisions. There needs to be a sufficient case load to develop case law, precedent needs to be honored, and reasons given, allowing litigants to draw on case law to further their interests. But courts are dependent on the 8 compliance with their rulings. For this reason, public opinion is important. If courts are 4 See Britta Rehder, What is Political About Jurisprudence? Courts, Politics and Political Science in Europe and the United States (Max Planck Inst. for the Study of Societies, Discussion Paper NO. 07/5, 2006). 5 See Christoph Hönnige & Thomas Gschwend, Das Bundesverfassungsgericht im politischen System der BRD—ein unbekanntes Wesen?, 51 POLITISCHE VIERTELJAHRESSCHRIFT 507, 507–30 (2010). 6 See KAREN ALTER, THE EUROPEAN COURT’S POLITICAL POWER: SELECTED ESSAYS (2009); Alec Stone Sweet, The European Court of Justice and the Judicialization of EU Governance, 5 LIVING REVS. EUR. GOVERNANCE 1, 1–50 (2010). 7 Alec Stone Sweet, Judicialization and the Construction of Governance, 31 COMP. POL. STUDS. 147, 147–184 (1999). 8 See Georg Vanberg, Establishing and Maintaining Judicial Independence, THE OXFORD HANDBOOK OF LAW AND POLITICS 99–119 (2008); Ulrich Sieberer, Strategische Zurückhaltung von Verfassungsgerichten: Gewaltenteilungsvorstellungen und die Grenzen der Justizialisierung, 16 ZEITSCHRIFT FÜR POLITIKWISSENSCHAFT 1299, 1299–1323 (2006). 4 German Law Journal [Vol. 14 No. 01 held in great esteem by the public, and if voters can also estimate whether their judgments are being implemented, courts are strong. Otherwise, they are in a more volatile position. Some of the experience with newly founded courts in Eastern Europe, particularly in Russia (and recently in Hungary and Romania), shows that for courts to be powerful, mere formal 9 prerequisites do not suffice. Generally, it can be assumed that courts pursue the institutional self-interest of guarding their autonomy, maintaining their influence, and possibly extending their mandate. Rational-choice approaches emphasize the dependence of courts, whose judgments they 10 believe to correspond to the preferences of powerful political actors. With regard to the CJEU, this argument is unconvincing, given the many times that the court has ruled against submitted opinions of powerful member states. Moreover, rational-choice approaches have the shortcoming of assuming a perfect malleability of law, which judges can interpret 11 according to political need. Though there is interpretative scope, if laws were setting no limits, there would be little reason why political and private actors should try to influence the policy process at all. On this basis, an interesting argument is made by R. Daniel 12 Kelemen. Analyzing decisions at the European and the WTO level, he argues that courts are susceptible to political pressure but need to take account of the determinations resulting from legal stipulations and their own case law. Only if the latter is indeterminate can courts follow political pressure. But this is much more difficult if precedent and legal texts are more determinate. In one of the rare works analyzing its internal decisionmaking, Uwe Kranenpohl interviewed judges of the FCC as to the relevance of precedent. It is striking how much they emphasize the constraints that precedent imposes on their successors—even in the German tradition of legal positivism, leading to a perception of the 13 Basic Law consisting not only of 146 Articles but also all of the FCC's decisions. With these remarks on the importance of precedent next to generalized political support, I now turn to the ackgrou d of the case at ha d, the FCC’s earlier Europea ruli gs. 9 See Silvia von Steinsdorff, Verfassungsgerichte als Demokratie-Versicherung? Ursachen und Grenzen der wachsenden Bedeutung juristischer Politikkontrolle, in ANALYSE DEMOKRATISCHER REGIERUNGSSYSTEME, 479, 479–98 (Klemens H. Schrenk & Markus Soldner eds., 2010). 10 See Geoffrey Garrett, The Politics of Legal Integration in the European Union, 49 INT’L ORG. 171, 171–181 (1995). 11 See Arthur Dyevre, Unifying the Field of Comparative Judicial Politics: Towards a General Theory of Judicial Behaviour, 2 EUR. POL. SCI. REV. 297, 301, 311 (2010). 12 R. Daniel Kelemen, The Limits of Judicial Power: Trade-Environment Disputes in the GATT/WTO and the EU, 34 COMP. POL. STUDS. 622, 622 (2001). 13 See Uwe Kranenpohl, Die Bedeutung von Interpretationsmethoden und Dogmatik in der Entscheidungspraxis des Bundesverfassungsgerichts, 48 DER STAAT 387, 398 (2009). 2013] Déjà Vu? The ESM and the Constitutional Court 5 C. The FCC and European Integration In contrast to lower national courts, which are empowered by the preliminary ruling procedure allowing them to directly submit their cases to the CJEU, national constitutional 14 courts lose out through European integration. The relationship of the FCC to the CJEU has therefore not been an easy one. In its first landmark ruling, Solange I of 1974, the FCC claimed for itself the right of judicial review of European legal acts, notwithstanding the supremacy of European law, should they not meet the high German standards of basic 15 fundamental rights. This is generally hailed as having been an important impetus for the CJEU to develop its own fundamental rights protection, which the FCC then recognized in 16 1979 in Solange II. This European-friendly decision seemed to imply that the FCC had made its peace with the CJEU. But what could be seen as the arrogance of the FCC continued with the following Maastricht ruling in 1993, where the FCC claimed for itself the right of an ultra vires control in order to assess whether European integration was 17 taking place within the limits delineated by the Treaty. At issue in this ruling, as in several to come, was, among others, the question of whether the extent of integration agreed on in the Maastricht Treaty was by now undermining the democracy principle of the Basic Law (Art. 20). This is protected by the eternity clause of Article 79(3) in the Basic Law and could only be changed by a new constitution based on a referendum (Art. 146 Basic Law). This added a new argument to the legal dispute between the FCC and European integration. The question whether the extent of delegation of competences violates this principle has remained a core concern. Together with the right to vote found in Article 38, citizens could address the Court with constitutional complaints against the progress of European integration. The Maastricht ruling also had other memorable features, notably its e phasis o the e er states as asters of the treaty. This e phasizes the fundamentally intergovernmentalist understanding of European integration that the FCC follows. This is despite the fact that the changed Article 23 laid a new basis for Ger a y’s participation in the EU with the Treaty of Maastricht, taking account of its supranational and not only intergovernmental nature. But the FCC only saw the European Parliament 14 See Alec Stone Sweet, Rights Adjudication and Constitutional Pluralism in Germany and Europe, 19 J. EUR. PUB. POL’Y 92, 92 (2012). 15 See Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], Case No. 2 BVL 52/71, May 29, 1974, 37 BVERFGE 271 (Ger.). 16 See Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], Case No. 2 BVR 197/83, Oct. 22, 1986, 73 BVERFGE 339 (Ger.). 17 See Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], Case No. 2 BVR 2134/92, Oct. 12, 1993, 89 BVERFGE 155 (Ger.). 6 German Law Journal [Vol. 14 No. 01 (EP) in a subsidiary position, the primary legitimizing role remaining with national parliaments. I particular, the a ou ce e t of the FCC’s i te tio to e a i e further steps of i tegratio with regard to a possi le iolatio of the EU’s co pete ces accordi g to the principle of conferral has meant that in subsequent cases the fi al cou tdow was expected—but did not materialize. Instead the Court has emphasized the responsibility of the Bundestag (federal parliament) for integration and safeguarding its competences. Most notably this was the case in the ruling on the European Arrest Warrant in 2005, where the FCC clearly criticized the Bundestag for blindly following the lead of the executive and the supremacy of European law, and for not using the existing scope of parliamentary powers to achieve a transposition safeguarding the principles of the Basic 18 Law. In its Lisbon ruling in 2009, the FCC repeated the limits that the Basic Law imposes on 19 European integration and its own rights of judicial review. Next to referring to the ultra vires control introduced by the Maastricht ruling, it invented a right of identity control to prevent integration undermining German constitutional identity. As fuzzy as the term is, the FCC mentioned criminal law, culture and education, the welfare state, and taxes to be crucial for German identity, ignoring largely that in particular the case law of the CJEU has 20 already imposed clear limits on the ability of member states to act in these areas. The ruling was heavily criticized with regard to its intergovernmental understanding of integration, its one-sided emphasis of legitimation through national parliaments, and its usurpation of the right of judicial review over European legal acts. Especially the combination of ultra vires based on the principle of conferral and a very fuzzy identity control seemed to imply that the FCC could at any time decide to block further integration. In a community of 27 member states, such preemption was also deemed unacceptable, as it could not be generalized to other member states, thus jeopardizing the 21 integration process. In an unprecedented move, a group of law professors, which 18 See Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], Case No. 2 BVR 2236/04, July 18, 2005, 113 BVERFGE 273 (Ger.). 19 See Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], Jun. 30, 2009, 123 BVERFGE 267 (Ger.). 20 See Fritz W. Scharpf, The European Social Model: Coping with the Challenges of Diversity, 40 J. COMMON MKT. STUDS. 645, 645 (2002); Susanne K. Schmidt, Law-Making in the Shadow of Judicial Politics, in THE COMMUNITY METHOD”: OBSTINATE OR OBSOLETE? 43, 43 (Renaud Dehousse ed., 2011); Philipp Genschel & Markus Jachtenfuchs, How the European Union Constrains the State: Multilevel Governance of Taxation, 50 EUR. J. POL. RES. 293, 293 (2011). 21 See Martin Höpner et al., Kampf um Souveränität? Eine Kontroverse zur europäischen Integration nach dem Lissabon-Urteil des Bundesverfassungsgerichts, 51 POLITISCHE VIERTELJAHRESSCHRIFT 323, 347 (2012). Recently, the Czech constitutional court has declared a CJEU judgment ultra vires, motivated by an internal judicial conflict. See Jan Komárek, Czech Constitutional Court Playing with Matches: The Czech Constitutional Court Declares a 2013] Déjà Vu? The ESM and the Constitutional Court 7 included Wilhelm Hankel, Wilhelm Nölling, Karl Albrecht Schachtschneider and Joachim Starbatty, criticized the FCC. They demanded that its rules of procedure needed change, to require it to address a preliminary procedure to the CJEU, when using its self-claimed right 22 of judicial review. But while being highly critical of the course of integration, the FCC subjugated its criticisms to the fact that politically the Lisbon Treaty had broad majorities. It only demanded changes in the accompanying law, emphasizing again the participation rights of the Bundestag and Bundesrat (upper house). Given the renewed will of the FCC to use judicial review, it was expected that it would use 23 its Honeywell ruling in 2010 for a first demonstration. The much-criticized Mangold ruling of the CJEU was at issue here, which had construed a prohibition of age 24 25 discrimination from general principles of EU law. But the FCC let this opportunity pass. It su sta tiated its right of judicial re iew y li iti g it to cases of a o ious a d structurally sig ifica t iolatio of the pri ciple of co ferral of co pete ces to the EU, which would require that a preliminary procedure be addressed first to the CJEU, had the 26 latter not yet clarified the issue. Thus, the criticism having been voiced by law professors after the Lisbon judgment was dutifully taken on board. This is the background to the then-ensuing rulings concerning the euro crisis, to which I turn now. Despite the very critical stance of the FCC, which repeatedly threatens a veto against European integration in general and the CJEU in particular, it limits itself to reprimanding the German parliament to take its rights and duties more seriously. Particularly in reaction to the European Arrest Warrant and the Lisbon rulings, participation of the Bundestag in matters of European integration had been strengthened. In a parliamentary democracy, the separation of powers cannot work in the sense of the legislative controlling the executive. But it is fair to say that the repeated calls of the FCC for such control has led to a situation where parliamentarians have taken their responsibility with regard to European integration more seriously. This facilitates, among Judgment of the Court of Justice of the EU Ultra Vires; Judgment of 31 January 2012, Pl. ÚS 5/12, 8 EUR. CONST. L. REV. 323, 323 (2012). 22 See Das Lissabon-Urteil des Bundesverfassungsgericht: Auswege aus dem drohenden Justizkonflikt, EUROPAUNION BERLIN, available at http://berlin.europa-union.de/fileadmin/files_eud/Appell_Vorlagepflicht_BVerfG.pdf. 23 See Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], Case No. 2 BVR 2661/06, July 6, 2010, 126 BVERFGE 286 (Ger.). 24 See Case C-144/04, Mangold v. Helm, 2005 E.C.R. I-9981. 25 It would have been difficult for the FCC to follow a more restrictive line on fundamental rights than the CJEU. See STONE SWEET, supra note 14, at 102. 26 Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], Case No. 2 BVR 2661/06, July 6, 2010, 126 BVERFGE 286 (Ger.). 8 German Law Journal [Vol. 14 No. 01 other things, isolated instances of dissent of parliamentarians, particularly within the ruling Christian Democrats, against the policy of the government. D. The FCC and European Monetary Integration The delegation of monetary policy responsibility had already been a major issue in the Maastricht judgment, with the question of whether such competence transfer was possible under the Basic Law. That monetary policy is a major issue in Germany is not surprising given the trauma of inflation of the late 1920s, the economic miracle of the 1950s, and the high esteem the Bundesbank always held; giving up monetary policy was therefore a dear price to pay for German unification. It was contentious, especially among economists. It only became acceptable through the confirmation of the o ailout clause of Article 125, the modeling of the European Central Bank (ECB) on the Bundesbank (albeit with even greater independence), and the agreement on strict fiscal discipline with the Maastricht criteria of a limit of 3% budget deficit and 60% of public debt (measured against the gross domestic product). Even though Germany was early in recognizing that in a recession austerity policy does not help, and violated itself these criteria under chancellor Schröder in 2003/04, these agreements have guided the politics of monetary union, and its contention. In the Maastricht ruling, the FCC saw the delegation of monetary policy within the responsibility of the parliament. Also, the constitutional complaint raised by the four professors in 1998 against the introduction of 27 the Euro failed. In the course of the euro crisis since 2009, the FCC had several other occasions to rule on the question. I discuss these cases shortly before turning to the curre t decisio o the te porary i ju ctio s to pre e t the ratificatio of the E“M Treaty a d the Fiscal Co pact. As is well-known, euro rescue attempts are a conundrum. At the center of the contention has bee the o ailout clause of Article 125 TFEU, which was introduced precisely to dampen fears of a mutual liability of member states for their debts. As a result of the financial aid needed by Greece, and also by Ireland, Portugal, Cyprus, and Spain, compliance with this prohibition would endanger the existence of the monetary union. Once one member state threatened to leave the Euro, markets would turn against the other weak candidates, setting in motion a bandwagon. Such a dynamic process can only be stopped by committing to assist weak member states. However, by bailing out failing states, there is a problem of moral hazard. Countries being bailed out could lose the incentive to consolidate their finances and to enact reforms. In May 2010, the FCC declined a temporary injunction against the financial aid package to Greece that had been agreed by the European Council in March 2010, and then 27 See Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], Case No. 2 BVR 50/98 (Ger.). 2013] Déjà Vu? The ESM and the Constitutional Court 9 28 coordinated with the IMF and the European Central Bank (ECB). The German guarantees amounted to € .4 illio . The FCC argued that decli i g the guara tees could pro e more harmful given the implications of the stability of the European Monetary Union, and that it was up to the government to make the assessment, with the FCC only reviewing for 29 erro eous assess e ts. Another temporary injunction was declined in June 2010 concerning the decision of the 30 Euro group in May to enter into a three-year program with the IMF, the euro rescue package, which the ECB joi ed y purchasi g go er e t bonds. The European stabilization mechanism was established, including the European Financial Stabilization Mechanism (EFSM), a Council regulation, and the European Financial Stability Facility (EFSF), founded by an intergovernmental agreement of the euro group, in order to grant loa s a d issue o ds. Ger a y’s share was up to € 48 illion at that point. Similar to the order in May, the FCC argued that the risks of stopping the guarantees were higher, 31 and that the government had acted within its margin of discretion. In September 2011, the first judgment of the FCC on the questions of whether the euro rescue package and financial aid package for Greece were violating the Bundestag’s budget 32 autonomy occurred, picking up the issues of the temporary injunctions. The FCC declined such a violation but held that the government could only give financial guarantees if approved first by the parliamentary budget committee. The FCC emphasized that larger aid measures needed approval by the Bundestag, who also had to be involved in the dayto-day operation of aid funds. The Bundestag could not take over financial responsibilities of an uncertain height, implying that such liabilities would have to be rejected by the FCC. But so far the Federal ‘epu lic of Germany is not subjecting itself to an incalculable automatism of a liability community which follows a course of its own that can no longer 28 See Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], Case No. 2 BVR 987/10, May 7, 2010, 125 BVERFGE 385 (Ger.). 29 See Temporary Injunction to Prevent Giving of Guarantee for Loans to Greece is Not Issued, BUNDESVERFASSUNGSGERICHT, available at http://www.bundesverfassungsgericht.de/en/press/bvg10-030en.html [hereinafter Temporary Injunction]. 30 See Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], Case No. 2 BVR 1099/10, Jun. 9, 2010, 126 BVERFGE 158 (Ger.). 31 32 See Temporary Injunction, supra note 29. See Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], Case No. 2 BVR 987/10, May 7, 2010, 125 BVERFGE 385 (Ger.); see also Antje von Ungern-Sternberg, Parliaments—Fig Leaf or Heartbeat of Democracy? German Federal Constitutional Court Judgment of 7 September 2011, Euro Rescue Package, 8 EUR. CONST. L. REV. 304, 304 (2012); Sebastian Recker, Casenote—Euro Rescue Package Case: The German Federal Constitutional Court Protects the Principle of Parliamentary Budget, 12 GERMAN L.J. 2071, 2071 (2011). German Law Journal 10 33 e steered. To give guarantees of a height of € 7 34 argi of appreciatio . [Vol. 14 No. 01 illio was withi the Bu destag’s In February 2012, the FCC accepted a complaint in a dispute between organs of the state 35 concerning the lack of involvement of the Bundestag in the administering of the EFSF. In this matter, the FCC had issued a temporary injunction in October 2011. According to the German Implementation Act, the decisions of the German representative in the EFSF (the Ger a guara tees had ee raised to € illion) needed, in principle, the consent of the Bundestag. However, for matters of particular urgency, a special committee of only nine members had been established. These nine members were elected from the fortyone members of the budget committee. All emergency measures were defined as urgent or confidential; moreover, the German government could decide which other measures should be dealt with by this committee. The FCC held this to be a disproportionate restriction of the rights of members of the Bundestag and decided that only when government bonds were being bought by the EFSF on the secondary market were the secrecy requirements high enough to justify the special committee. Thus, while refraining in these different cases from addressing the central issue of whether the no bailout clause prohibited the Euro rescue, it emphasized its position that the Bundestag needed to be involved. Then, in June 2012, the FCC pronounced its judgment in another dispute between organs of the state concerning the involvement of the Bundestag in the negotiation of the 36 ESM/Euro Plus Pact. This complaint of the parliamentary group of Alliance 90/The Greens was regarded as well-founded, as the Federal Government had infringed the right of the Bundestag to be informed according to Article 23(2) of the Basic Law (on the right of 37 the Bundestag to be informed about the European Union). Thus, the German government had not informed the Bundestag sufficiently of the decision to establish the European Stability Mechanism following the European Council meeting in February 2011, updated it on its intended features, or instructed it early on the draft of the treaty. The 33 Constitutional Complaints Lodged Against Aid Measures for Greece and Against the Euro Rescue Package Unsuccessful—No Violation of the Bundestag’s Budget Autonomy, BUNDESVERFASSUNGSGERICHT, available at http://www.bundesverfassungsgericht.de/pressemitteilungen/bvg11-055en.html [hereinafter Constitutional Complaints]. 34 See id. 35 See Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], Case No. 2 BVE 8/11, Feb. 28, 2012 (Ger.). 36 37 See Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], Case No. 2 BVE 4/11, Jun. 19, 2012 (Ger.). See Successful Application in Organstreit proceedings Regarding the ESM/Euro Plus Pact,’ BUNDESVERFASSUNGSGERICHT, available at http://www.bundesverfassungsgericht.de/en/press/bvg12-042en.html [hereinafter Successful Application]. 2013] Déjà Vu? The ESM and the Constitutional Court 11 other complaint concerned the Euro Plus Pact, aiming to improve economic coordination, which was agreed to at the instigation of the German chancellor at the same European Council meeting. Again, the Bundestag felt insufficiently informed, and the claimant argued that the government should have informed the Bundestag of its intention beforehand. In its judgment, the FCC substantiated what the need of early a d co prehe si e i for atio of the Bu destag e tails. The go er e t’s e ecuti e responsibility only shields its internal opinion formation. As soon as this is completed and the government negotiates with third-parties, it has to inform the Bundestag. Even though the ESM treaty has an intergovernmental character, it does not absolve the government from these responsibilities, given its inherent interconnection with the EU, which is also apparent in the fact that it gives new rights to the Commission and the CJEU. Similarly, the Euro Plus Pact with its self-commitments concerning social and tax policy, subject to the o itori g of Europea i stitutio s, affects i porta t fu ctio s of the Ger a 38 Bundestag.” By being informed late, it was impossible for the Bundestag to influence the negotiations. In summary, in these earlier judgments the FCC maintained its right to monitor the course of European integration. Instead of interfering with the commitments assumed on the European level, and tackling the question of the no bailout clause, the FCC has continuously strengthened the rights of the Bundestag—and curtailed those of the executive in acting unilaterally on the supranational level, preferring the flexibility of ad hoc intergovernmental agreements not bound by the rules of the EU. By strengthening the rights of the Bundestag, the FCC enhanced the transparency of the euro-rescue politics for the public. The government has a wide margin of discretion, concerning the obligations it enters at the European level; however, it may not agree to an unlimited financial liability of Germany, as this would undermine the budgetary autonomy of the Bundestag. With the rescue packages picking up size, such serious implications for the budget autonomy seemed a matter of time. E. The Temporary Injunctions to Prevent the Ratification of the ESM Treaty and the Fiscal Compact On 12 September 2012, the FCC delivered its preliminary judgment after its summary 39 review of the facts. This case has the largest number of participants in a constitutional complaint ever (more than 37,000). In addition, the parliamentary group, Die Linke, 38 39 See id. O ly e tracts” of the ruling are translated, which also have a different numbering than the German version. See Extracts from the Decision of the Federal Constitutional Court of 12 September 2012, BUNDESVERFASSUNGSGERICHT, available at http://www.bundesverfassungsgericht.de/en/decisions/rs20120912_2bvr139012en.html [hereinafter Extracts from the Decision]. 12 German Law Journal [Vol. 14 No. 01 initiated a dispute between organs of the state. Next to the ESM treaty (TESM) and the fiscal compact, the new Article 136 of the TFEU was an issue. By modifying the bailout prohibition of Article 125 of the TFEU, it was allegedly introducing unconstitutional liability obligations for Germany. Which were the most critical points? At the core was the general question of whether the nature of the monetary union had changed through the introduction of financial transfers and liability obligations, and a violation of the prohibition of the EU Treaty on monetary financing through the European Central Bank. More specifically, the question of unlimited financial obligations for Germany was a major point. While Article 8(V) TESM limits the fi a cial o ligatio s of participa ts i all circu sta ces to the agreed su s—in the case of Germany, approximately € 9 illion—other provisions of the Treaty could be interpreted as requiring Germany to commit further funds. In particular, Germany could be required to commit financial funds when one of the other partners does not meet its financial obligations. The issue of budgetary autonomy of parliament was particularly crucial gi e the earlier argu e t that the o ligatio s of Ger a y were withi the argi of discretio . With a co sidera ly heighte ed fi a cial o ligatio , this discretio was possibly exhausted. All different rescue measures, the FCC estimated, put the maximum burden for Germany at about € illio . The federal udget of was € illion. The establishment of the ESM treaty outside of the structure of the EU, and its detailed provisions on secrecy and immunity raised the fear of an insufficient parliamentary control of the German members in the ESM. The complicated governance structure of the ESM operating partly by a qualified majority and not giving any say to those member states not meeting their payment obligations raised fears of a possible lack of German participation in its operation. However, as Germany holds 27 percent of the shares right now, it cannot be outvoted. Touching upon the budgetary autonomy of parliament are also the provisions of the fiscal compact. Though being modeled on the German debt brake and being introduced on the instigation of the German government, its provisions are stricter than the German ones, and include not only a limit on public deficit but also an obligation to reduce the level of 40 indebtedness. In the German case, this a ou ts to € illion per year. Finally, the 41 issi g ter i atio pro isio of oth treaties was criticized as irre ersi ly determining the economic policy of the member states. In the announcement of the judgment, president of the FCC, Andreas Voßkuhle, emphasized that it was ot the court’s duty to say a ythi g a out the appropriate ess of 42 the measures; rather, the responsibility fell to politics. The court largely followed the 40 See id. at no. 163. 41 See id. at no. 165. 42 See Karlsruhe billigt ESM und stellt Bedingungen, FRANKFURTER ALLGEMEINE ZEITUNG, Sept. 13, 2012. 2013] Déjà Vu? The ESM and the Constitutional Court 13 government in its assessment that the new Article 136, the ESM and fiscal compact were mere specifications of the principles guiding the monetary union from the beginning, including the no bailout provision. Also, the overall budgetary autonomy of the Bundestag was not undermined. Germany had to ensure, however, that it would not forego the participation rights of its representatives in the ESM, the finance minister and the permanent secretary, by not meeting its financial requirements in time. Given that the ESM treaty could indeed be interpreted in a way that the overall financial obligation of Germany is not fixed, the FCC required the government to seek a confirmation under 43 i ter atio al law, re o i g such dou ts . The Bundestag and the Bundesrat would eed to e sufficie tly i for ed, a d the Bu destag’s appro al would need to be secured 44 for e ery large-scale federal aid easure . I order to ai tai the Bu destag’s co trol, those parts of the E“M treaty i hi iti g its co trol rights would eed to e i terpreted i 45 co for ity with the co stitutio . In order to facilitate transparency, the FCC also re uired the go er e t to seek a clarificatio u der i ter atio al law: The Federal Republic of Germany must clearly express that it cannot be bound by the Treaty establishing the European Stability Mechanism in its entirety if the reservation made by it 46 should pro e to e i effecti e . The lack of a termination date, in contrast, was not regarded as problematic, as this is common for international treaties and does not foreclose a termination by mutual agreement or by drawing on the Vienna Convention on the Law of Treaties. Soon after the ruling, Germany received the required confirmation that the FCC had demanded by the other eurozone countries in an interpretative declaration of the ESM treaty. The ESM could therefore start its operation in October 2012. Yet, the final ruling of the FCC is still to come. While the summary review has assessed the new international obligations, the FCC also emphasized that it sees strict limits concerning the ESM mandate that is under consideration at the European level. The FCC notes that, orrowi g y the Europea “ta ility Mecha is fro the Europea Ce tral Ba k, alo e or in connection with the depositing of government bonds, would be incompatible with European Union law, the Treaty can only be taken to mean that it does not permit such 47 orrowi g operatio s . This option, however, had been favored by Italian prime minister 48 Mario Monti. 43 See Extracts from the Decision, supra note 39, at no. 220. 44 See id. at no. 198. 45 See id. at no. 210. 46 See id. at no. 228. 47 See id. at no. 245. 48 See James Hertling, German Judges Reject Monti Bid for Rescue-Fund Bank License, BLOOMBERG, Sept. 12, 2012, available at http://www.businessweek.com/news/2012-09-12/german-judges-reject-monti-bid-for-rescue-fundbank-license. 14 German Law Journal [Vol. 14 No. 01 F. Discussion Against the background of other judgments of the FCC on European integration in general and monetary union in particular, the judgment does not come as a big surprise. While the FCC’s a ou ce e t of taki g the ti e for a su ary re iew raised so e a iety, it seems that, at the hearing on 10 July 2012, it became clear that the FCC was not inclined to take upon itself such a huge responsibility, given the complicated and contentious issue of monetary integration as well as the large parliamentary majority in both the Bundestag 49 and Bundesrat. While the FCC was pondering about the case, German economists rallied in several groups against the ESM or supporting it. As a group of economists even joined both camps, raising their voice to the public did not bring any enlightenment: as sociologist Wolfgang Streeck observed, these activities only showed how much closer 50 economic thinking is to religious belief, rather than to proven scientific statements. At the same time, it is striking how on the international level there seems to be broad consensus that Germany needs to act as a hegemon, paying what is needed to stabilize the 51 eurozone. From what is known about courts and their fragile autonomy, it is not surprising that the FCC did not want to obstruct in this case. But the FCC did not just succumb to the factual realities; it instead demanded that the i for atio rights of the Bu destag e gra ted y a i terpretatio of the laws i co for ity with the co stitutio . It also re uired, for the first ti e, i tergo er e tal assurance that the financial commitment of Germany was definitely restricted to the sum of € 9 illion. Further, it signaled that in the final judgment of the case it would discuss the issue of the purchase of government bonds through the ECB. This is a highly contentious matter in Germany, particularly given the outspoken opposition of the Bundesbank, whose president, Jens Weidmann, had been isolated in the decision of the 52 ECB’s oard. In view of the lack of support by the parliament or the public for these measures, it may well be that the FCC finally toughens and materializes its critical stance. But the next judgment is always the one expected to escalate the conflict—another example of déjà-vu. After what it has said in the Mangold case, the FCC would need to address the CJEU, asking about the ultra vires nature of these acts. In Luxembourg, there is 49 See Max Steinbeis, ESM/Fiskalpakt in Karlsruhe, Teil 2: Parlamentarier und ihre Verantwortung, (2012), available at http://verfassungsblog.de/esmfiskalpakt-karlsruhe-teil-2-parlamentarier-und-ihre-verantwortung/. 50 See Ferdinand Knauß & Tim Rahmann, Der Glaubenskrieg der Ökonomen, WIRTSCHAFTSWOCHE (2012), available at http://www.wiwo.de/politik/konjunktur/professorenstreit-der-glaubenskrieg-der-oekonomen/6872348.html. 51 See Hassel Anke & Waltraud Schelkle, Hier spricht man deutsch, BERLINER REPUBLIK (2011), available at http://www.b-republik.de/archiv/hier-spricht-man-deutsch; Inside the Winter 2012 EUSA Review, EUROPEAN UNION STUDIES ASSOCIATION, available at http://www.eustudies.org/files/eusa_review/winter_12final.pdf . 52 See Ian Wishart, ECB Unveils Bond-Buying Plan, EUROPEANVOICE.COM, available at http://www.europeanvoice.com/article/2012/september/ecb-unveils-bond-buying-plan-/75090.aspx. 2013] Déjà Vu? The ESM and the Constitutional Court 15 already the request by the Irish Supreme Court, instigated by a member of the Irish 53 54 Parliament, Thomas Pringle. The hearing is scheduled for 23 October 2012. At issue is the intergovernmental nature of the ESM Treaty, instead of integrating it fully into the European framework, next to the use of the simplified treaty revision procedure for the amendment of Article 136 TFEU. Ireland had a referendum on 31 May 2012 for the fiscal compact but not for the ESM treaty. Also, other member states' supreme courts have 55 ruled on the ESM but refrained from involving the CJEU. With its critical stance towards the extent of integration and its emphasis on the need of a national parliamentary legitimation of European integration through the Bundestag, the recent ruling continues the line of its predecessors. After the conservative judge rapporteurs Paul Kirchhof, responsible for the Maastricht ruling, and Udo Di Fabio, responsible for the Lisbon ruling, Peter M. Huber, a party member of the CDU/CSU, is the new rapporteur. It is questionable whether the criticism of the very traditional concept of the state and on parliamentary legitimation that has been widely voiced with regard to 56 previous judgments, notably the Lisbon judgment, has to be extended to this ruling. For this question it is important to note that, despite all continuity over the course of the different judgments, the issues being dealt with here differ. In the course of the euro crisis, we are confronted to an extent unknown before with non-majoritarian technocratic politics that present themselves as being without democratic alternative. Höpner/Rödl and Scharpf have emphasized the difference of the politics of the fiscal compact to the 57 normal community measure. The former consists of particular orders that are being directed by the Commission at individual member states, rather than general directives or regulations targeting all member states. 53 See Case C-370/12, Pringle v. Ireland, 2012. 54 See ESM, German Constitutional Court, Passing the Hat onto Ireland, NEWEUROPE, available at http://www.neurope.eu/article/esm-german-constitutional-court-passing-hat-ireland. 55 See Constitutional Judgement 3-4-1-6-12, SUPREME COURT: REPUBLIC OF ESTONIA, available at http://www.riigikohus.ee/?id=1347; Decision No. 2012-653 DC of 9 August 2012, CONSEIL CONSTITUTIONNEL, available at http://www.conseil-constitutionnel.fr/conseil-constitutionnel/english/case-law/decision/decision-no2012-653-dc-of-9-august-2012.115501.html. See Daniel Halberstam & Christoph Möllers, The German Constitutional Court “ays Ja zu Deutschland!”, 10 GERMAN L.J. 1241, 1241 (2009); Höpner, supra note 21; Robert C. Van Ooyen, Eine europafeindliche” Kontinuität? Zum Politikverständnis der Lissabon-Entscheidung des Bundesverfassungsgerichts, 4 INTERNATIONALE POLITIK UND GESELLSCHAFT 26, 26 (2009). 56 57 Martin Höpner & Florian Rödl, Illegitim und rechtswidrig: Das neue makroökonomische Regime im Euroraum, 92 WIRTSCHAFTSDIENST 219, 219 (2012); Fritz W. Scharpf, Legitimacy Intermediation in the Multilevel European Polity and its Collapse in the Euro Crisis (Max Planck Institute for the Study of Societies, Discussion Paper NO. 12/6, 2012). 16 German Law Journal [Vol. 14 No. 01 Though the judgment deals with both the ESM treaty and the fiscal compact, it is striking that the FCC discusses the latter mainly in comparison to the German debt brake, not paying specific attention to its legitimacy problems when transferred to the European level. The fiscal compact is primarily dealt with in its function to avoid moral hazard, and to keep the German financial risk low. Despite the difficulties Germany has faced internally with the indebtedness of some of its Länder—notably Bremen—there is overwhelming trust that the dynamic of debt can be controlled hierarchically by the Commission by putting pressure on the responsible member-state government. But many of the relevant 58 economic variables that drive a debt dynamic are not under governmental control. And the development of the euro crisis in Southern Europe with vehement protests evolving has clearly shown the limited effectiveness of heteronomy. Alongside transnational market integration, the EU has significantly strengthened the importance of non-majoritarian institutions since the beginning of its single-market 59 program. Independent regulatory agencies, like independent central banks, rely on output legitimation. The idea is that they improve economic governance and can be legitimated through this welfare enhancing function. However, rarely are regulatory decisions value-neutral, as there are often distributional implications. Therefore, output 60 legitimation depends on an ultimate input legitimation. This is, however, not available. Also, before the euro crisis, the question of how to legitimate the European Union was an unsolved issue. The missing demos, a missing European-wide political discourse and European elections that serve as second-order national elections, are some of the most well-known problems. Fritz Scharpf has pointed out that the EU has to be understood as a go er e t of go er e ts si ce e er states ha e to tra spose Europea 61 directives, or implement directly legally binding regulations. In the normal course of things, they are the ones taking the blame for the effects of European policies vis-à-vis their citizens. In times of the euro crisis, this intermediation of national governments is no longer available. European demands at fiscal consolidation directly address European electorates. For the extent of hardships imposed, the EU lacks the necessary input legitimacy. And European monetary policy has clearly failed to deliver its output–not being able to be 62 legitimized in this way. Such negative-sum integration seriously undermines the viability 58 See Scharpf, supra note 57, at 30. 59 See Giandomenico Majone, Europe’s Democratic Deficit’: The Question of Standards, 4 EUROPEAN LAW JOURNAL 5, 5 (1998). 60 See Fritz W. Scharpf, Legitimacy in the Multilevel European Polity, 1 EUR. POL. SCI. REV. 173, 173 (2009). 61 See id. at 180. 62 See Scharpf, supra note 20, at 25. 2013] Déjà Vu? The ESM and the Constitutional Court 17 of the whole European project, as can be seen from the rising animosities among member 63 states that are unprecedented since World War II. In this situation, the FCC assesses policy with a purely national benchmark. The question is whether this has only negative or also positive externalities for other member states. Concerning the strengthened rights of approval of the Bundestag, the implications are negative for debtor countries, as further conditions will be imposed. With regard to the clearly limited financial obligations, the result is mixed, depending on the status as debtor or creditor state. Greater transparency obligations, however, should be beneficial for democratic rule in all member states. In fact, all euro countries adopted the required intergovernmental assurance on the liability ceiling and improved parliamentary 64 transparency also for themselves. At the time, Italian Prime Minister Monti demanded that governments be able to act under fewer parliamentary constraints in the euro crisis, 65 underlining that this is an important signal. Less apparent are other factors. One of them is time. By taking some months for its examination, the prevailing logic of rapid reactions in order to counteract incipient market reactions was violated certainly with costs on debtor states—but possibly also with benefits. By insisting on the time requirements of the rule of law—next to the transparency requirements of democratic rule—the FCC implicitly emphasized the costs that hardly regulated and globally liberalized financial markets impose on constitutional democracies. In the course of the euro (as in the global financial) crisis, the implications of globally operating financial markets have increasingly pushed politics to ever faster decisions of the executives, with little feedback by the legislative, and with an increasing role for non-majoritarian institutions. The latter, as we have seen, are difficult to legitimize at the supranational level, given the unmet requirement for input legitimation. Also, courts are non-majoritarian institutions. The constraints imposed by the FCC resonate with ideas of an increase in accountability when different non-majoritarian 66 institutions interact and control each other. This does not counteract the lack of input legitimacy but the FCC at least credits its importance. With the overarching problems of legiti izi g the EU, it see s useful to tur to a co cept a alogous to “e ’s Idea of ustice, disti guishi g etwee ore a d less legiti ate for s of Europea i tegration, 67 rather than discussing absolute criteria. In that sense, by emphasizing the necessities of 63 See Giandomenico Majone, Has Integration Gone Too Far—or Not Far Enough? Rethinking the Union of Europe After the Crisis of Monetary Union (2012) (unpublished manuscript). 64 See Kabinett soll Vorbehaltserklärung zum ESM erhalten, FRANKFURTER ALLGEMEINE ZEITUNG, Sept. 21, 2012. 65 See Streit über richtigen Kurs in der Euro-Krise, FRANKFURTER ALLGEMEINE ZEITUNG, Aug. 6, 2012. 66 See Charles F. Sabel & Jonathan Zeitlin, Learning from Difference: The New Architecture of Experimentalist Governance in the European Union, 14 EUR. L. J. 271, 271 (2008). 67 See AMARTYA SEN, THE IDEA OF JUSTICE (2009). 18 German Law Journal [Vol. 14 No. 01 the rule of law next to the transparency requirements of democratic governance, the FCC, for the time being, has a role to play. G. Conclusion Courts would not need to be called upon were it possible to foresee their judgments. But previous case law and the extent of political pressure are points of orientation that courts cannot easily ignore. In a case of high uncertainty, such as the development of the euro crisis, it is hardly possible for the FCC to take the responsibility for a policy U-turn. But it has to guard certain principles, particularly if it has repeatedly emphasized them in its rulings. The conclusion of the ESM case is a mixed one. The benchmark of the FCC is the Basic Law, and therefore purely national. Thus, the Economist quibbled before, Ca we all ha e our ow Karlsruhe?, poi ti g to the fact that the co strai ts that the Ger a go er e t faced with regard to European integration in the aftermath of the Lisbon ruling significantly 68 strengthened German negotiation power. Clearly, national benchmarks do not do justice to the underlying mutual dependence, but are likely to impose externalities on other member states. However, despite its national outlook, by strengthening national parliamentary rights and by requesting time, the FCC has contributed to raising the awareness of the costs of the current euro-rescue politics to democracy and the rule of law. Democracies are said to face particular problems with fiscal consolidation, if they cannot devalue their currency, as it is only with great difficulty that they can impose 69 hardship on their electorates. Nevertheless, before the euro crisis, Organisation for Economic Co-operation and Development (OECD) governments had made some progress 70 at fiscal consolidation. This progress is relevant as highly indebted governments lose 71 their political room for maneuver, implying risks for democracy. The banking crisis, which then turned into a sovereign debt crisis, quickly undid all achievements. With the difficulties encountered now when submitting the rescue politics to judicial review, it becomes apparent that not only democracies face problems with fiscal consolidation— global capitalism faces as much of a problem with the time needed for democratic processes and judicial review. 68 The Myth of the Periphery, THE ECONOMIST, Mar. 25, 2012, available at http://www.economist.com/node/15769602. 69 See Henrik Enderlein, Laura Müller & Christoph Trebesch, Democracies Default Differently: Regime Type and Debt Crisis Resolution (unpublished manuscript), available at http://www.sfbgovernance.de/teilprojekte/projekte_phase_1/projektbereich_d/d4/DDD_Enderlein_et_al.pdf?1277900047. 70 See Herbert Obinger, Die Finanzkrise und die Zukunft des Wohlfahrtsstaates, 40 LEVIATHAN 441, 441 (2012). 71 See Wolfgang Streeck & Daniel Mertens, Fiscal Austerity and Public Investment: Is the Possible the Enemy of the Necessary? (Max Planck Inst. for the Study of Societies, Discussion Paper NO. 11/12, 2011). 2013] Déjà Vu? The ESM and the Constitutional Court 19 In her discussion of the judgment on the euro rescue, Christina von Ungern-Sternberg draws an interesting parallel to the privatization processes, which also result in a loss of democratic control of the Bundestag. It is one of the shortcomings of the FCC that while critically accompanying the process of European integration and the loss of control to the supranational level, it has not emphasized the loss of democratic control following 72 processes of privatization, or to markets, to the same extent. Along with liberalization and globalization, governments have come under increasing pressure from markets undermining democratic governance. By helping to obstruct a determined German bailout of the eurozone, the FCC can be blamed for preventing the monetary union from finally delivering on its output legitimacy. Yet, this review has shown that the FCC has become conciliatory over the years, concentrating on consequences for the German polity. Had the benefits of monetary union been better mediated, it is likely that along with a more positive public opinion, the FCC would be even less of a constraint. But income inequalities have risen, with deepened 73 European integration bringing more benefits to elites than to lower-tier incomes. A patter of diffuse reciprocity ca e ai tai ed o ly y a widespread se se of o ligatio 74 and trust among all participants. As nobody wants to take the political responsibility for the costs of the eurozone, the climate of blame avoidance leading to mutual accusations undermines the prerequisites of a system of diffuse reciprocity. It will be difficult to realize far-reaching plans for a fiscal union on this basis. Finally, in view of the rapidly declining legitimacy of European integration, one should not lose sight of the contribution of the FCC to the legitimacy of the German political system, even though it could not be further discussed in this comment. 72 See VON UNGERN-STERNBERG, supra note 32, at 311. 73 See NEIL FLIGSTEIN, EUROCLASH: THE EU, EUROPEAN IDENTITY, AND THE FUTURE OF EUROPE (2009). 74 Keohane, supra note 3, at 20. 20 German Law Journal [Vol. 14 No. 01 Special Section The ESM Before the Courts Judicial Restraint and the Return to Openness: The Decision of the German Federal Constitutional Court on the ESM and the Fiscal Treaty of 12 September 2012 By Mattias Wendel* A. Introduction Sometimes less is more. Hence, it is not necessarily bad news if a judgment on a matter of fundamental public interest does not meet public expectations. And it certainly was not bad news that the judgment of the German Federal Constitutional Court of 12 September 1 2012 on the European Stability Mechanism (ESM) and the Fiscal Treaty did not meet the 2 exaggerated public expectations that had been fuelled by an unprecedented media-hype. On 12 September 2012, the world looked at Karlsruhe. A long-serving police officer was quoted with the words never to have seen a comparable presence of international press 3 a d tele isio at the Court’s gates duri g his years of ser ice. More than 37,000 citizens had filed constitutional complaints, a figure unequalled in the history of the Court. Against a background of increasi g co cer s a out Europe’s capa ility to sol e the so ereig de t crisis, it seemed as if the fate of the Economic and Monetary Union (EMU) essentially depended on the findings of eight judges. When the day of the promulgation had finally come, the red gowns of the federal constitutional judges dominated the front pages of newspapers all over Europe and beyond. What was missing, however, was a top story. * Dr. iur. (Humboldt-University Berlin), Maîtrise en droit (Paris 1), senior research assistant and lecturer at the Walter-Hallstein-Institute for European Constitutional Law (WHI), Humboldt-University Berlin. For helpful comments, suggestions and discussion I would like to thank in particular Franz C. Mayer, Lars S. Otto, Patricia Sarah Stöbener, Michael Schwarz, Kristin Bettge, Henrike Maier, Paula Kift and Imke Stanik. The usual disclaimer applies. Email: [email protected]. 1 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 1390/12 et al., Sept. 12, 2012 (Ger.) [hereinafter ESM & Fiscal Treaty case]. 2 See also Daniel Thym, Des Kaisers neue Kleider, VERFASSUNGSBLOG (Sept. 16, 2012), http://verfassungsblog.de/deskaisers-neue-kleider/ and Christian Tomuschat, Anmerkung zum Urteil des BVerfG vom 12.09.2012, 22 DEUTSCHES VERWALTUNGSBLATT 1431 (2012). 3 Thomas Darnstädt, Das überforderte Gericht, SPIEGEL ONLINE (Sept. 12, http://www.spiegel.de/politik/deutschland/kommentar-zum-esm-urteil-das-ueberforderte-gericht-a855377.html. 2012), 22 German Law Journal [Vol. 14 No. 01 While the arkets see ed te porarily cal ed, those who had waited for a grou dbreaking verdict to be delivered must have been either disappointed or slightly astonished y the decisio ’s 9 paragraphs, 48 of which were already a aila le i a preli i ary 4 English translation provided by the Court. Certainly, the overall legal result was not unforeseen. Amongst scholars and professional observers, it was a widely predicted scenario that the Second Senate would deliver a co ditio al yes —that is to say, a decision permitting the ratification of the challenged reform instruments in general, but demanding certain additional measures to be 5 undertaken in order to meet constitutional standards. However, the decision of 12 September 2012 stands in sharp contrast to the hope of a considerable part of the German 6 7 population that the Court would stop the ESM at least temporarily or even call for a referendum on the basis of Article 146 of the Basic Law, an expectation which had been 8 nourished not least by some of the judges themselves. It should be emphasized that the final word on the matter has not yet been spoken. The judgment of 12 September 2012 is not a decision in the principal proceedings, but deals with applications to issue a temporary injunction. However, within the framework of a socalled summary review, the Court, to a large extent, already examined the prospects of success of the applications in the principal proceedings. On that basis, the Second Senate 4 Nota ly, the followi g sectio s of the decisio ’s grou ds ha e ot ee tra slated yet: paragraphs 89–206 (scope of review for the temporary injunction procedure and admissibility); 223–238 (i.e., reform of Article 136 TFEU); and 280–219 (accompanying domestic legislation) and Fiscal Treaty). Furthermore, starting from paragraph 191, the numeration of the paragraphs in the English translation does not correspond to the numeration of the paragraphs in the official German version. Therefore, when quoting the decision, I will refer to both the paragraphs of the official German version and the preliminary English translation, e.g. para. 222 (DE) or 206 (EN prelim.). It should be noted that I will occasionally depart from this translation for the purpose of clarity. 5 See, e.g., Cerstin Gammelin et al., Vier Szenarien zur ESM-Entscheidung, SÜDDEUTSCHE ZEITUNG (Sept. 10, 2012), http://www.sueddeutsche.de/wirtschaft/vier-szenarien-zum-esm-urteil-karlsruhe-spricht-europa-zittert1.1464310-2. 6 If one can rely on a survey carried out on behalf of the German Press Agency (dpa) by YouGov, even a majority of German voters—54 percent—held the view that the BVerfG should issue temporary injunctions, cf. Mehrheit der Deutschen hofft auf Erfolg für Eurogegner in Karlsruhe, YouGov Deutschland (July 9, 2012), http://yougov.de/news/2012/09/07/mehrheit-der-deutschen-hofft-auf-erfolg-fur-euroge/. 7 Given the fact that Germany contributes slightly more than 27% of the capital, the ESM could not have entered into force without the ratification of Germany. See Article 48 in conjunction with Annex I and II TESM. 8 See President Andreas Voßkuhle, Mehr Europa lässt das Grundgesetz kaum zu, FRANKFURTER ALLGEMEINE ZEITUNG ONLINE (Sept. 25 2011), http://www.faz.net/aktuell/wirtschaft/europas-schuldenkrise/im-gespraech-andreasvosskuhle-mehr-europa-laesst-das-grundgesetz-kaum-zu9 84.ht l I thi k the fra ework [for further European integration under the Basic Law, M.W.] is arguably largely exhausted. ; Peter M. Huber, Eine europäische Wirtschaftsregierung ist heikel, SÜDDEUTSCHE ZEITUNG, (Sept. 19, 2011), available at http://www.sueddeutsche.de/wirtschaft/verfassungsrichter-huber-im-sz-gespraech-eine-europaeischewirtschaftsregierung-ist-heikel-1.1145416. 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 23 allowed Germany to ratify the three challenged reform instruments—i.e., the amendment 9 of Article 136 TFEU, the Treaty establishing the European Stability Mechanism (TESM) and 10 the Fiscal Treaty —already before the forthcoming decision on the principal proceedings. While the Court did not identify constitutional obstacles to the ratification of the amendment of Article 136 TFEU and the Fiscal Treaty, it permitted the ratification of the TESM only under two conditions, both to be ensured by instruments of public international law: Firstly, a certain (far-off) interpretation of the TESM had to be excluded, according to which it was allegedly possible to establish payment obligations for Germany that exceeded the maximum limit expressly fixed by the TESM without a prior agreement of the German ESM representative. Secondly, the Court held that neither the provisions on the inviolability of documents nor those on the professional secrecy of the legal representatives and employees of the ESM must prevent the comprehensive information of the German parliament. I order to eet the Court’s re uire e ts, the Co tracti g 11 Parties to the TESM on 27 September 2012 agreed on an interpretative declaration and thus paved the way for the German ratification (B.). I the judg e t’s grou ds, three leitmotivs stand out: (1) The emphasis on the rights of the German Bundestag; (2) a remarkably strong manifestation of judicial restraint; and (3) the return to substantial openness regarding the future development of the Monetary Union against the backdrop of the so-called eternity clause of the Basic Law. While the first line of argument closely follows the ratio of almost all Constitutional Court decisions on European integration delivered in recent years, the second and the third leitmotiv can be regarded as a promising judicial realignment (C.). Not all legal questions have been resolved yet. Because the judgment was limited to the applications for a temporary injunction, some leftovers remain which will have to be addressed in the decision on the principal proceedings or might even be subject to possible future challenges (D.) In sum, the ESM & Fiscal Treaty judgment is a well-balanced decision, prepared under enormous temporal and political pressure and written in a concise and modest language, a decision that should be welcomed in particular for its manifestation of judicial restraint and its conceptual return to openness (E.). 9 European Council Decision, Mar. 25, 2011, EUCO 10/11, Annex II, at 21. Technically, this is a decision within the framework of the simplified revision procedure under Article 48 (6) TEU that only enters into force once approved by all (sic) Member States of the EU in accordance with their respective constitutional requirements. 10 Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, also known as the TSCG or the Fiscal Co pact , sig ed o Mar. , y all EU Me er “tates e cept the Czech ‘epu lic a d the UK, available at http://www.european-council.europa.eu/media/639235/st00tscg26_ en12.pdf. 11 Declaration on the European Stability Mechanism, agreed on by the Contracting Parties to the TESM, Sept. 27, 2012, available at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/132615.pdf. 24 German Law Journal [Vol. 14 No. 01 B. Procedural Background and Main Findings A first glance at the legal background and main findings of the judgment of 12 September 2012 already reveals its richness of detail and technical complexity. I. Procedural Background With the notable exception of one intra-institutional proceeding initiated by the 12 parliamentary group of the Left Party, the applications in the principal proceedings and those requesting the issuing of a temporary injunction are predominantly based on individual constitutional complaints. The temporary injunction was primarily intended to prevent the President of the Federal Republic from signing the parliamentary acts of approval, a precondition for the final ratification. In essence, the complainants claimed that the overall budgetary responsibility of the German Bundestag, following from the principle of democracy, was violated. Hence, as in previous EU related decisions, the standard of review was the principle of democracy under Article 20(1) and (2), protected in its essential content by the eternity clause of Article 79(3) and, according to the Court, justiciable via the right to vote enshrined in Article 38(1) of the Basic Law. That the Court construes the right to vote as the key to the admissibility of the constitutional complaints, and thus enables virtually every German citizen with the right to vote to initiate a de facto objective review of constitutionality regarding domestic acts approving the ratification of EU reform measures, has raised numerous and profound critique ever since this approach was established for the first time 13 in the Maastricht judgment. However, the apt criticism did not stop the Court from 14 following this path and from even extending the approach further in its Lisbon and 15 Greece & EFSF judgments. We will return to the standard of review within the context of the judg e t’s leitmotivs. 12 Case No. 2 BvE 6/12. 13 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 2134, 2159/92, Oct. 12, 1993, 89 BVERFGE 155 paras. 58–63 (Ger.) [hereinafter Maastricht case]. For an early critique, see Christian Tomuschat, Die Europäische Union unter der Aufsicht des Bundesverfassungsgerichts, EUROPÄISCHE GRUNDRECHTE-ZEITSCHRIFT (EuGRZ) 489 (1993). 14 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvE 2/08 et al., June 30, 2009, 123 BVERFGE 267 paras. 168–183, 210 (Ger.) [hereinafter Lisbon case]; see particularly Daniel Thym, In the name of Sovereign Statehood, 46 COMMON MKT. L. REV. 1795, 1796–1797 (2009); Roland Bieber, An Association of Sovereign States, 5 EUR. CONST. L. REV. 391, 396 (2009). 15 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 987/10 et al., Sept. 7, 2011, 129 BVERGE 124 at para. 101 (Ger.) [hereinafter Greece & EFSF case] even with explicit reference to the critique. For this particular aspect, see Matthias Ruffert, Die europäische Schuldenkrise vor dem Bundesverfassungsgericht, 46 EUROPARECHT 842, 844–845 (2011). 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 25 In procedural terms, the decision of 12 September 2012 is characterized by a particularity. The Court decided within the framework of a temporary injunction procedure, but did not apply the usual standard of review, which consists of a mere weighi g of co se ue ces 16 (Folgenabwägung), provided that the outcome of the principal proceeding is open. 17 Instead, the Court carried out a so-called su ary re iew. Karlsruhe thus reviewed whether it was to be expected with a high degree of probability that the applications in the principle proceedings would be successful, i.e., that the challenged statutes approving the ratification of the three reform instruments as well as the accompanying laws indeed 18 violated constitutional rights. This solution is to be seen as a compromise. On the one hand, the Court had to prevent a situation where an actual violation of constitutional rights could not be remedied anymore in the principal proceedings, presuming that a temporary injunction was not issued and 19 Germany could already bind itself under international law. The fact that the legal effects of ratification under international law cannot be reversed easily, is prima facie a considerable argument in favor of issuing a temporary injunction on the basis of a mere weighing of consequences. On the other hand, presuming that the Court had issued a temporary injunction, while the applications in the principal proceedings turned out to be unsuccessful, the Court would have blocked a constitutionally legal ratification process for a significant period of time, thus causing potentially devastating political and economic consequences. The procedural compromise allows the Court to carry out a substantial, albeit summary, constitutional review and thus to avoid such negative effects in case that the applications in the principal proceedings are unlikely to succeed. In other words, the Court can provide for legal certainty at a relatively early stage of the proceedings and can even pave the way for ratification before the promulgation of the final judgment, provided that a violation of constitutional rights is unlikely to be affirmed. This aspect also explains why the Federal Government explicitly suggested applying the summary approach, emphasizing that it was imperative not to create more than short-term uncertainty 20 regarding the progress of the German ratification procedure. The decision to carry out a 16 In such a case, the Court tries to exclude, from an ex ante perspective, the worst case scenario by weighing the consequences that could arise in the event that a temporary injunction is not issued while the applications in the main proceedings were successful against the negative effects which would arise if the requested temporary injunction was granted but the underlying constitutional complaint later turned out to be unsuccessful. In other words, the Court does not carry out an analysis in substance yet. 17 See already Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No 2 BvQ 1/73, June 4, 1973, 35 BVERFGE 193, 196 f. [Basic Treaty case]. Cf. Tomuschat, supra note 2, at 1432. 18 ESM & Fiscal Treaty case, supra note 1, at para. 192 (DE, not translated into EN). 19 This is a circumstance to be avoided particularly when a violation of the key principles protected by the eternity clause of Article 79 (3) of the German Basic Law is in question. 20 ESM & Fiscal Treaty case, supra note 1, at para. 176. 26 German Law Journal [Vol. 14 No. 01 summary review and to even hold an oral hearing put the Court under enormous time pressure, on top of the already existing political and economic pressure. II. Main Findings of the Summary Review Within the framework of the summary review, the Court concludes that the applications in the principal proceedings will—to the extent examined—be mainly unsuccessful. The Court therefore rejects the applications for a temporary injunction, albeit submitting the ratification of the TESM to the two conditions already mentioned. Despite the fact that it does not conclude the principal proceedings, the decision of 12 September 2012 makes (or reiterates) several fundamental statements not only as to the interpretation of German constitutional law but also with regard to the interpretation of the new legal instruments 21 co ple e ti g or surrogati g EU law. These statements, particularly the in-depth analysis of the TESM, should be seen in a transnational perspective, as they are also addressed to an audience beyond the national legal community, in particular to other 22 constitutional courts and the Court of Justice of the European Union. 1. Amendment of Article 136 TFEU The first instrument under review is the act approving the ratification of the European Council decision to insert a new Article 136(3) into the TFEU, stating that the Member “tates whose curre cy is the euro ay esta lish a sta ility echa is to e acti ated if i dispe sa le to safeguard the sta ility of the euro area as a whole, while the gra ti g of any required financial assistance under the mechanism will be made subject to strict co ditio ality. The Court holds the view that the amendment does not violate Articles 38(1), 20(1) and (2) in conjunction with Article 79(3) of the German Basic Law. Given this result, one might have expected it to be based predominantly on the argument that the new Article 136(3) TFEU does not change the current architecture of the EMU in a constitutionally relevant way and essentially constitutes a declarative clarification, confirming the interpretation that certain voluntary financial aids, regarded as indispensable to safeguard the stability of the euro area as a whole, are not prohibited under current EU law in general and Article 23 125 TFEU in particular. Given that the wording, systematic context and telos of Article 21 See Alexander Lorz and Heiko Sauer, Ersatzunionsrecht und Grundgesetz, 65 DIE ÖFFENTLICHE VERWALTUNG 573, 575 (2012). 22 On the transnational dimension of the national EU-related case law, see Mattias Wendel, Comparative Reasoning and the Making of a Common Constitutional Law—The Europe-Decisions of National Constitutional Courts in a Transnational Perspective, I-CON (2013), forthcoming. 23 Cf. the legal opinion of the German Federal Government, summarized in ESM & Fiscal Treaty case, supra note 1, at para. 169. 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 27 TFEU are uch ore su tle tha the isleadi g de o i atio o-bail-out clause suggests, several authors convincingly argue that Article 125 TFEU does not prohibit 24 voluntary aids of Member States under certain conditions and that Article 136(3) TFEU can thus be neither seen as an exemption from Article 125 TFEU nor as an authorization for 25 Member States to establish mechanisms of financial assistance amongst themselves. A considerable number of (German) scholars, however, argue that already the EFSF and the bilateral aids for Greece did not comply with Article 125 TFEU and that the new Article 136(3) TFEU has a constitutive character, establishing an exemption to Article 125 TFEU without which the legal obligations arising for the contracting parties under the TESM 26 would constitute a breach of Article 125 TFEU. While this debate cannot be dealt with in 27 detail here, it is important to note that the Court of Justice has now not only decided that the introduction of Article 136(3) TFEU is in conformity with the conditions established by Article 48(6) TFEU regarding the simplified revision procedure, but also that Article 125 TFEU does not preclude the conclusion and the ratification of the TESM, irrespective of the 28 entry into force of Article 136(3) TFEU. While the Court of Justice clearly states that the new Article 136(3) TFEU (declaratively) co fir s that EU Me er “tates ha e the co pete ce to esta lish a sta ility 29 mechanism, the German Federal Constitutional Court presents a mix of several, even slightly antithetical arguments. On the one hand, Karlsruhe holds that Article 136(3) TFEU 24 Christoph Herrmann, Griechische Tragödie—der währungsverfassungsrechtliche Rahmen für die Rettung, den Austritt oder den Ausschluss von überschuldeten Staaten aus der Eurozone, EUROPÄISCHE ZEITSCHRIFT FÜR WIRTSCHAFTSRECHT 413, 415–416 (2010); Ulrich Häde, Die europäische Währungsunion in der internationalen Finanzkrise—An den Grenzen europäischer Solidarität?, EUROPARECHT 854, 859–860 (2010); Christian Calliess, Perspektiven des Euro zwischen Solidarität und Recht—Eine rechtliche Analyse der Griechenlandhilfe und des Rettungsschirms, ZEITSCHRIFT FÜR EUROPARECHTLICHE STUDIEN 270–274 (2011). 25 Distinctly Alberto de Gregorio Merino, Legal developments in the Economic and Monetary Union During the Debt Crisis: The Mechanisms of Financial Assistance, 49 COMMON MKT. L. REV. 1613, 1629–1630 (2012). 26 See particularly Ruffert, supra note 15, at 849, 852 with further references; Hannes Rathke, Von der Stabilitätszur Stabilisierungsunion: Der neue Art. 136 Abs. 3 AEUV, 64 DIE ÖFFENTLICHE VERWALTUNG 753, 754, 758 (2011); Hanno Kube, Rechtsfragen der völkervertraglichen Eurorettung, WERTPAPIERMITTEILUNGEN 245, 247–248 (2012); more differentiated Ferdinand Wollenschläger, Völkerrechtliche Flankierung des EU-Integrationsprogramms als Herausforderung für den Europa-Artikel des Grundgesetzes (Art. 23 GG), 31 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT 713, 716. For a distinguished non-German voice, see Jean-Victor Louis, Guest Editorial: The No-Bailout Clause and Rescue Packages, 47 COMMON MKT. L. REV. 971, 977–978 (2010). 27 For an in-depth analysis, cf. Calliess, supra note 24, at 256–74. 28 Case C-370/12, Pringle v. Ireland, Nov. 27, 2012 (not yet reported), paras. 45–76, 129–147, 184–185, available at http://curia.europa.eu/juris/celex.jsf?celex=62012CJ0370&lang1=en&type=NOT&ancre=. See Andreas FischerLescano and Lukas Oberndorfer, Fiskalvertrag und Unionsrecht, 66 NEUE JURISTISCHE WOCHENSCHRIFT 9 (2013); Martin Nettesheim, Europarechtskonformität des Europäischen Stabilitätsmechanismus 66 NEUE JURISTISCHE WOCHENSCHRIFT 14 (2013). 29 Id. at paras. 72–73, 184. 28 German Law Journal [Vol. 14 No. 01 co tai s a authorizatio to esta lish a per a e t echa is for utual aid etwee the Euro “tates a d fro ow o allows for olu tary fi a cial aids withi the scope of 30 Article 125 TFEU. According to the Court, the insertion of Article 136(3) TFEU amounts to a sig ifica t reco figuratio grundlegende Umgestaltung) of the present design of the 31 EMU, o i g away fro the pri ciple of the i depe de ce of the atio al udgets. On the other ha d, the Court states that the sta ility-orie ted character of the EMU is ot a olished, gi e that particularly the i depe de ce of the ECB, the commitment of the Member States to observe budget discipline and the autonomous responsibility of the 32 atio al udgets re ai i tact. Furthermore, according to the Court, the introduction of Article 136(3) TFEU does not result in a loss of national budget autonomy because it does ot itself esta lish a sta ilizatio echa is , ut erely ope s up to the Me er States the possibility of installing such a mechanism on the basis of an international 33 agree e t, thus co fir i g the Me er “tates’ so ereignty in this respect. The ambiguity of the argument may be an indication that the judges of the Second Senate could not agree on a coherent line of argument. If one took the argument seriously that Article 136(3) TFEU was a provision with constitutive character, one might of course ask what the legal consequences of a failure to ratify the amendment of Article 136(3) TFEU would be, given that its entry into force requires, in contrast to that of the TESM, the 34 ratification of all 27 Member States. However, the Court did not subject the ratification of the TESM to the condition of a prior entry into force of the amendment of Article 136(3) TFEU. 2. TESM According to the German Federal Constitutional Court, the act approving the ratification of the TESM and the accompanying legislation (ESM Financing Act—ESMFinG) essentially complies with the constitutional requirements to safeguard the overall budgetary responsibility of the Bundestag. In this respect, the Court carries out a detailed and comprehensive analysis. This examination, which constitutes the substantial core of the decision, can hardly be summarized without (at least partially) fading out the various legal nuances it contains. Nevertheless, a brief summary must suffice at this point, before taking a closer look at the three leitmotivs. 30 ESM & Fiscal Treaty case, supra note 1, at paras. 233–234 (DE, not translated into EN). 31 Id. 32 Id. 33 Id. at para. 236. 34 While the TESM entered into force on 27 September 2012 with the deposition of the German ratification certificate, the amendment of Article 136(3) TFEU has not yet entered into force (as of Nov. 27, 2012). 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 29 1.1 Overall Result: What Is Required and What Is Not Required Against the backdrop of the above mentioned public expectations, it is not only interesting to see what the Court demands, but also what it does not demand: The Court neither calls for a referendum under Article 146 of the Basic Law, nor does it establish a maximum limit in nominal terms that would a priori be regarded as incompatible with the (future) overall 35 budgetary responsibility of the Bundestag. The Court also does not demand for the 36 provision of an express right to terminate the Treaty. Furthermore, the Court seems to be conciliatory regarding the assessment of Article 4(8) TESM, which allows the suspension of voting rights under certain conditions. The Second Senate does not find this provision to violate the relevant constitutional standards, essentially because Germany could prevent 37 the suspension of its voting rights by meeting its (alleged) payment obligations. However, the Court establishes the requirement to ensure by instruments of public international law that firstly, the provisions of the TESM may only be interpreted or applied in such a way that the liability of Germany cannot be increased beyond its share in the authorized capital stock of the ESM without the consent of the German ESM representative and that secondly, the parliamentary right to information is guaranteed 38 according to constitutional standards. The necessity to establish these conditions is highly questionable. Regarding the first, the Court itself presents a multitude of convincing arguments why such an increase could not, without the consent of the German ESM representative, be based on the provisions of the 39 TESM. Stating that the liability of each E“M Me er shall e li ited, i all circumstances, to its portion of the authorized capital stock at its issue price, Article 8(5) TESM (the key provision in this respect) could not have been framed in a clearer manner. Moreover, the second condition does not seem to be indispensable either, given that the relevant treaty provisions are, as the Court points out itself, above all intended to prevent a flow of information to unauthorized third parties, but not to the parliaments of the 40 Member States bearing political responsibility. 35 ESM & Fiscal Treaty case, supra note 1, at para. 253 (DE), 222 (EN prelim.). 36 Id. at para. 279 (DE), 248 (EN prelim.). 37 Id. at para. 269 (DE), 238 (EN prelim.). 38 Id. at paras. 240, 253, 259 (DE), 209, 222, 228 (EN, prelim.). 39 Id. at paras. 243–250 (DE), 212–219 (EN prelim.). 40 Id. at para. 257 (DE), 226 (EN prelim.). 30 German Law Journal [Vol. 14 No. 01 . I ple enting the Court’s De ands: ‘eservation or Declaration? The two conditions posed by the Court also raise questions as to their proper 41 implementation. While the Second Senate did not specify the mode of implementation, 42 43 speaki g oth of reser atio s a d declaratio s, it demanded the government to clearly e press i ter s of legal co se ue ces that Ger a y ca ot to e ou d by the 44 E“M Treaty i its e tirety sic if the i stru e t should pro e to e i effective. It is questionable whether the demands of the Court could have been properly implemented by 45 a reservation. According to Article 2(d) of the Vienna Convention on the Law of Treaties 46 (VCLT), a reser atio purports to e clude or odify the legal effect of certain provisions 47 of the treaty. As already stated above, the Contracting Parties to the TESM on 27 September 2012 finally 48 agreed on an interpretative declaration. It reads as follows: Article 8(5) of the Treaty Establishing the European Sta ility Mecha is the Treaty ) limits all payment liabilities of the ESM Members under the Treaty in the sense that no provision of the Treaty may be interpreted as leading to payment obligations higher than the portion of the authorized capital stock corresponding to each ESM Member, as specified in Annex II of the Treaty, without prior agreement of each Me er’s represe tati e a d due regard to atio al 41 Cf. Christian Calliess and Christopher Schoenfleisch, Wie das ESM-Urteil umgesetzt werden kann, VERFASSUNGSBLOG (Sept. 13, 2012), http://verfassungsblog.de/wie-das-esmurteil-umgesetzt-werden-kann. 42 ESM & Fiscal Treaty case, supra note 1, paras. 253, 259, 279 (DE), 222, 228, 248 (EN prelim.). 43 Id. at para. 240 (DE), 209 (EN prelim.). The ter völkerrechtliche Erkl ru ge international law] might have also been used in a broader sense here. 44 [declaratio s under Id. at paras. 253, 259 (DE), 222, 228 (EN prelim.). 45 This cannot be dealt with in detail here. For further discussion see the comments of Matthias Ruffert, Ulrich Karpenstein and Oliver Sauer to Calliess & Schoenfleisch (note 41) and Tomuschat, supra note 2, at 1432. 46 Vienna Convention on the Law of Treaties, May 23, 1969, 1155 U.N.T.S. 331 [hereinafter VCLT]. This provision arguably restates, at least partially, customary law, cf. Philippe Gautier, Article 2, in THE VIENNA CONVENTIONS ON THE LAW OF TREATIES: A COMMENTARY, VOLUME I, para. 1 (Olivier Corten & Pierre Klein, eds., 2011). 47 VCLT. See also the definition in the ILC Guide to Practice on Reservations to Treaties (2011), at point 1.1 certai pro isio s of the treaty . 48 Germany also issued a unilateral declaration, pointing to this joint declaration, deposited with the German instruments of ratification. 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 31 procedures. Article 32(5), Article 34 and Article 35(1) of the Treaty do not prevent providing comprehensive information to the national parliaments, as foreseen by national regulation. The above mentioned elements constitute an essential basis for the consent of the contracting States to be bound by the provisions of the Treaty. While the first two paragraphs essentially rephrase the requirements of the German Federal Constitutional Court, the third paragraph is to be seen against the background of the clausula rebus sic stantibus as recognized under customary international law and as laid down in Article 62 of the VCLT. Accordi g to this rule, a fu da e tal cha ge of circu sta ces ca , u der certai co ditio s, e i oked as a grou d for ter i ati g or withdrawi g fro a treaty as lo g as the e iste ce of those circu sta ces co stituted a essential asis of the co se t of the parties to e ou d y the treaty a d the effect of the change is radically to transform the extent of obligations still to be performed under the treaty. The key idea to rely o a declaratio i the prese t co te t is that the declaratio authe tically specifies this esse tial asis a d thus pro ides a possi ility to 49 legally withdraw from the treaty under the clausula. However, this construct is problematic as well, because it remains unclear whether the departure fro a certai i terpretatio ca e ualified as a fu da e tal cha ge of 50 circu sta ces i the se se of the clausula. Or to frame it differently, while the legal consequences of the clausula rebus sic stantibus correspond to the requirement of the Court, it is questionable whether the clausula would actually apply to a situation in which the TESM was interpreted in a way differing from the standard specified in the declaration of 27 September 2012. Cf. the comment of Ulrich Karpenstein to Calliess & Schoenfleisch, supra note 41 and Frank Schorkopf, “tartet die Maschinen”, 31 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT 1273, 1275 (2012). 49 50 On this criterion, see Malcolm N. Shaw and Caroline Fournet, Article 62, in THE VIENNA CONVENTION ON THE LAW OF TREATIES: A COMMENTARY, VOLUME II paras. 4–5, 25–26 and 35 (Olivier Corten & Pierre Klein, eds., 2011). 32 German Law Journal [Vol. 14 No. 01 3. Fiscal Treaty 51 Finally, according to the Court, the act approving the ratification of the Fiscal Treaty 52 likewise does not contradict the overall budgetary responsibility of the Bundestag. The Court e phasizes that the regulatory co te t of the Treaty is for the ost part ide tical with existing require e ts of the Basic Law’s de t rake a d also with udgetary 53 54 obligations under EU law. Just like the French Conseil constitutionnel, the German Federal Constitutional Court states that the obligation under Article 5(1) of the Treaty (to submit a budgetary and economic partnership program that requires approval) does not empower the bodies of the European Union to take actions that have a direct effect on 55 national budget legislation. Furthermore the Court takes the view that the Fiscal Compact does not confer competencies to EU institutions that would affect the overall budgetary responsibility of the Bundestag, particularly not by the so-called correction 56 mechanism under Article 3(2) of the Treaty. C. Leitmotivs In the ESM & Fiscal Treaty decision of 12 September 2012, three key arguments or leitmotivs stand out. I. Once Again: Safeguarding the Rights of the Bundestag The first leitmotiv is at the heart of the Court’s reaso i g a d keeps i li e with all ajor EU-related case law delivered by Karlsruhe in recent years. In essence, it aims at safeguarding the rights of the (present or future) Bundestag. 51 For a critical assessment, see INGOLF PERNICE ET AL., A DEMOCRATIC SOLUTION TO THE CRISIS 100–103 (2012). For an indepth analysis cf. Paul Craig, The Stability, Coordination and Governance Treaty: Principle, Politics and Pragmatism, 37 E.L. Rev. 231 (2012). 52 ESM & Fiscal Treaty case, supra note 1, at para. 300 (DE, not translated into EN). 53 Id. at para. 311 (DE, not translated into EN). 54 Conseil constitutionnel [CC – Constitutional Council], decision No. 2012-653 DC, Aug. 9, 2012, at para. 32 (Fr.) [hereinafter French Fiscal Treaty case]. An English translation by the CC is available at http://www.conseilconstitutionnel.fr/conseil-constitutionnel/english/case-law/decision/decision-no-2012-653-dc-of-9-august2012.115501.html. 55 ESM & Fiscal Treaty case, supra note 1, at para. 311 (DE, not translated into EN), referencing para. 32 of the French Fiscal Treaty case, supra note 54. 56 Id. at para. 315 (DE, not translated into EN), referencing para. 25 of the French Fiscal Treaty case, supra note 54. 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 33 . The Concept of Parlia entary ‘esponsibility in the Court’s EU ‘elated Case La Accordi g to the Court’s esta lished case law, safeguarding the rights of the Bundestag first and foremost means safeguarding the Bundestag’s fu ctio to e sure parlia e tary 57 representation of the popular will. Hence, competences of the Bundestag must not be constrained or exercised in a manner rendering current or future parliamentary representation at national level virtually impossible, i.e., leading to a situation in which no substantial issues would be left to decide on for the elected representatives of the 58 people. In other words, in fields which the Court considers to be essential for shaping the political development in Germany, the Bundestag must have a continuous and decisive say. The Court deduces this requirement from the principle of democracy, protected in its essential content by the eternity clause of the Basic Law and justiciable via the right to 59 vote. This approach does not only raise fundamental objections regarding its procedural 60 dimension, but also—and even more severely—as to its substantial foundation. It relies 61 on an apodictic and theoretically highly questionable claim of necessary state functions, 62 is ultimately bound to the (pre-)existence of statehood, remains blind to other forms of 63 constitutive democratic legitimation in multi-leveled settings, and goes along with an 64 unprecedented deconstruction of the European Parliament. It also establishes 65 co sidera le co stitutio al li itatio s to pote tial co ferrals of competences to the EU or associated entities—limitations which are deduced from the eternity clause and are thus 57 Maastricht case, supra note 13, at paras. 58–63; Lisbon case, supra note 14, at paras. 210, 246–260; Greece & EFSF case, supra note 15, at headnote 1 and paras. 98–104, 120–128; reiterated in ESM & Fiscal Treaty case, supra note 1, at paras. 210–215 (DE), 194–199 (EN prelim.). 58 Id. 59 Id. 60 Cf. already supra Part B(I). 61 See particularly the criticism by Daniel Halberstam and Christoph Möllers, The German Constitutional Court says Ja zu Deutschland!”, 10 GERMAN L. J. 1241, 1249–1250 (2009); Christoph Schönberger, Lisbon in Karlsruhe: Maastricht’s Epigones at “ea, 10 GERMAN L. J. 1201, 1208–1209 (2009); Martin Nettesheim, Die Karlsruher Verkündigung, EUROPARECHT-BEIHEFT 101, 112 et seq. (2010). 62 See MATTIAS WENDEL, PERMEABILITÄT IM EUROPÄISCHEN VERFASSUNGSRECHT 85–91 (2011). 63 This stands in sharp contrast to the interdisciplinary discussion. See, e.g., DEBATING THE DEMOCRATIC LEGITIMACY OF THE EUROPEAN UNION (Beate Kohler-Koch & Berthold Rittberger eds., 2007). 64 Lisbon case, supra note 14, at paras. 280–288; Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], 2 BvC 4/10, Nov. 9, 2011, 65 DIE ÖFFENTLICHE VERWALTUNG 75 (2012), at paras. 118 et seq. with dissenting opinions of Reporting Judge Di Fabio and Judge Mellinghoff (Ger.) [Five Percent EP-Election Threshold case]. 65 The fre ue tly used ter tra sfer is isleadi g ecause it suggests that supra atio al pu lic authority is nothing more than a mere addition of derivated national competences. See Erich Kaufmann, Rechtsgutachten zum Vertrage über die Gründung der Europäischen Verteidigungsgemeinschaft und zum Deutschlandvertrage, in 2 DER KAMPF UM DEN WEHRBEITRAG 42, 55 (Institut für Staatslehre und Politik Mainz ed., 1953). 34 German Law Journal [Vol. 14 No. 01 insurmountable under the Basic Law. As a consequence, certain decision-making rights may either not be conferred on the EU or it has to be ensured that the Bundestag keeps a decisive influence, if necessary by a parliamentary mandate binding the acting 66 representatives of the German government. In this respect, the Court coined the enigmatic, albeit catchy term of (parliamentary) 67 68 respo si ility, a concept, the essence of which is possibly better captured by the term accountability. In its Lisbon judgment, the Second Senate introduced this concept as a 69 respo si ility for i tegratio . It is a responsibility to be observed particularly by prior parliamentary approval to certain types of decision at EU level that are considered by the Court as endangering the principle of conferral as their application could allegedly expand 70 the EU’s co pete ces i a gradual a er. Like no other constitutional court in 71 Europe, Karlsruhe demanded a prior assent of parliament for the application of so-called 72 (and ill-ter ed dy a ic treaty pro isio s . Given that already the Lisbon judgment construed budgetary autonomy as a key to the a ility of a co stitutio al state to de ocratically shape itself demokratische 73 Selbstgestaltungsfähigkeit), it could have been expected that the Second Senate would extend the concept of parliamentary responsibility to budgetary decision-making powers soo er or later. He ce, the i troductio of the co cept of udgetary respo si ility was only a matter of time. In its Greece & EFSF judgment of 7 September 2011, the Court consequently held that the right to vote would be violated if the Bundestag relinquished its parlia e tary udget respo si ility y gi i g up the capa ility to decide o the udget 66 Esse tially, this is a fall ack to classic i tergo er e talis , i cludi g the re uire e t of u a i ity. 67 Lisbon case, supra note 14, at paras. 236, 245-247; see also Greece & EFSF case, supra note 15, at headnote 3 and paras. 121–128; ESM & Fiscal Treaty case, supra note 1, at paras. 210–222 (DE), 194–206 (EN prelim.). 68 For the differe t co otatio s of respo si ility for i tegratio , cf. Ulrich Hufeld, in SYSTEMATISCHER KOMMENTAR ZU DEN LISSABON-BEGLEITGESETZEN 25, 33–35 (Andreas von Arnauld & Ulrich Hufeld, eds., 2011). 69 Lisbon case, supra note 14, at paras. 236, 245-247, also addressed to the other constitutional institutions. 70 Id. 71 In detail Mattias Wendel, Lisbon Before the Courts: Comparative Perspectives, 7 EUR. CONST. L. REV. 96, 114–120 (2011). 72 Lisbon case, supra note 14, at paras. 411–419. Only two categories of these provisions relate to the simplified (a d i sofar dy a ic a e d e t of EU pri ary law. The other categories, i.a., Article 352 TFEU, essentially relate to the legislative process at the EU level. The requirements of prior parliamentary approval were later i ple e ted i the ‘espo si ility for I tegratio Act, available in English at: http://www.bundestag.de/htdocs_e/bundestag/committees/a21/legalbasis/intvg.html. For a comment, see Martin Nettesheim, Die Integrationsverantwortung—Vorgaben des BVerfG und gesetzgeberische Umsetzung, 63 NEUE JURISTISCHE WOCHENSCHRIFT 177 (2010). 73 Lisbon case, supra note 14, at paras. 252, 256. 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 35 74 on its own terms. However, the particular novelty of this move was that the Bundestag, according to the Court, risked diminishing its own powers not only by conferring competences to the EU or associated entities, but also by authorizing financial commitments under Article 115 of the Basic Law that could y their ature a d e te t 75 result i assi e ad erse effects o udgetary auto o y of a future Bundestag. In this respect, the ESM & Fiscal Treaty decision of 12 September 2012 largely draws on the Greece & EFSF judgment, particularly as regards the constitutional requirements for the 76 protection of budgetary responsibility. The key section of the Greece & EFSF judgment, taken up in the decision of 12 September 2012, reads as follows: Against this background, the German Bundestag may not transfer its budgetary responsibility to other actors by means of imprecise budgetary authorisations. In particular it may not, even by statute, deliver itself up to any mechanisms with financial effect which— whether by reason of their overall conception or by reason of an overall evaluation of the individual measures—may result in incalculable burdens with budget relevance without prior mandatory consent, whether these are expenses or losses of revenue. This prohibition of the relinquishment of budgetary responsibility does certainly not impermissibly restrict the budgetary competence of the legislature, but is 77 specifically aimed at preserving it. Karlsruhe thus tries to e sure that a irre ersi le legal predeter i atio of future 78 generatio s will ot e esta lished. Given the dramatic demographic development in Germany, this argument might also become of major importance in contexts other than 79 the field of budgetary responsibility. Furthermore, the decision of 12 September 2012 draws o the Court’s rece t EU-related case law on parliamentary rights, i.e., the 74 Greece & EFSF case, supra note 15, at para. 121. 75 Id. at para. 103; see also Ruffert, supra note 15, at 844–845. 76 ESM & Fiscal Treaty case, supra note 1, at paras. 210–220 (DE), 194–204 EN preli . . To co sider the Court’s reference to the responsibility of integration, see id. at paras. 238, 282 (DE, not translated into EN). 77 Greece & EFSF case, supra note 15, at para. 125; see also ESM & Fiscal Treaty case, supra note 1, at para. 212 (DE); 196 (EN prelim.). 78 ESM & Fiscal Treaty case, supra note 1, at para. 228 (DE, not translated into EN). 79 See particularly Markus Kotzur, Demokratie als Wettbewerbsordnung, 69 VERÖFFENTLICHUNGEN DER VEREINIGUNG DER DEUTSCHEN STAATSRECHTSLEHRER 173, 192–193 (2010). 36 [Vol. 14 No. 01 German Law Journal 80 judgments on the Special Parliamentary Committee of 28 January 2012 and on the ESM & 81 Euro Plus Pact of 19 June 2012. 2. Implications for the Present Case Regarding the three challenged reform instruments, the Court in its ESM & Fiscal Treaty decision of 12 September 2012 essentially considers the rights of the Bundestag to be sufficiently protected according to the constitutional standards set out above. In contrast to its previous decision on the Lisbon case, the Court thus takes the view that the German legislator has met the constitutional requirements for the most part. With a view to the legal implications of the concept of parliamentary responsibility for the present case, several aspects should be distinguished, however. 1.1 Parliamentary Right to Participation Parliamentary responsibility demands parliamentary participation. While the introduction 82 83 of Article 136(3) TFEU and the future regime of the Fiscal Treaty did not raise any major 84 concerns in this respect, the Court considers the provisions on the involvement of the Bundestag in the decision-making processes of the ESM—laid down in the Act of assent to the TESM as well as in the ESM Financing Act (ESMFinG)—to comply with this requirement 85 at least to a large extent. Read together, both statutes provide for a detailed and 86 differentiated framework regarding prior parliamentary approval. Above all, they ensure 80 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvE 8/11, Jan. 28, 2012, 65 NEUE JURISTISCHE WOCHENSCHRIFT 1419 (2012), paras. 113 et seq. (Ger.) [hereinafter Special Parliamentary Committee case]. 81 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvE 4/11, June 19, 2012, 31 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT 954 (2012), paras. 94 et seq., 107 (Ger.) [hereinafter ESM & Euro Plus Pact case]. 82 ESM & Fiscal Treaty case, supra note 1, at para. 237 (DE, not translated into EN). According to the Court, the requirement of ratification ensures that the entry into force of the TESM is preceded by parliamentary assent. Hence it is ensured that the legislator observes its parliamentary responsibility regarding the concrete design of the ESM. 83 Id. at paras. 314–319 (DE, not translated into EN). 84 However the Gesetz über die Zusammenarbeit von Bundesregierung und Deutschem Bundestag in Angelegenheiten der Europäischen Union [EUZBBG - Law on Cooperation Between the Federal Government and the German Bundestag in Matters Concerning the European Union], available at http://www.bundestag.de/htdocs_e/bundestag/committees/a21/legalbasis/euzbbg.html, was previously changed. 85 ESM & Fiscal Treaty case, supra note 1, at paras. 280–299. (DE, not translated into EN). 86 See Gesetz zur finanziellen Beteiligung am Europäischen Stabilitätsmechanismus [ESMFinG - Act on Financial Participation in the European Stability Mechanism], Sept. 13, 2012, §§ 4–6, available at http://dipbt.bundestag.de/extrakt/ba/WP17/434/43458.html and Gesetz zu dem Vertrag vom 2. Februar 2012 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 37 that the key activities of the German ESM representatives are determined and controlled 87 by the Bundestag and thus provided with sufficient democratic legitimation. However, in order to prevent any possibility of circumventing parliamentary participation, the Court deemed it necessary to demand the above-mentioned interpretative safeguard under public international law, aiming at the exclusion of any interpretation of the TESM allowing payment obligations that exceed the defined maximum sum without the consent 88 of the Bundestag. According to the Court, the limitation of liability under the TESM sufficie tly e sures that o auto atic a d irre ersi le procedure regardi g pay e t o ligatio s or co it e ts to accept lia ility is esta lished y the E“M, gi e that e ery new payment obligation or commitment to accept liability requires a constitutive approval 89 of the Bundestag. Taking into consideration that every act of parliamentary approval is potentially subject to constitutional review, it becomes clear that a non-negligible effect of 90 this requirement is to keep the Court in the game as well. However, it is important to note that Karlsruhe does not establish a maximum limitation in nominal terms, i.e. a specified sum that would be regarded as a priori incompatible with preserving the overall 91 budgetary responsibility of the Bundestag. With regard to parliamentary participation, the Second Senate announces in its decision of 12 September 2012 that it will examine two issues more closely in the upcoming principal proceedings: Parliamentary participation concerning decisions to issue shares of the authorized capital stock at higher than par value under Article 8(2) sentence 4 TESM and the question of (parliamentary) arrangements to avoid a suspension of the voting rights 92 under Article 4(8) TESM. 1.2 Parliamentary Right to Information Parliamentary responsibility also calls for parliamentary information. No control without prior information. According to the Court, the (national) constitutional principle of democracy requires access to information in a way allowing the Bundestag to assess the zur Einrichtung des ESM [Act on the Treaty of Febr. 2, 2012, establishing the ESM], Sept. 13, 2012, Article 2 available at http://dipbt.bundestag.de/extrakt/ba/WP17/434/43455.html. 87 ESM & Fiscal Treaty case, supra note 1, at para. 287 (DE, not translated into EN). 88 Id. at para. 253 (DE), 222 (EN prelim.). 89 Id. at para. 279 (DE), 248 (EN prelim.). 90 The concept of parliamentary responsibility was, from the beginning, connected to the possibility of constitutional review, cf., expressly, Lisbon case, supra note 14, at para. 236. 91 ESM & Fiscal Treaty case, supra note 1, at paras. 216, 253, 271, 279 (DE), 200, 222, 240, 248 (EN prelim.). 92 Id. at paras. 280, 290–293 (DE, not translated into EN). 38 German Law Journal [Vol. 14 No. 01 essential foundations and consequences of its decisions and thus exercise its parliamentary 93 responsibility. Based on this assumption, the decision of 12 September 2012 contains a veritable novelty compared to its precedents. 94 Like the ajority of Me er “tates’ co stitutio s, the German Basic Law contains a provision on the parliamentary right to information in EU affairs. According to Article 23(2) 95 sentence 2, parliament has a right to be comprehensively informed by the government at the earliest possible time o atters co cer i g the Europea U io . Already i its ESM & Euro Plus Pact decision of 19 June 2012, the Court decided—within the framework of an inter-institutional proceeding (Organstreit)—that the Federal Government had infringed this right to information with regard to certain key documents relating to the negotiations 96 on the ESM and on the so-called Euro Plus Pact. The Court i terpreted the ter atters concerning the European Unio i a road a er, e te di g the scope of application of Article 23 to i ter atio al treaties that co ple e t Europea U io law or otherwise 97 show particular pro i ity to it. Whether such proximity exists, according to the Court, depe ds o a overall consideration of the circumstances, including planned contents, 98 o jecti es a d effects of the project i uestio . Given that the creation of the ESM goes along (to use a neutral term) with an amendment of the TFEU, that the Commission and the Court of Justice are integrated in its institutional architecture and that Karlsruhe sees the E“M’s purpose i co ple e ti g a d safeguardi g the eco o ic a d o etary 99 policy, which falls under the category of exclusive EU competences, the Court qualified the establishment of the ESM as a matter concerning the EU in the sense of Article 23(2) of 100 the Basic Law. It also established an obligation for the government to provide information in a particularly comprehensive and detailed way, as the creation and 93 Id. at para 215 (DE), 199 (EN prelim.). 94 Austria (Article 23e); Belgium (Article 168); Bulgaria (Article 105 (3) and (4)); Czech Republic (Article 10b); Finland (§ 96); France (Article 88-4); Germany (Article 23 (2) in conjunction with the EUZBBG); Greece (Article 70 (8)); Hungary (Article 19); Lithuania (Article 3 of the EU constitutional act); Portugal (Articles 161 lit. n, 163 lit. f, 197 lit. i); Romania (Article 148 (5)); Slovenia (Article 3a (4)); Sweden (Chapter 10 § 6). For a comparative analysis, see WENDEL, supra note 62, at 356–366; PHILIPP DANN, PARLAMENTE IM EXEKUTIVFÖDERALISMUS 190–198 (2004); Christoph Grabenwarter, Staatliches Unionsverfassungsrecht, in EUROPÄISCHES VERFASSUNGSRECHT 121, 149–158 (Armin von Bogdandy & Jürgen Bast, eds., 2d ed. 2009). 95 Concretized in §§ 4 et seq. of the EUZBBG, supra note 84. 96 ESM & Euro Plus Pact case, supra note 81. 97 Id. at para. 100. 98 Id. See also Wollenschläger, supra note 26, at 718. 99 However, see the Court of Justice, Pringle case, supra ote 8, at para. 9 , argui g that the activities of the ESM do not fall within the monetary policy . . . . 100 ESM & Euro Plus Pact case, supra note 81, at para. 135. 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 39 institutional design of the ESM concerned the overall budgetary responsibility of the 101 Bundestag. In its decision of 12 September 2012, the Second Senate consequently argues that not only the creation but also the future activities of the ESM constitute a atter co cer i g the 102 EU and thus fall under Article 23(2) sentence 2 of the Basic Law. Article 23(2) sentence 2 is concretized by the accompanying legislation to the TESM in a manner meeting the 103 Court’s re uire e ts, though. However, as Article 23(2) sentence 2 establishes a genuine right of parliament, it can be invoked in inter-institutional proceedings by members of parliament, but not by an individual within the framework of a constitutional complaint. Here, the new approach comes into play. The Court now—for the very first time— explicitly puts the essence of the parliamentary right to information under the protection of the eter ity clause: The core of the right of parlia e t to e i for ed is, accordi g to 104 the Court, e tre ched i Article 79 of the Basic Law. To frame it differently, the parliamentary right to information is now protected not only by Article 23(2) sentence 2 and other specific constitutional provisions, like Article 114, but also, in a more 105 fundamental way, by Articles 38(1), 20(1) and (2) in conjunction with Article 79(3) of the Basic Law. This right of parliamentary information by definition cannot be limited to cases involving the EU but is instead a key guarantee of the Bundestag’s general ability to exercise its parliamentary responsibility. It is on this basis that the Court demands for the second interpretative safeguard under public international law, ensuring that the TESM provisions on the inviolability of documents and on professional secrecy do not restrain the 106 comprehensive information of the Bundestag. The new construction apparently allows an individual to claim within the framework of a constitutional complaint that the Bundestag has relinquished its parliamentary responsibility by allegedly failing to ensure that the core of the parliamentary right to information is guaranteed. However, it seems to be excluded that an individual can invoke a violation of this parliamentary right on a case-to-case basis. Article 20(1) and (2) in 107 conjunction with Article 79(3) require that the Bundestag is a le to receive the 101 Id. at para. 145. 102 ESM & Fiscal Treaty case, supra note 1, at para. 286 (DE, not translated into EN). 103 Id. 104 Id. at para 215 (DE), 199 (EN prelim.). 105 For an explicit reference to Article 38(1), see id. at para. 254 (DE), 223 (EN prelim.). 106 Id. at paras. 259 (DE), 228 (EN prelim.). 107 Id. at para. 259 (DE), 228 (EN prelim.). 40 German Law Journal [Vol. 14 No. 01 necessary information. Against the background that the constitutional principle of democracy as protected in its essential content under the eternity clause is a very general 108 and abstract standard of review, this can only be understood to mean that Article 20(1) and (2) in conjunction with Article 79(3) of the Basic Law require an institutional and legal framework in which the information of parliament is structurally guaranteed in a general manner. These articles certainly do not establish an individual right to challenge violations of the parliamentary right to information on behalf of the Bundestag. Nevertheless, this example illustrates once more how problematic it becomes to draw clear lines on the limits of individual standing in this respect. 1.3 Intra-Parliamentary Allocation of Responsibilities A third implication relates to the question as to what extent responsibilities may be exercised by parliamentary (special) committees and how far their exercise must be reserved to the plenary session. In its judgment of 28 February 2012, the Court established the basic rule that the Bundestag’s right to decide o the udget a d its o erall udgetary responsibility generally have to be e ercised through deli eratio a d decisio -making in 109 the plenary sitting. Arguing that the constitutional rights of Members of Parliament are violated if they are excluded from substantial decisions affecting the German Bundestag’s budgetary responsibility, Karlsruhe essentially scrapped a statute according to which the Bundestag’s co pete ces to decide o certai easures withi the fra ework of the EF“F should, in cases of particular urgency and confidentiality, generally be exercised by a special parliamentary committee (Sondergremium) composed of nine members of the 110 Bundestag’s Budget Co ittee. The Court accepted the conferral of responsibilities to the special committee only with regard to the purchase of government bonds by the EFSF on the secondary market because such an emergency measure would be deprived of its 111 effects if it was not subject to absolute confidentiality. The decision of 12 September 2012 reiterates the basic rule established in the Special 112 Parliamentary Committee Case. Furthermore, the Second Senate now specifies that it is up to the ple ary sessio to decide o e ery large-scale measure involving public e pe diture as well as o fu da e tal uestio s relati g to the odalities of how to use 108 Id. at para. 216 (DE), 200 (EN prelim.). 109 Special Parliamentary Committee case, aupra note 80, at para. 13 . 110 Id. at paras. 133–153. On 27 October 2011, the Court had already issued a temporary injunction prohibiting the exercise of the Bundestag’s co pete ces y the Sondergremium until the issuing of a decision in the main proceedings. 111 Id. at para. 150. 112 ESM & Fiscal Treaty case, supra note 1, at para. 286 (DE, not translated into EN). 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 41 113 the gra ted fi a cial ea s. Hence, the Budget Committee may only supplement the plenary session when it comes to decisions which are of secondary importance or have 114 been determined by the plenary session in a sufficiently precise manner. The Court holds the view that the accompanying legislation in principle complies with these criteria, given that §§ 4–6 ESMFinG differentiate between decisions affecting overall budgetary responsibility (reserved exclusively to the plenary session), other activities concerning budgetary responsibility (generally exercised by the Budget Committee but retrievable by plenary session at any time) and parliamentary participation in decisions on the purchase of government bonds on the secondary market (assigned to the Special Committee). However, the Court indicates that further review in the principal proceedings might reveal that some of the powers currently assigned to the Budget Committee, given their 115 implications, must be exercised by the plenary session. Therefore, the first lefto er for the principal proceeding of the decision in this respect is that the intra-parlia e tary fi etu i g ight ha e to e adapted. The seco d lefto er co cer s a procedural aspect. While the intra-parliamentary allocation of responsibilities can be subject to an interinstitutional proceeding, as demonstrated by the decision of 28 February 2012, the extent to which this aspect might be justiciable within the framework of a constitutional complaint is a question expressly left open for the ruling in the principal proceedings. II. Judicial Restraint The second leitmotiv is a remarkably strong manifestation of judicial restraint. Compared to its Greece & EFSF judgment, the Court substantially extends the margin of assessment conceded to the German legislature and distinctly applies this doctrine no less than six 116 times, including several key sections of the ruling. 1. Restriction to Manifest Violations The first element of judicial restraint is inherent in the standard of review and has been established in the Greece & EFSF judgment. Regarding the question as to what extent guarantees can be granted or financial commitments be made without violating the budgetary responsibility of the (future) Bundestag, the Court restricts the standard of 113 Id. at para. 294 (DE, not translated into EN). 114 Id. 115 Id. at paras. 297–299 (DE, not translated into EN). This may, for instance, concern decisions on material changes of the procedure a d of the co ditio s of the E“M’s capital calls. 116 ESM & Fiscal Treaty case, supra note 1, at paras. 213, 217, 222, 228, 234, 271 (DE), 197, 201, 206, 240 (EN prelim.). 42 German Law Journal [Vol. 14 No. 01 117 re iew to a ifest iolatio s . Accordingly, with a view to the amount of liability, the principle of democracy would only be violated if Germany became liable to such an extent that budgetary autonomy would not only be constrained, but would in fact cease to exist— 118 at least for a considerable period of time. Hence, the relevant constitutional criterion with regard to (hypothetical) maximum limits is construed almost in the narrowest sense possible and thus considerably limits the scope of constitutional review. 2. The Legislator’s Margin of Assess ent The second element is closely intertwined with the first. It concerns the legislature’s Einschätzungsspielraum, or its argi or latitude of assess e t, as it is ter ed i the 119 preliminary translation. In this respect, the Second Senate could also rely on the Greece & EFSF judgment, in which it had expressly acknowledged the legislature’s argi to assess the financial risk of liability as well as the future capacity of the federal budget and the 120 economic potential of Germany. The Court now emphasizes that it may not, by claiming specific expertise in this field, replace the decisions of the legislative body, given that the 121 latter is the i stitutio first a d fore ost de ocratically appoi ted for this task . From this starting point, the ESM & Fiscal Treaty decision of 12 September 2012 goes beyond its precedent in several ways. First of all, the Court now explicitly speaks of a 122 wide argi of assess e t. This semantic alteration, which relates to the density of constitutional review, certainly should not be overestimated as such. But it conceptually corresponds to the above-mentioned limitation of the standard of review and indicates that the exercise of judicial restraint is particularly distinct, a consideration confirmed by the judg e t’s o erall result. Further ore, the Court e te ds its argi -of-assessmentdoctrine in substance. The doctrine is now also applied to impact assessments regarding 123 alternative courses of action, in particular the possible political and economic impact of not establishing a permanent stability mechanism in the current situation of crisis. Above 117 Greece & EFSF case, supra note 15, at para. 131; see also ESM & Fiscal Treaty case, supra note 1, at para. 216 (DE), 200 (EN prelim.). 118 Id. 119 The est tra slatio would pro a ly e argi of appreciatio . Howe er, as this ter is specifically associated with the doctrine developed by the European Court of Human Rights (ECtHR), it shall not be used in this context. 120 Greece & EFSF case, supra note 15, at para. 132; ESM & Fiscal Treaty case, supra note 1, at paras. 217, 228 (DE), 201, (EN prelim.). 121 Id. 122 Id. at para. 217 (DE), 201 (EN prelim.). 123 Id. 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 43 all, the “eco d “e ate e te ds the legislator’s argi of assess e t to the fu da e tal choices regarding the future development of the Monetary Union, the key question of the 124 proceedings. 3. Taking Judicial Restraint Seriously Hence, the margin of assessment conceded to the legislator plays a key role with a view to the general outcome of the decision, i.e., the constitutionality of the challenged reform instruments and particularly the establishment of the ESM. In one of the central sections, the Court states that it has to respect both the decision of the legislature to supplement the EMU y additio al acti e sta ility easures as well as the u derlyi g prog osis that such measures will safeguard and further develop the EMU, even if a certain risk of price 125 instability cannot be excluded from an ex ante perspective. The very fact that the Court thus allows the (constitutional) legislature to take measures which the Court itself qualifies as ei g a ele e tary reco figuratio of the EMU, co fir s that the Court takes its 126 doctrine of a wide margin of assessment seriously. From the perspective of a judge, accepting a decision that falls within a margin of assessment might sometimes end up in legally approving the personally disapproved. At all events, the constitutional judges of the Second Senate did not accept the challenged crisis mechanisms in a light-hearted way. In this respect, the following paragraph, another sectio of particular i porta ce for the judg e t’s outco e, is worth being quoted in full, even though the dry, almost sarcastic undertone gets lost in translation: According to the standards [of review], the legislature’s assessment that the payment obligation . . . of a total nominal value of EUR 190 024 800 000 . . . referred to as a guara tee authorisatio ’ . . . does not lead to a complete failure of budget autonomy is to be accepted by the Federal Constitutional Court. This also applies if the German participation in the [EFSF], bilateral assistance in favour of Greece and risks resulting from the participation in the [ESCB] and in the [IMF] are i cluded i the calculatio of Ger a y’s o erall commitment undertaken with regard to the 124 Id. at paras. 222, 234 (DE), 206 (EN prelim.). 125 Id. at para. 234 (DE, not translated into EN). 126 The fact that this qualification of Article 136(3) is questionable (see infra Part B.II.1.) has no bearing on the argument that the Court allows the legislator to take a political course which the Second Senate (or at least several of its Members) regards as being a fundamental adjustment. 44 German Law Journal [Vol. 14 No. 01 stabilisation of the [EMU]. In the oral hearing, the Bundestag and the Federal Government stated in detail that the risks involved with making available the German shares in the [ESM] were manageable, while without the granting of financial facilities by the [ESM] the entire economic and social system was under the threat of unforeseeable, serious consequences. Even though these assumptions are the subject of great controversy among economic experts, they are at any rate not evidently erroneous. Therefore the Federal Co stitutio al Court ay ot replace the legislature’s 127 assessment by its own. Anyone having consulted an economist in recent years, in the hope to better understand the economic correlations and interdependencies leading into or out of the crisis, may have made the experience that an often-quoted saying about lawyers that where there are two lawyers there will usually be three opinions —seems to apply equally to economists. However, if one looks, through the eyes of a constitutional lawyer, at the multitude of economic explanations being presented almost on a daily basis, one should not make the mistake and believe that a constitutional court could solve these issues by interpreting constitutional norms and by replacing the legislature’s a d also the go er e t’s assess e t of the alue of certai eco o ic a d o etary policies or of the udget legislator’s future freedo to act. This is not to say that a judicial decision on these issues would necessarily lack conclusiveness. But it would lack legitimation. The fact that Karlsruhe sticks to its institutional role under the Basic Law and does not supplement or even supplant the legislature’s—certainly questionable—decisions by the ruling of 12 September 2012, is to e welco ed ot so uch ecause the judg e t upholds a su sta tially right decisio , but because it respects that this key decision (including the assessment of its future implications) is to be taken primarily by the legislature. This is why it should not be seen as a sign of weakness that the Court distinctly relies on the margin-of-assessment doctrine. III. Future Development of the EMU: A Return to Openness The third leitmotiv is closely linked to the second. It can be termed a return to constitutional openness regarding the future development of the EMU, even against the backdrop of Article 79(3) of the Basic Law. 127 Id. at para. 271 (DE), 240 (EN prelim.). 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 45 1. Article 79 (3) Basic Law—A New Formula? I this co te t, it is agai worth uoti g the judg e t’s key paragraph in full: Article 79(3) of the Basic Law does not guarantee the unchanged further existence of the law in force but those structures and procedures which keep the democratic process open and, in this context, safeguard parlia e t’s o erall udgetary responsibility. Already in its Maastricht judgment, the Federal Constitutional Court held that, in order to comply with the stability mandate, a continuous further development of the monetary union may be necessary if otherwise the conception of the monetary union, which had been designed as a stability union, would be departed from . . . . If the monetary union cannot be achieved in its original structure through the valid integration programme, new political decisions are needed as to how to proceed further . . . . It is for the legislature to decide how possible weaknesses of the monetary union are to be counteracted by amending European Union 128 law. I esse ce, the Court pa es the way for a co ti uous further de elop e t of the EMU and pays respect, as we ha e already see , to the legislator’s argi of assess e t i this context. While the preceding Greece & EFSF ruling might have raised doubts if the Court would, on the basis of its interpretation of Article 79(3) of the Basic Law, allow an (alleged) rearra ge e t of the EMU’s architecture i ge eral a d the creatio of a per a e t 129 stability mechanism in particular, the Court now specifies that the constitutional re uire e t of a sta ility u io does ot ecessarily e tail to ai tai the status quo by 130 all means. As ot e ery si gle feature of the curre t sta ility co u ity is guara teed by the principle of democracy in conjunction with Article 79 , a de ocratically legiti ized cha ge regardi g the co crete desig of the sta ility re uirements under EU 131 law is ot fro the outset i co pati le with Article 79(3). The Court thus returns to a 128 ESM & Fiscal Treaty case, supra note 1, at para. 222 (DE), 206 (EN prelim.) (emphasis added). 129 Greece & EFSF case, supra note 15, at paras. 128–129. For an early prediction that the ESM would in fact comply with constitutional standards, see Ruffert, supra note 15, at 852. 130 ESM & Fiscal Treaty case, supra note 1, at para. 221 (DE), 205 (EN prelim.). 131 Id. 46 [Vol. 14 No. 01 German Law Journal statement that was already contained in its Maastricht judgment. 132 Certainly, it is not a radical turnaround to interpret Article 79(3) in a manner that does not demand to freeze the legal status quo, but to keep the (national!) democratic process ope . Whe the “eco d “e ate i its Lisbon judgment identified five marques de 133 souveraineté, i.e., key areas within which the future conferral of competencies to the EU would bear a high risk of violating the constitutional core protected by the eternity clause, it did so precisely with the argument of ensuring sufficient room for the determination of 134 the political development in Germany. Also, the Court now explicitly underlines that the prohi itio of o etary fi a ci g y the ECB co stitutes a esse tial ele e t i order to safeguard, at EU level, the constitutional requirements resulting from the principle of democracy protected in its essential content by Article 79(3) and thus seems to further 135 extend the eternity clause. However, read together with the margin-of-assessment doctrine, the new formula seems to place less emphasis on the judicial definition of certain substantial key areas, but relies o the ore a stract otio of structures a d procedures i stead. O e ay therefore hope that it is the beginning of a jurisprudence which shows more reluctance and sensitivity regarding the interpretation of the eternity clause, a jurisprudence taking into accou t the assi e a d legiti ate criti ue of the u ecessary theory of ecessary state 136 functions. The eternity clause was predominantly framed in order to prevent a slide ack of Ger a y i to dictatorship a d ar aris , a d othi g ser es this aim with higher pro a ility tha Ger a y’s i tegratio i to the Europea U io , as a prese t Me er of 137 the Second Senate has put it aptly in the past. 2. Comparative Constitutional Law Perspective A comparative perspective should also remind the Court to reconsider its handling of Pa dora’s eter ity o . While Karlsruhe is ot the o ly co stitutio al court which deri es constitutional limits to European integration from an eternity clause, no other court in 132 See Maastricht case, supra note 13, at para. 151. 133 Cf. JEAN BODIN, LES SIX LIVRES DE LA RÉPUBLIQUE—BOOK I, at 295, 306 and 309 (10th ed. 1593, reprint 1986). 134 Lisbon case, supra note 14, at para. 249. 135 ESM & Fiscal Treaty case, supra note 1, at para. 220 (DE), 204 (EN prelim.). 136 See particularly Halberstam & Möllers, supra note 61, at 1249–1250. 137 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], July 18, 2005, 113 BVERFGE 273 para. 180 (Lübbe-Wolff, J., dissenting) (Ger.) [European Arrest Warrent case]. For the historic background of the German eternity clause see, Matthias Herdegen, Article 79, in GRUNDGESETZ—KOMMENTAR paras. 63–69 (Theodor Maunz & Günter Dürig, eds., 66th ed. 2012). 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 47 Europe followed suit in interpreting an eternity clause in such a detailed and cataloguestyle manner. Particularly the French Conseil constitutionnel shows extreme self-restraint with regard to 138 Article 89(5) of the French constitution. Consequently, this provision does not belong to the relevant norms of reference, neither in the decision on the Lisbon Treaty nor in its 139 recent decision on the Fiscal Treaty. The Conseil constitutionnel has been described aptly as a poi ts a aiguilleur) which only indicates whether ratification requires a 140 revision of the constitution or not. A restrictive approach towards (potential) constitutional eternity clauses can also be 141 observed when looking at several other EU Member State constitutions. The Czech Constitutional Court in its second Lisbon judgment even openly objected to the demand of establishing an abstract catalogue of non-transferrable rights deduced from the Czech 142 eternity clause. The petitio ers had asked the Co stitutio al Court to set su sta ti e limits to the transfer of powers, a de a d which was, i the words of the Court, 143 e ide tly i spired y the decisio of the Ger a Co stitutio al Court. However, the Czech Co stitutio al Court replied that it did ot co sider it possi le, i iew of the position that it [the Court] holds in the constitutional system of the Czech Republic, to create such a catalogue of non-transferrable powers and authoritatively determine 144 su sta ti e li its to the tra sfer of powers.’ It reiterated what it had already stated in 138 Conseil constitutionnel [CC - Constitutional Council], decision No. 2003-469 DC, Mar. 26, 2003, paras. 2–3 (Fr.) [Decentralisation case], available at http://www.conseil-constitutionnel.fr/conseilconstitutionnel/root/bank/download/cc2003469dc.pdf. According to Article 89(5) of the French constitution, the repu lica for of go er e t shall ot e the o ject of a y a e d e t. That the Conseil constitutionnel shows extreme reluctance with regard to Article 89(5) of the French constitution is also illustrated by its Maastricht decisions, cf. Jacques Ziller, Sovereignty in France: Getting Rid of the Mal de Bodin, in SOVEREIGNTY IN TRANSITION 261, 271–272 (Neil Walker ed., 2003). 139 French Fiscal Treaty case, supra note 54, at paras. 4–8 and Conseil constitutionnel [CC - Constitutional Court], decision No. 2007-560DC, Dec. 20, 2007, at paras. 3–7 (Fr.) [Lisbon case]. An English translation is available at http://www.conseil-constitutionnel.fr/conseil-constitutionnel/root/bank/download/2007560DCa2007560dc.pdf. 140 LOUIS FAVOREU, LA POLITIQUE SAISIE PAR LE DROIT 30 (1988). 141 For more details concerning the interpretation of eternity clauses by national constitutional courts in Europe, see WENDEL, supra note 62, at 331–337. 142 According to Article 9(2) of the Czech co stitutio , the su sta ti e re uisites of the de ocratic, law-abiding “tate ay ot e a e ded. Accordi g to Article , the Czech ‘epu lic is a so ereig , u itary a d democratic, law-abiding State, based on respect for the rights and freedo s of a a d citize . 143 Ústavní soud [Constitutional Court], case No ÚS 29/09, Nov. 3, 2009, para. 110 (Czech) [Treaty of Lisbon II case]. An English translation of the most important sections by Jan Komárek is contained in 6 EUR. CONST. L. REV. 345 (2009). 144 Id. at para. 111. 48 German Law Journal [Vol. 14 No. 01 its first Lisbon decisio , a ely that such li its should e left pri arily to the legislature to specify, because this is a priori a political question, which provides the legislature wide 145 discretio . Following this general line, the Czech Constitutional Court also did not consider itself authorized to concretize in advance the precise content of the eternity clause. This would ot i ol e ar itrari ess, ut, o the co trary, restrai t a d judicial minimalism, which is perceived as a means of limiting the judicial power in favor of political 146 processes. In essence, the Czech Constitutional Court raised the question of the separatio of powers, i.e., of i stitutio al choice etwee the judiciary a d the 147 (constitutional) legislator. The answer given by the Court was clearly in favor of the political process. 3. Substantial Openness Under the German Basic Law Against this background, one might hope that the German Federal Constitutional Court will (gradually) follow a new path regarding the interpretation of the eternity clause. A positive signal in this respect certainly is that the Court does not reiterate the concept of 148 so ereig statehood as de eloped i the Lisbon judgment. Furthermore, it is to be welcomed that the decision of 12 September 2012 does not mention Article 146 of the Basic Law at all. Unlike the French Conseil constitutionnel and the Czech Constitutional Court, which stay within the boundaries of their constitutional order by referring to the legislature or the constituent authority, Karlsruhe’s Lisbon judgment called for revolution when it referred to the pre-constitutional (and thus outer-systemic) right to give oneself a 149 150 constitution, allegedly mirrored in Article 146 and therefore allegedly justiciable. Even if one accepted the highly doubtful claim that Article 146 can be construed as a normative 145 Id. 146 Id. at para. 113. 147 See e.g., Miguel Poiares Maduro, Contrapunctual La : Europe’s Constitutional Pluralis in Action, in SOVEREIGNTY IN TRANSITION 501, 530 (Neil Walker ed., 2003); Jan Komárek, European Constitutionalism and the European Arrest Warrant—in Search of the Limits of Contrapunctual Principles”, 44 COMMON MKT. L. REV. 9, 38–40 (2007) within the context of the European Arrest Warrant cases. 148 The ter so ereig ty is e tio ed o ly once in the context of the new Article 136(3) TFEU (para. 236). See the comment of Ingolf Pernice in THE EUROPEAN (Sept. 19, 2012), http://www.theeuropean.de/ingolfpernice/12291-nach-dem-esm-urteil. For a different appraisal see Schorkopf, supra note 49, at 1274, arguing that the Court hereby adheres to its understanding of sovereignty as developed in the Lisbon judgment. For the concept of so ereig statehood, see the Lisbon case, supra note 14, at paras. 224, 228-229, 247–248, 263. 149 Lisbon case, supra note 14, at paras. 179, 232, 263. See the criticism by Matthias Jestaedt, Warum in die Ferne schweifen, wenn der Maßstab liegt so nah?, 48 DER STAAT 496, 501, 512–513 (2009). 150 The logical fracture is that, according to the Court, the inner-systemic voter shall be entitled, by relying on Article 38(1) Basic Law, to become the guardian of the outer-systemic constituent power reflected in Article 146 Basic Law. See Lisbon case, supra note 14, at paras. 179–180. 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 49 151 basis for overcoming the limits protected by the eternity clause, the question still remains if (and with which consequences) it can be up to a Court to act as a tra s or ati e poi ts a , i.e., to initiate a process at the end of which the co stitutio al order, which for s the Court’s ow co stitutio al asis, would e 152 superseded. O e ay therefore hope that the Court’s ew ope ess will re ai a openness under the German Basic Law. D. Leftovers Given that the judgment was limited to the summary review within the framework of a temporary injunction procedure, some leftovers for the principal proceeding do remain. I. The Ultra Vires Claim: Acquisition of Government Bonds on the Secondary Market by the ECB The most important leftover concerns the constitutional evaluation of rescue measures taken by the European Central Bank (ECB), in particular the acquisition of government bonds on the secondary market. These measures were challenged exclusively by the applicants in proceeding 2 BvR 1421/12. Their application to declare these measures ultra vires, i.e., transgressing the competences conferred to the ECB and thus being inapplicable 153 in Germany, was considered by the Court as being not included in the application for the issue of a temporary injunction and thus will have to be addressed in the principal 154 proceedings. The first question arising in this context relates to the admissibility of the ultra vires 155 claim. It is not the first time that the Court is confronted with such a claim in the context of EU rescue measures. In its Greece & EFSF judgment, the Court declared a constitutional complaint directed against comparable measures inadmissible, because the challenged acts were ot so ereig acts of Ger a state authority a d could therefore ot e 151 For convincing arguments against this claim, see Tobias Herbst, Legale Abschaffung des Grundgesetzes nach Art. 146 GG?, 45 ZEITSCHRIFT FÜR RECHTSPOLITIK 33 (2012). For a profound analysis of the Court s approach, see Marti Netteshei , Wo endet das Grundgesetz? Verfassungsgebung als grenzüberschreitender Prozess, 51 DER STAAT 313, 340–342, 349–355 (2012). 152 153 Lisbon case, supra note 14, at paras. 240–241; see also Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 2661/06, July 6, 2010, at paras. 55–66 [Honeywell case]. For the concept of ultra vires acts cf. the in-depth analysis of FRANZ C. MAYER, KOMPETENZÜBERSCHREITUNG UND LETZTENTSCHEIDUNG 67 et seq. (2000). 154 ESM & Fiscal Treaty case, supra note 1, at para. 202 (DE, not translated into EN). 155 The Court addresses this issue within the context of admissibility. 50 German Law Journal [Vol. 14 No. 01 156 challenged within the procedural framework of a constitutional complaint. However, referring to its Maastricht and Honeywell decisions, the Court declared the complaint inadmissi le otwithsta di g other possi ilities to re iew the applica ility of the 157 challenged acts in Germany. Hence, the Court has left the door open for ultra vires 158 claims beyond the exclusive procedural context of a constitutional complaint. Even if it seems unlikely on the basis of the preceding Greece & EFSF judgment that the Court should declare the claims admissible this time, one may wonder about the consequences if Karlsruhe decided differently. A (founded) ultra vires review would lead to 159 the inapplicability of the respective act in Germany. However, a declaration of i applica ility regardi g the decision of the ECB to acquire government bonds on the secondary market cannot effectively stop these measures and thus hardly meets the complainants’ procedural o jecti e. I a y case, if the Court carried out a ultra vires review on the question if the activities of the ECB manifestly violate its competences, it would have to refer a preliminary question to the European Court of Justice—not only 160 under Article 267(3) TFEU but also according to its own standards. Like the preliminary 161 reference of the Irish Supreme Court leading to the Pringle judgment, such a preliminary reference would finally lead to a legal assessment by the judicial body which is first and fore ost co pete t to e sure that i the i terpretatio a d applicatio of the Treaties the law is o ser ed, as Article 9(1) sentence 1 TEU states. The primary competence of the Court of Justice to interpret EU law, however, did not prevent the German Federal Constitutional Court from already presenting its 162 interpretation of Article 123 TFEU, the key provision in this respect. With specific view to the relationship between the ESM and the ECB, the Court holds that borrowing by the ESM fro the ECB, alo e or i co ectio with the depositi g of go er e t o ds, 163 would e i co pati le with EU law. Furthermore, the Court classifies the ESM as an institution in the sense of Article 123(1) TFEU to which no loans may be granted by the ECB. Also a depositi g of go er e t o ds y the E“M with the ECB would i fri ge the 156 See Greece & EFSF case, supra note 15, at para. 116. 157 Id. 158 See Ruffert, supra note 15, at 847. Ruffert takes the view that an ultra vires review would have been admissible. 159 See Lisbon case, supra note 14, at para. 241; Honeywell case, supra note 153, at para. 55. 160 Honeywell case, supra note 153, at para. 60. 161 See supra note 28 and accompanying text. 162 Cf. Schorkopf, supra note 49, at 1275. 163 ESM & Fiscal Treaty case, supra note 1, at para. 276 (DE), 245 (EN prelim.). 2013] Judicial Restraint and Openness: The ESM in Karlsruhe 51 164 a o the direct ac uisitio of de t i stru e ts of pu lic e tities. According to the Court, it could remain open whether this would constitute an acquisition on the primary or o the seco dary arket, for a ac uisitio of go er e t o ds o the seco dary market by the European Central Bank aiming at fi a ci g the Me ers’ udgets 165 i depe de tly of the capital arkets is prohi ited as well. This statement could have a sig ifica t i pact, e e though the co ditio that a for idde ac uisitio ust ai at fi a ci g the Me ers’ udgets i depe de tly, i.e., must follow a certain intention, is certainly a hard nut to crack. II. Parliamentary Involvement The second group of leftovers concerns the question of parliamentary involvement. As already stated within the context of the first leitmotiv, the Court will examine several issues more closely in the principal proceedings in this respect. The first aspect relates to the intensity of parliamentary participation concerning decisions to issue shares of the authorized capital stock at higher than par value under Article 8(2) sentence 4 TESM. The second concerns the question of parliamentary arrangements to avoid a suspension of the 166 voting rights under Article 4(8) TESM. Thirdly, the Court stated that a further review in the principal proceedings might be necessary regarding the intra-parliamentary allocation of responsibilities. Here, some of the powers currently assigned to the Budget Committee 167 may have to be exercised by the plenary session. The fourth issue left expressly open for the principal proceedings is the question to what extent the intra-parliamentary allocation 168 of tasks is justiciable within the framework of a constitutional complaint. However, these issues address the institutional fi e-tu i g a d will possi ly ot lead to judicial statements of major significance in the principal proceedings. 164 Id. at paras. 277–278 (DE), 246–247 (EN prelim.). 165 Id. at para. 278 (DE), 247 (EN prelim.) (emphasis added). One should note that in the Pringle case, the Court of Justice did not address the acquisition of government bonds by the ECB, but by the ESM. See supra note 28, at paras. 140–141. 166 ESM & Fiscal Treaty case, supra note 1, at paras. 280, 290–293 (DE, not translated into EN). 167 Id. at paras. 297–299 (DE, not translated into EN). This may, for instance, concern decisions on material cha ges of the procedure a d of the co ditio s of the E“M’s capital calls. 168 Id. at para. 294 (DE, not translated into EN). 52 German Law Journal [Vol. 14 No. 01 E. Conclusion The ESM & Fiscal Treaty decision of 12 September 2012 might not be a grand arrêt, that is to say a leading case which breaks entirely new ground and opens new horizons. In many respects, it relies o Karlsruhe’s precedi g case law relati g to Europea i tegratio . However, several promising realignments can be identified. In particular, the potential return to substantial openness regarding the future development and adjustment of the EMU against the backdrop of the eternity clause has to be welcomed. One may hope that the Constitutional Court stands at the beginning of a path towards a more careful and co tai ed ha dli g of the Basic Law’s eter ity clause. The re arka ly stro g manifestation of judicial restraint should also be highly appreciated, a manifestation that not only paid lip ser ice ut had sig ifica t i pacts o the judg e t’s outco e. Compared to precedents like the Lisbon judgment, the decision of 12 September 2012 is also characterized by a rather concise, modest and down-to-earth language. The German Federal Constitutional Court could not fulfill public expectations because a co stitutio al court ca ot fulfill such hopes of sal atio without transgressing the limits of its judicial mandate. The Court did well not to transcend this boundary. Indeed, sometimes less is more. Special Section The ESM Before the Courts Yes, But . . . One More Thing: Karlsruhe’s Ruli g o the European Stability Mechanism By Karsten Schneider * A. I troductio : The Court’s Notorious Yes, But . . . 1 As in its first leading Euro-Case Greece Bailout ) one year ago, the Second Senate of the Federal Co stitutio al Court FCC o ce agai decided o the fate of Europe’s ailout. The Court’s ESM ruling on September 12, 2012, clears the path for the next steps in a fast2 o i g rescue situatio . This time for the ratification of three international agreements: 3 The insertion of Article 136(3) TFEU, the new Treaty establishing the European Stability 4 Mechanism (ESM Treaty), and the new Treaty on Stability, Coordination and Governance in 5 the Economic and Monetary Union (Fiscal Compact). The Court rejected the applications for temporary injunctions with the proviso that the ESM Treaty may only be ratified if it is ensured that the payment obligations of the Federal * Dr. (University of Bonn); lecturer (akademischer Rat) at the University of Bonn; clerked from 2009–2011 for Justice Prof. Dr. Dr. Udo Di Fabio at the Second Senate of the Federal Constitutional Court (Bundesverfassungsgericht). Email: [email protected]. 1 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], 1 BVR 987/10, Sept. 7, 2011, 129 BVERFGE 124 (Ger.) [hereinafter Greece Bailout case]. See also Martin Nettesheim, Euro-Rettung und Grundgesetz, 46 EUROPARECHT 765, 765 (2011); Hanno Kube, Rechtsfragen der völkervertraglichen Eurorettung, 66 WERTPAPIERMITTEILUNGEN 245, 245 (2012); Matthias Ruffert, Die europäische Schuldenkrise vor dem Bundesverfassungsgericht—Anmerkungen zum Urteil vom 7. September 2011, 46 EUROPARECHT 842, 842 (2011). 2 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], 2 BVR 1390/12, Sept. 12, 2012 ___ BVERFGE ___(Ger.), citations refer to the paragraphs of the English translation [hereinafter ESM case], published by the Court, available at: http://www.bverfg.de/en/decisions/rs20120912_2bvr139012en.html; they do not correspond with the different (!) number of paragraphs of the judgment [hereinafter ESM case (Ger.)]. See also Frank Schorkopf, “tartet die Maschinen —Das ESM-Urteil des BVerfG vom 12. 9. 2012, 31 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT 1273, 1273 (2012); Christian Tomuschat, Anmerkung zum Urteil des BVerfG vom 12.09.2012— BvR 1390/122—u.a.—Verhinderung der Ratifikation von ESM-Vertrag und Fiskalpakt überwiegend erfolglos, 127 DEUTSCHES VERWALTUNGSBLATT 1431, 1431 (2012). 3 European Council Conclusions of 24 and 25 March 2011, Annex II, 21 [hereinafter European Council Conclusions of March 2011] 4 DEUTSCHER BUNDESTAG: DRUCKSACHEN UND PROTOKOLLE [BT] 17/9045, pg. 6 [hereinafter BT 17/9045]. 5 DEUTSCHER BUNDESTAG: DRUCKSACHEN UND PROTOKOLLE [BT] 17/9046, pg. 6 [hereinafter BT 17/9046]. 54 German Law Journal [Vol. 14 No. 01 Republic of Germany from this Treaty are limited and that no higher payment obligations can be established without the agreement of the German representative legislature 6 (Bundestag and Bundesrat). Furthermore, provisions of the ESM Treaty concerning the inviolability of the documents of the ESM and the professional secrecy of all persons 7 working for the ESM must not stand in the way of the comprehensive information of the 8 Bundestag and of the Bundesrat. This yes, ut . . . patter is well k ow fro Karlsruhe’s ruli gs co cer i g the Europea 9 Union. Since the Maastricht Case in 1993, the Court has never impeded but shown sensitivity for European integration. The German Court, however, has established an impressive track record calling for further involvement of the parliament in external relations and taxes and finance, including the taking of credit. The German Bundestag has the responsibility for integration (Integrationsverantwortung) and the overall budgetary responsibility (dauerhafte Haushaltsverantwortung). The time frame for the decision on September 12 was unusually tight. Under regular circumstances the Second Senate would have spent at least a year deliberating the judgment. Instead the Court decided on the issue of temporary injunctions within roughly two months and had even heard oral arguments beforehand on July 10, which is considered a rare event. Under these auspices, the judg e t’s reaso i g had to rely 10 heavily on Senate precedent in the context of the ongoing endeavors to rescue the Euro. The following sections elaborate on the main lines of argument behind the new ESM judg e t a d put the case i the co te t of Karlsruhe’s pre ious si judg e ts si ce the outbreak of the crisis in 2008. The new ESM judgment meets expectations and repeats 11 much that has been said before. At first sight, the court´s repetition provokes a feeling of 6 See ESM case, supra note 2, at para. 222. 7 See Treaty Establishing the European Stability Mechanism (ESM), art. 32 (5), 34, and 35 (1), Feb. 2, 2012 [hereinafter ESM treaty]. 8 See ESM case, supra note 2, at para. 228. 9 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], 2 BVR 2134/92, Oct. 12, 1993, 89 BVERFGE 155 (Ger.) [hereinafter Maastricht case]. 10 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], 2 BVR 987/10, May 7, 2010, 125 BVERFGE 385 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], 2 BVR 1099/10, June 6, 2010, 126 BVERFGE 158 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], 2 BVR 1485/10, Sept. 7, 2011, 129 BVERFGE 124 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], 2 BVE 8/11, Feb. 28, 2012, 31 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT 495, 495 (2012) (Ger.), Bundesverfassungsgericht [BVerfG Federal Constitutional Court], 2 BVE 4/11, June 19, 2012, 31 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT 954, 954 (2012) (Ger.). 11 See infra Part B. 2013] Yes, But…. The E“M i Karlsruhe 55 judicial continuity. This time, however, is different; the ruling did have to cover some new ground, but omitted to reiterate important innovations from the first Greece Bailout case. Thus, the most remarkable part of the judgment seems to be what is missing. So Karlsruhe’s latest yes, ut . . . ruli g pro okes a yes, ut . . . there should have been one 12 ore thi g. B. The Yes : Connecting the Dots The main line of reasoning of the judgment measures the three international agreements against the standards of review developed by the Court in Greece Bailout and in the first ESM Case. I. The Extent of Review Departing from the scrutiny usually applied in temporary injunction proceedings, the Second Senate applied the standard of a summary review of the three challenged Acts of assent and of the accompanying laws asking whether these jeopardize the applica ts’ 13 rights. The usual extent of review in temporary injunction proceedings would have forced the Senate to rely on a mere weighing of the consequences of its decision. Against the background of the binding effect of the ratification of the Treaties, a mere weighing of the consequences would have strongly suggested issuing temporary injunctions, which is no easy option for the Court during times when many critics are under the impression that Germany should be acting more quickly and zealously to avoid a collapse of the euro 14 zone. II. The Standard of Review As it had been in the Greece Bailout case, the Court’s co stitutio al assess e t was ased 15 on Article 38(1) of the Basic Law. The Senate regarded the principal proceedings as admissible to the extent that the applicants asserted a violation of the overall budgetary responsibility of the German Bundestag, which is entrenched in constitutional law through 12 See infra Part C. 13 See ESM case (Ger.), supra note 2, at para. 190–94. 14 This extent of review is, however, already known from other constellations. See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], 2 BVQ 5/77, Oct. 16, 1977, 46 BVERFGE 160, 194 (Ger.); Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], 2 BVR 617/84, May 30, 1984, 67 BVERFGE 149, 151 (Ger.); Bundesverfassungsgericht [BVERFG - Federal Constitutional Court], 1 BVQ 19/04, June 23, 2004, 111 BVERFGE 147, 153 (Ger.). 15 Grundgesetz für die Bundesrepublik Deutschland [Grundgesetz] [GG], art. 38 (1) ( Members of the German Bundestag shall be elected in general, direct, free, equal, and secret elections. They shall be representatives of the whole people, not bound by orders or instructions, and responsible only to their conscie ce. . 56 [Vol. 14 No. 01 German Law Journal 16 17 the principle of democracy (Article 20(1) and (2), and Article 79(3) of the Basic Law). The ESM’s sta dard of re iew is early ide tical to the sta dard of re iew de eloped i 18 Greece Bailout, which is used as a kind of boilerplate. . The Budgetary ‘esponsibility” Co plaint The udgetary respo si ility co plai t was the ai i o atio of the Greece Bailout 19 case. Procedurally based on Article 38(1), Article 20(1 and 2), and Article 79(3) of the Basic Law, this co plai t redefi es the structurally twisted argu e t of protecti g the Bundestag agai st its ow decisio s. It is u derstood as a protectio of certai aspects of 20 the right to vote, including the preservation of the democracy principle, guaranteed in 21 Article 79(3) of the Basic Law as part of the unchangeable identity of the constitution. The Court poi ted out the prohi itio of the reli uish e t of udgetary respo si ility does certainly not impermissibly restrict the budgetary competence of the legislature, but 22 is specifically ai ed at preser i g it. The udgetary respo si ility co plai t ridges the gap etwee two heteroge eous aspects of the constitutionally guaranteed right to vote. On the one hand, this right does ot ge erally ser e to o itor the co te t of de ocratic processes, ut is i te ded to 23 facilitate the . On the other hand, the right to vote can be violated if the Bundestag's co pete ce is su sta tially curtailed a d thus a loss of su sta ce occurs of the 16 Grundgesetz für die Bundesrepublik Deutschland [Grundgesetz] [GG], art. 20 (1) ( The Federal Republic of Germany is a democratic and social federal state. (2) All state authority is derived from the people. It shall be exercised by the people through elections and other votes and through specific legislative, executive, and judicial odies. ). 17 Grundgesetz für die Bundesrepublik Deutschland [Grundgesetz] [GG], art. 79 (3) ( Amendments to this Basic Law affecting the division of the Federation into Länder, their participation on principle in the legislative process, or the principles laid down in Articles 1 and 20 shall be inadmissi le. ). 18 The ESM standard of review can be found at ESM case (Ger.), supra note 2, at paras. 209–28. Identical wordings can be found at Greece Bailout case, supra note 1, at paras. 120–32: see paras. 210/121–22, 211/124, 212/125, 213/127, 214/128, 216/131, 216/135, 217/132, 219/137, 219/129, 220/129, and 224/104. 19 Four out of fi e head otes of the judg e t address the udgetary respo si ility Greece Bailout case, supra note 1, at paras. 96–102 and 121–32. 20 No. , , a d . See Within the meaning of Article 20 (1) and 20 (2) of the Basic Law. 21 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], 2 BVE 2/08, Oct. 30, 2009, 123 BVERFGE 267, 340 (Ger.) [hereinafter Lisbon case]. 22 Greece Bailout case, supra note 1, at para. 125. 23 See id. at para. 99. 2013] Yes, But…. The E“M i Karlsruhe 57 democratic freedom of action for the constitutional body which has directly come into 24 ei g accordi g to the pri ciples of free a d e ual electio . By relyi g o the udgetary respo si ility the co plai a ts clai that the sustai ed (long-term) budgetary autonomy of the German Bundestag is violated in the sense of the erosio of its co pete ces. This co stitutes a sufficie t su sta tiatio of a iolatio of 25 their subjective rights. . The Measures Transgressing the Fra e ork of Authorization” Ultra-Vires ‘evie ” A surprisi g aspect of the sta dard of re iew is the Court’s re ark deali g with the rescue measures taken by the European Central Bank. The Second Senate gave considerable atte tio to o e of the applica ts’ o jectio s to these rescue measures, in particular to the acquisition of government bonds on the secondary market. A constitutional assessment of these easures ca o ly e ased o the argu e t that the ECB’s easures tra sgress the framework of authorization established by the German Acts of assent to the European U io Treaties ultra- ires re iew . The Court e plicitly holds that this o jectio is ot encompassed by the application for a temporary injunction, but that it would be reviewed 26 in the principal proceedings. This path of ultra vires review seems questionable. One obvious problem is connected with the previous Euro Case (Greece Bailout). In this judgment, the Second Senate treated an identical ultra-vires objection against nearly identical ECB rescue measures as 27 inadmissible. But regardless of this leading case, the question has a much more fundamental character. The German Constitutional Court has never before treated a socalled pri cipal ultra- ires o jectio prinzipale ultra-vires Rüge as ad issible. The idea of such a principal ultra-vires objection would assume that the German Court generally watches over European acts transgressing the framework of authorization established by the German Acts of assent to the European Union Treaties—without the complainants needing to submit with sufficient substantiation that they themselves are presently and directly affected by a violation of a fundamental right or a right equivalent to a fundamental right. The Honeywell Case of July 6, 2010, the only ultra-vires review by the German Constitutional Court, leaves the question whether principal ultra vires reviews would be admissible at all unanswered. In this case there were some other fundamental 24 See id. at para. 100. 25 See Greece Bailout case, supra note 1, at para. 97. 26 See ESM case (Ger.), supra note 2, at para. 202. 27 See Greece Bailout case, supra note 1, at para. 113. German Law Journal 58 [Vol. 14 No. 01 28 rights directly affected so the decisions did not depend on this question. The complainant in the Honeywell case asserted a violation of its rights under Article 2.1 and Article 12.1 in conjunction with Article 20.3 and Article 101.1, sentence 2, of the Basic Law. If the Second Senate conducted an ultra-vires review in the principal proceedings, the rules of procedure laid down in Honeywell would require cooperation with the European Court of Justice, because: Prior to the acceptance of an ultra vires act, the Court of Justice of the European Union is to be afforded the opportunity to interpret the Treaties, as well as to rule on the validity and interpretation of the acts in question, in the context of preliminary ruling proceedings according to Article 267 TFEU, insofar as it 29 has not yet clarified the questions which have arisen. 3. Accidentally Beyond the Maastricht and Lisbon Standard of Review? The seco d surprise co cer i g the sta dard of re iew is the Court’s self-restraint compared to the usual standard of review in cases concerning German Acts of assent to the 30 European Union Treaties, in particular, the structure of the monetary union (Maastricht, 31 32 Third-Stage-of-the-Euro-Introduction, Lisbon ). Whereas Article 88 of the Basic Law pro ides the “eco d “e ate’s usual sta dard for the co stitutio ality of the monetary u io ’s desig , the latest ruli g o ly takes the co cept of o erall udgetary respo si ility of the German Bundestag i to accou t. Article 88 of the Basic Law is ot e e 33 mentioned. 28 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], 2 BVR 2661/06, July 6, 2010, 126 BVERFGE 286 (Ger.) [hereinafter Honeywell case]. 29 See id. at para. 60 and Headnote 1. b). 30 See Maastricht case, supra note 9. 31 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], 2 BVR 1877/97, Mar. 31, 1998, 97 BVERFGE 350 (Ger.) [hereinafter Euro case]. 32 See Lisbon case supra note 21. 33 See, however, ESM case, supra note 2, at para. 203, but this does not describe a standard of review. 2013] Yes, But…. The E“M i Karlsruhe 59 III. Subsumtion The subsumtion contains three parts, the Act of assent to the insertion of Article 136(3) TFEU, the Act of assent to the ESM Treaty, and the Act of assent to the Fiscal Compact. First, the Second Senate holds, that the Act of assent to the insertion of Article 136(3) TFEU 34 does not impair the precept of democracy. The Article would change the present design of the economic and monetary union, but the commitment of the Member States to 35 observe budgetary discipline would remain intact. This (short) part of the judgment is 36 crucial and will be discussed in the next section. Second, with regard to the Act of assent to the ESM Treaty, the court concludes that this is essentially consistent with the requirements set forth by constitutional law with regard to 37 safeguarding the overall budgetary responsibility of the German Bundestag. Finally, the court is of the opinion that the Act of assent to the Fiscal Compact does not 38 violate the overall budgetary responsibility of the German Bundestag. C. The But : There Would Have Bee O e More Thi g This ti e, the “eco d “e ate’s fa ous yes, ut . . . for ula itself calls for a ca eat—a yes, ut . . . . The ruli g eeded to co er ew grou d, ut i stead the “e ate failed to expand on its own innovations from the Greece Bailout case. There was one more thing, which the Court did not do: Measuring the insertion of Article TFEU agai st the echa is li e of argu e t. This su te t akes the issi g 39 part of this judgment probably the most interesting omission in the history of the FCC. Parts I, II, and III elaborate on what exactly is missing, Part IV explains how that matters, and Part V offers an educated guess on why it is missing. 34 See ESM case (Ger.), supra note 2, at paras. 231–38. 35 See ESM case (Ger.), supra note 2, at para. 233. 36 See infra Part C. 37 See ESM case, supra note 2, at paras. 208–48. 38 See ESM case (Ger.), supra note 2, at paras. 300–19. 39 The most interesting omission in the history of the Court’s dissenting opinions would still be represented by dissenting Justice )eidler’s opi io I do ot agree. , see 77 BVERFGE 167 (Ger.) 60 German Law Journal [Vol. 14 No. 01 I. The Mechanis ”—Line of Argument The echa is li e of argu e t was the i tellectual core and the key innovation of the 40 first Euro judgment, the Greece Bailout case of September 7, 2011. In this case, the Second Senate held that the German Bundestag may not transfer its budgetary 41 responsibility to other entities. In particular, the German Bundestag may not assent to any mechanisms with financial effect which—whether by reason of their overall conception or by reason of an overall evaluation of the individual measures—may result in incalculable 42 burdens with budgetary significance without prior parliamentary consent. The pre ise ehi d this echa is argu e t, which pre iered i Greece Bailout, is the co cept of electoral de ocracy: There is a iolatio of the right to ote if the Ger a Bundestag relinquishes its parliamentary budget responsibility with the effect that it or a future Bundestag can no longer exercise the right to decide on the budget on its own 43 respo si ility. This constitutional premise has been well known for years. In the past, this premise was the standard for the Court’s assess e t of the co stitutio al li its provided by the Basic Law to prevent Parliament from limiting its own right to decide on 44 the budget. The echa is argu e t i Greece Bailout has now offered a new perspective on these well-known limits to the transfer of competences, which derive from the idea of electoral democracy. Whereas in the past the Court had only assessed questions arising from explicitly formal transfers of the competence of the Bundestag to adopt the budget to the European U io , the ew echa is li e of argu e t drew a other co clusio . E e without formal transfers of budgetary competences, the substantive content of the principle of democracy can actually be violated if the Bundestag depletes its right to decide 45 on the budget in a constitutionally impermissible manner. 40 See Greece Bailout case, supra note 1, at paras. 125– 8 head otes a The Ger a Bu destag ay ot transfer its budgetary responsibility to other actors by means of imprecise budgetary authorisations. In particular it may not, even by statute, deliver itself up to any mechanisms with financial effect which—whether by reason of their overall conception or by reason of an overall evaluation of the individual measures—may result in incalculable burdens with budget relevance without prior a datory co se t. a d No per a e t mechanisms may be created under international treaties which are tantamount to accepting liability for decisions by free will of other states, above all if they entail consequences which are hard to calculate. Every large-scale measure of aid of the Federal Government taken in a spirit of solidarity and involving public expenditure on the internatio al or Europea U io le el ust e specifically appro ed y the Bu destag. . 41 See Greece Bailout case, supra note 1, at para. 125; ESM case, supra note 2, at para. 196. 42 See Greece Bailout case, supra note 1, at para. 125; ESM case, supra note 2, at para. 196. 43 See Greece Bailout case, supra note 1, at para. 121. 44 See Maastricht case, supra note 9, at para. 172; Euro case, supra note 31, at paras. 368–69. 45 See Greece Bailout case, supra note 1, at para. 133. 2013] Yes, But…. The E“M i Karlsruhe 61 Beyond the well-known questions of formal transfers of budgetary competences, the Second Senate addressed two different aspects in the Greece Bailout case: (1) a prohibition to burden present or future federal budgets with disproportionately great commitments, and (2) mechanisms with adverse consequences for the German 46 Bundestag's budget autonomy. Both facets (disproportionately great commitments and mechanisms) covered new ground in the Greece Bailout case. They have to be thoroughly distinguished. The Second Senate differentiated as follows: An upper limit to issuing financial guarantees following directly from the democracy principle can only be assessed if the guarantee affects budget autonomy in such a way that 47 it, at least for an appreciable period of time, is not merely restricted but effectively fails. A mechanism, however, can create or consolidate an automatic effect that may result in the 48 relinquishment of the German Bundestag’s right to decide on the budget. The co cept of legal o ligatio is the crucial differe ce etwee the Court’s two ew categories. A echa is is e tirely differe t fro a legal o ligatio . If there were explicit legal obligations, the Court would not have needed the echa is li e of argument, but could have only assessed the upper limit of guarantees. “o what is a echa is , if it is ot a legal o ligatio ? I Greece Bailout the Court offered o defi itio , ut the echa is li e of argu e t gi es the following answer: A mechanism is everything that has an effect similar to a transfer of budgetary competence (otherwise it would be a transfer) without establishing legal obligations (otherwise it would be a legal obligation). II. It Takes an Architect to Catch a Mechanis ” With a view to this Greece Bailout overture, the biggest surprise by far in the judg e t is the “eco d “e ate’s ca alier way of ha dli g its delicate echa is li argument. Readers searching for a careful analysis of each echa is e ta gled i 49 three challenged international agreements will be disappointed by the judgment. ESM e of the The 46 The Greece Bailout judgment also calls these echa is s irre ersi le processes or auto atic effects , see Greece Bailout case, supra note 1, at paras. 127, 136–37. 47 See Greece Bailout case, supra note 1, at para. 135. 48 See id. at para. 136. 49 See European Council Decision of 25 Mar. 2011, amending Article 136 of the Treaty on the Functioning of the European Union, OJ 2011, L 91/1; ESM Treaty, supra note 7; Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, Mar. 2, 2012; see also Press Release, Federal Constitutional Court, 62 [Vol. 14 No. 01 German Law Journal Second Senate relied on Potter “tewart’s pri ciple I k ow it whe I see it. This is worth taking a closer look. Assessing the problems at hand, it becomes evident that the Senate addressed just one out of two mechanisms. The echa is dealt with is lata tly o ious, ecause it is called the Europea “ta ility Mecha is . I the ea ti e the other—far more important—mechanism though 50 remains unaddressed in the judgment. It arises from the freshly modified Treaty on the Functioning of the European Union. The insertion of new Article 136(3) TFEU, which the FCC gave only little attention, has the followi g wordi g: The Me er “tates whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism 51 will be made subject to strict co ditio ality. Looking at the content and context of this ew Article, the Court would ha e ee e pected to deal with co plai a ts’ su issio s and then to investigate the details of the underlying mechanisms. The Second Senate belied this expectatio . The Court’s reaso i g co tai s o su sta tial sectio s discussi g Article 136(3) TFEU at all. 52 The challe ge here deri es fro what is k ow as the fra i g effect. Despite the fact that new Article 136(3) TFEU openly refers to some other (secondary) mechanisms, the modified architecture of the European monetary union itself can be framed as a (primary) mechanism. The Second Senate, however, does not assess the insertion of this Article in its primary effect. Instead, the Court describes Article TFEU as erely ope i g up the 53 possi ility of i stalli g a echa is o the asis of a i ter atio al agree e t. Article 136(3) TFEU itself, the Court concludes, does not establish such a stabilization 54 mechanism. Applications for the Issue of Temporary Injunctions to Prevent the Ratification of the ESM Treaty and the Fiscal Compact Unsuccessful for the Most Part (Sept. 12, 2012) (which does not mention article 136 (3) TFEU). 50 See Christian Tomuschat, Anmerkung zum Urteil des BVerfG vom 12.09.2012—BvR 1390/122—u.a.— Verhinderung der Ratifikation von ESM-Vertrag und Fiskalpakt überwiegend erfolglos, 127 DEUTSCHES VERWALTUNGSBLATT 1431, 1433 (2012) (which does not notice this omission). 51 European Council Conclusions of March 2011, supra note 3. 52 See Amos Tversky & Daniel Kahneman, The Framing of Decisions and the Psychology of Choice, 211 SCIENCE 453, 453 (1981). 53 See ESM case (Ger.), supra note 2, at para. 236. 54 See ESM case (Ger.), supra note 2, at para. 236. 2013] Yes, But…. The E“M i Karlsruhe 63 The pro le with echa is s is that the world is full of them. However, some of them are hidden. Therefore one should consider carefully, whether or not to hold something to e erely ope i g up so e possi ility. Most legal rules ca ot e properly assessed when seen against only one layer of the legal order. However, taking the framing effect seriously, the problem at hand is about different framings of the new Article 136(3) TFEU. These different framings remain possible even if the “eco d “e ate fra es the i sertio as a ere possi ility of i stalli g a echa is . There is at least one more important possibility, which should be analyzed in the next section: the new Article can be framed as an integral part of a sequential move mechanism. III. The Monetary Union as a Sequential Move Mechanism The mechanism behind Article 136 TFEU, now modified by the insertion of Article 136(3), is the monetary union mechanism. The first pro le here is o iously to a oid the pitfalls of falsa de o stratio. Of course, the Second Senate has not built its mechanism line of argument on labels—but on the substance of the mechanism at hand. The question is what actually is a o etary u io rather than how to call a o etary u io . Legal a alysis of possi le echa is s ca ot entirely e ased o the o ser atio , that a syste of rules is called o etary u io i stead of o etary u io echa is which would certai ly ake it easier to recog ize at first glance). The monetary union is a mechanism, which can be described and analyzed as a sequential 55 o e echa is . “o what is a se ue tial o e echa is ? The main feature of a sequential move setting is that the moves (choices) of the different actors are not performed simultaneously but sequentially. In this sense the monetary union is a se ue tial o e echa is , ecause there are actors Me er “tates or groups of Member States) moving first and other actors (Member States or groups of Member States) moving second. The decisive point of such a strategic situation is, however, not time, but information. What akes the o etary u io ’s syste of rules a se ue tial o e echa is is ot simply that one actor moves first and another actor moves second. What really makes the monetary union a sequential move mechanism is that the second actor knows what choice 55 Game theorists might prefer the label sequential move game instead. See ULRICH ROLF, FISKALPOLITIK IN DER EUROPÄISCHEN WÄHRUNGSUNION. MARKTDISZIPLINIERUNG, TRANSFERS UND VERSCHULDUNGSANREIZE 74 (1996); Stefan Magen, Spieltheorie, in ÖKONOMISCHE METHODEN IM RECHT 71 (Emanuel V. Towfigh & Niels Petersen eds., 2010); James M. Buchanan, The “a aritan’s Dile a, in ALTRUISM, MORALITY, AND ECONOMIC THEORY 71 (Phelps ed., 1975). 64 German Law Journal [Vol. 14 No. 01 the first actor has made, before the second actor gets to make his own move. This information architecture makes the mechanism work. So it is not the timing per se that matters, but the fact that the second actor has obser ed the first actor’s choice efore aki g his ow . A d ice ersa, the first actor k ows a out the seco d actor’s later knowledge. Ge erally speaki g, i a se ue tial o e echa is , the second actor knows the first actor’s choice efore the seco d actor chooses, and the first actor knows that this will be the case. The echa is results ecause the first actor puts hi self i the shoes of the seco d actor, whose decision it precedes. This requires anticipation; actors look—down the decision tree—to what actors deciding later will do. This kind of anticipation has influence o the first o ers si ce their payoffs ca esse tially depe d o seco d o ers’ decisio s. Thus, the first o ers ake their choices a ticipati g the seco d o ers’ choices. This choice-depending-on-anticipation-pattern is the part of the sequential move echa is , where the fa ous i ce ti es e ter the stage. It is a co o isu dersta di g that these i ce ti es are carrots a d sticks, i flue ci g the actor who decides under their impression. There is some truth to that, but much more important is the i ce ti es’ i flue ce o the a ticipatio —and, therefore, on the choices—of other actors. The incentive scheme for the second actor is the foundation of the first actor ’s anticipation, a major factor of which is incentives other actors will have. So, as said before, the actors look down the decision tree to make their choices. The difficulty here is to see the range of incentives in sequential move mechanisms, since the change of incentives for one actor can change the behavior of other actors. In strategic situations the incentives for one actor are connected to the behavior of others via their 56 anticipations. This is where the often- e tio ed pro le called oral hazard comes from. . A Proble Called Moral Hazard” Sequential move mechanisms can ha e egati e effects, such as oral hazard. This problem can occur, whe the payoffs for each actor depe d o other actors’ choices, which 57 is obviously the case in the monetary union. It works as follows: the first actor knows his choice A or B a d a ticipates the seco d actor’s choice Y or ) . The first actor’s 56 See KENNETH DYSON &LUCIA QUAGLIA, 2 EUROPEAN ECONOMIC GOVERNANCE AND POLICIES 371 (2010). 57 For example the fact that the interconnection of the capital markets has greatly increased or the effects of economic contagion, which the payment default of one state in the monetary union has on the other Member States. 2013] Yes, But…. The E“M i Karlsruhe 65 58 k owledge a out the seco d actor’s i ce ti es is the fou datio for his a ticipatio . If the incentives for the second actor are obvious, the first actor anticipates the corresponding choices. At the same time, the individual payoffs for both actors depend on the other actor’s choice, so the i di idual payoffs are differe t, depe di g o what ki d of 59 combination of choices there is. Moral hazard occurs, if the incentives for one actor are clearly in favor of one choice, that guarantees him high payoffs, but leads to low payoffs for the other actor. In this situation the first actor anticipates the seco d actor’s later choice a d tries to a oid this outco e, ecause his payoff is threate ed to e low. “o the first actor’s choice e ades this situatio y choosi g the other optio . This ca e ad i the se se that the other optio leads to a combi ed outco e first actor’s payoff co i ed with seco d actor’s payoff worse tha the combined outcome of the other option. Simply speaking, moral hazard can lead to i di idual choices that are ad for the co i ed outco e. Moral hazard, howe er, is ot given by nature. It results from the design of the decision tree, in particular, from the corresponding incentive scheme. 2. Changing the European Treaties as Incentive Design Given the structure of the monetary union as a sequential move mechanism, the legal framework can be analyzed as shaping the incentives for every single actor. More poignantly, changing the legal framework by the insertion of Article 136(3) TFEU can be analyzed as changing the incentive design of the whole mechanism. The greater idea behind the incentive design of the monetary union is commitment. 60 Although there are, of course, other important commitment strategies, one interesting kind of commitment is the reduction of options. Only analyzing the monetary union as a sequential move mechanism makes it possible to understand the curiosity how getting rid of some choices can make someone (or even everyone) better off. The reason for this is that getting rid of choices can change the behavior of others, because it can change their anticipations. And such a change can benefit everyone. And the other way round, if getting rid of options did not change the behavior of others in a good way, it would not be worth trying. This is the key idea why it ca e crucial whether there is a ecause getti g rid of choices is e ui ale t to there is o ere possi ility or ot, ere possi ility of . . . . 58 Such as Whe I choose A, seco d actor will choose Y, whe I choose B, seco d actor will choose ). 59 A combined with Y, A combined with Z, B combined with Y or B combined with Z. 60 A other ki d of co it e t is ased o collaterals ; see infra section 4. 66 German Law Journal [Vol. 14 No. 01 Getting rid of some choices can be a mighty commitment strategy. And vice versa: ‘ei troduci g the ere possi ility cha ges the co mitment again. From this point of view, the critical feature of Article 136(3) TFEU is the destruction of sta ilized a ticipatio s, which ha e ee resulti g fro a te t ook e a ple of getti g rid of optio s, the o-bailout principle. The new Article opens the door to establishing a permanent mechanism(s) for mutual help and is therefore a game changer for the incentives of every single member of the monetary union. The resulting new framework modifies the incentive scheme in a sequential game. 3. No Bail-Out” as a Co it ent “trategy The no-bail-out clause, which is now being abolished by the insertion of Article 136(3) TFEU, has been a commitment strategy. To be more precise, it has been a commitment strategy for every Member State except the 250-pound-gorilla a o g Europe’s eco o ies. The legally binding promise not to grant any mutual financial aid has been a strong 61 commitment to encouraging fiscal discipline. The disclaimer against mutual financial aid has crucially changed the political payoffs for Member States deciding whether to comply with rules of fiscal discipline. As long as hope for financial assistance from other Member States is not a realistic option, domestic policy decisions could justify the pain of budgetary discipline as necessary to avoid potential threats of losing access to the markets for governmental bonds (which is a permanent threat as long as governmental budgets remain unbalanced). The Me er “tates, therefore, o ly had the choice etwee pai ful short-term consolidating measures resulting from budgetary discipline and (the potentially even greater) long-ter pai as a co se ue ce fro losi g access to the arkets . I other words: the Member States could justify their imminent political costs for strict compliance with fiscal discipline as avoiding the political costs that would otherwise result from looming state defaults. The no-bail-out principle hands out one piece of important information to the Member States: some kind of political costs are inevitable, either short-term or long-term. 62 Everything changes if there is hope for financial aid, because as soon as there is hope for bailouts, there are no inevitable costs that ust e paid y o e’s ow populatio . Therefore, payoffs for domestic policy decisio s are co pletely differe t if there is a path 61 62 See Treaty on the Functioning of the European Union, art. 123–26, 136. That is to say that the mere legal possibility of implementing such a scheme in the future suffices to change the present framework. 2013] Yes, But…. The E“M i Karlsruhe 67 to light, a path to ailouts. A ew way di erges whe do estic fiscal policy has to ake a choice between the constraints of budgetary discipline and the political costs of getting someone else (other Member States, the European Central Bank, etc.) to grant bailouts. This choice is something completely different from the choices under the no-bail-out rule, ecause do estic policy ca i i ize its costs for ailouts y i i izi g its ser ice i return. The political costs for ailouts are not decided by nature; rather, they are negotiated between the Member States. In democratic societies this detail puts domestic policy under enormous pressure. The simple question is: Why should a government cut pensions and sack public servants if they can negotiate a bailout instead? It is important to see the no-bail-out principle as this kind of commitment strategy. It enables domestic policy to comply with fiscal discipline in democratic societies. The relinquishment of mutual help is a mighty tool that domestic politicians need to change the incentives for their own population in favor of budgetary discipline. The subtle point here is to view the importance of the no-bailout clause for domestic policy, rather than to see it as some kind of protection for the bailing out Member States. From this point of view, the 63 no- ailout pri ciple is ore Cort s ur i g his ships to pre e t further uti y, than Charles Dicke s’s E e ezer “crooge’s disgust for the poor a d lack of charity. It is si ply not about solidarity, but about incentive design. So getting rid of the bailout option is a commitment strategy for domestic politics in de ocratic societies a d is ecessary to alig the oters’ i terest with the interest of fiscal discipline. It is the lack of a bailout option that makes it credible that a breach of fiscal discipli e ight result i state default. Without this credi ility-de ice the de ocratic process i e ita ly leads oters to uestio , why should we keep our faith with a government that cuts pensions and sacks public servants, if we could vote for a go er e t that ca egotiate a ailout i stead? Coming back to the above mentioned 250-pound-Gorilla, the no-bailout principle is a commitment strategy for every single Member State, except the strongest economy in the Euro-Zone, which is too big to be saved by others. This, however, does not change the gorilla’s i ce ti es, ecause the effect of the o-bailout clause is substituted by the size of the eco o y. “o the gorilla is co itted to the rules of udgetary discipli e either way. 63 Whether it is a historic truth or not, the story, however, tells about the military commander Cortés during the Spanish conquest of the Aztec Empire, that he actually burned his ships—that is, he willingly reduced his options (commitment strategy)—in order to strengthen his soldiers’ i ce ti es for fighting under his command instead of running away. The story is especially instructive given the fact, that Cortés was much less susceptible to his e ’s i terests tha de ocratic go er e ts are to their oters’ i terests. 68 . Collateral” as a Co German Law Journal [Vol. 14 No. 01 it ent “trategy Getti g rid of choices is just o e e a ple of a powerful co it e t strategy which has played a major role in the o etary u io ’s i ce ti e desig . Issui g collateral is a other kind of important commitment strategy, which is worth taking a closer look at and should be mentioned when discussing the ESM Case. Several times during the current sovereign debt crisis there were so e odd politicia ’s words de a di g collateral to gi e at least so e security such as gold or e e ore u realistic, isla ds popular with tourists to the Me er “tates aili g out the periphery—without success, of course. Such refusal notwithstanding, collateral has not been barred from gaining more and more influence on the behavior of the Member States and the markets. The collateral one has to take into account, though, is not the collateral the periphery needs to provide, but the collateral the bailing-out Member States give in the form of their 64 guarantees. That looks peculiar at first glance, because the bailing out Member State seems to be the lender and a lender usually does not issue collateral; the borrower does. But the whole picture is slightly larger; i particular, o e has to co sider the arkets. These markets invest in governmental bonds of the periphery (through the vehicles 65 for erly k ow as Europea Fi a cial “ta ility Facility, for the future re-branded as 66 Europea “ta ility Mecha is , they are the le ders, a d they recei e the collateral issued by the bailing out Member States in the form of the guarantees. There is a subtlety worth taking note of in the way this collateral works. One might think the i porta t thi g is that collateral akes the le der the arket, that is, the i estors feel safer. There is so e truth to that. But for the echa is that’s actually ot the key. Frankly, most lenders do not want the collateral; they would rather invest somewhere else (that is part of the problem). The way in which the collateral works is not that it gives an extra positive return to the lender, but an extra negative return to the borrower, the bailing out Member State. So the way in which the collateral has been working so far is by hurting the borrower enough in the event of a future default of periphery Member States. That changes the incentive scheme. By issuing the collateral, the bailing out Member States lower their payoffs in certain endpoints of the future decision tree (potential future defaults). This mechanism changes the behavior of the borrower (the bailing out Member State), by 64 In fact, the problem of the Greece Bailout case has exactly been this kind of collateral. 65 See Greece Bailout case, supra note 1, at paras. 16–31; ESM Case, supra note 2, at paras. 4–6. 66 See ESM case, supra note 1, at paras. 11–75. 2013] Yes, But…. The E“M i Karlsruhe 69 inducing it to bail out again (and again). This of course changes the choices of all players in the sequential o e ga e, ecause the other Me er “tates’ a ticipatio s o future ail out decisions are changed together with the incentives. The fast growing collaterals within the monetary union are part of a larger commitment strategy, which is gaining more and more influence on future political decisions. The Second Senate addresses the different topics involved for Germany quite clearly. These are the Ger a participatio i the Europea Fi a cial “ta ility Facility, ilateral assista ce i favor of Greece and risks resulting from the participation in the European System of Central 67 68 Banks a d i the I ter atio al Mo etary Fu d. Interestingly enough, the Second Senate discusses the problems arising from the commitment strategy—with just one sentence in the judgment—as risks ei g a agea le. But to e clear i this poi t, risk means ad thi gs ca happe ut they do ot eed to. The growi g collaterals’ i porta t effect is, however, that they are an influential factor, which changes the payoffs and incentives for every Member State in the monetary union permanently. This permanent change is not a risk but a certainty. 5. Summing Things Up To sum things up, there is a future incentive design of the monetary union that combines two different commitment strategies. On the one hand, the stronger commitment of the bailing out Member States makes it less likely that they refuse future bailouts 69 collateral . On the other hand, the commitment strategy of the bailed out Member States goes the other way round, because they have fewer incentives to comply with the 70 rules on budgetary discipline. There is even a connection between the two mentioned commitment strategies. The stronger commitment in favor of future bailouts is part of the incentive scheme, which the periphery builds their anticipations on when assessing the risks of not complying with the fiscal rules. 67 These risks are in particular connected with the ECB’s so called Target -“yste , disco ered a d ade pu lic by Hans-Werner Sinn, who already mentioned this problem during the oral hearing on 5 July 2011 in the Greece Bailout case. 68 ESM case, supra note 2, at para. 240. 69 See supra Part C(III)(4). 70 See supra Part C(III)(3). 70 German Law Journal [Vol. 14 No. 01 IV. Does It Matter? Should we take care of sequential move mechanisms and incentive design at all? Maybe the Second Senate was wrong in Greece Bailout when taking mechanisms into account. One might argue that written legal obligations are good enough, at least they can be analyzed much easier. Unfortunately, the incentive design of the monetary union is of utmost importance. Ever since the first negotiations on the Maastricht Treaty, it was clear that the enormous forces of colliding economic interests would need to be hedged. The colliding interests among the different Member States would somehow have to be aligned. If budgetary discipline does not serve the self-interest of all Member States, national political systems lack the capability to impose heavy burdens on their populations. Taking these forces into account, it is simply not enough to write down some legal obligations. There are, of course, legal obligations that are self-enforcing, because they demand decisions that Member States are interested in. But that is not given by nature because the Member States are responsible for designing the incentive schemes involved. Although rule compliance is often ascertainable, budgetary decisions of Member States take place i hu a societies as they actually e ist, i other words, i the real world 71 where people li e a d work a d die. The history of the monetary union provides an illustrative narrative on rule compliance. 1. The Pre-Maastricht Negotiating Process However, in the pre-Maastricht negotiation process, no serious discussion referred to a proposal comparable to the new design of the monetary union. There were two competing models discussed instead: One model relying solely on the right incentive scheme arked-discipli e echa is ; a other odel that relied o well-designed incentives 72 arked-discipli e echa is and legal obligations on budgetary discipline. A odel without s art i ce ti es for rule co plia ce arket-discipli e echa is based only on legal obligations has never been seriously discussed. Until now. 71 See Appellate Body Report, European Communities—Measures Concerning Meat and Meat products, WT DS26/AB/R, para. 187. (Jan 16, 1998). 72 See generally KAI HENTSCHELMANN, DER STABILITÄTS UND WACHSTUMSPAKT 1495 (2009). 2013] Yes, But…. The E“M i Karlsruhe 71 . The Pull to Co pliance” In effect, the new architecture of the monetary union provides for an incentive scheme that weake s the pull to co plia ce for a y Me er “tates. Worse tha the weakened pull to compliance is the loss of a common interest. Budgetary discipline is no longer a self-interest of all Member States (thereby amounting to a common interest), but a ere rule that is i posed o the Me er “tates i eed of fi a cial ailouts. As a ere legal obligation (that frustrates domestic political agendas and that is sharply criticized by supporters of a Keynesian economic policy), budgetary discipline enters the battleground of the political process. The pull to co plia ce is i porta t. The “e ate holds that strict co plia ce with Europea treaties guara tees that the Europea U io ’s acts affecti g 73 Germany are democratic and legitimate. 3. The Future Timeline In the mid- and long-term perspective, any hope of negotiating away these conflicts seems foolhardy considering the underlying political forces. As of June, more than half of all Greeks under the age of 25 were without work. In the whole euro-area there was an increase of 2 million unemployed this year. This problem will intensify as some Member States may leave the regular markets for government bonds for a long time. The two commitment strategies discussed above strengthen the incentives for some Member States to not comply with budgetary discipline rules. And they strengthen the incentives for some other Member States to grant bailouts. Does this affect the budget? It is hard to see how it could not. 4. Anyway: What is Budgetary Discipline Good for at All? Leaving all these aspects aside, one simple question remains: Why should someone worry about fiscal discipline at all? What is it good for? There are rules demanding fiscal discipline, but what are the rules good for? The Second Senate, of course, stresses the importance of budgetary discipline for budgetary 74 responsibility. Another point is the commitment to guaranteeing stable prices in the monetary union. In a monetary union based on stability it is a cardinal duty of financial policy to ensure that sound state finances support monetary policy. 73 See Maastricht case, supra note 9, at page 199; Euro case, supra note 31, at page 373; Greece Bailout case, supra note 1, at para. 129; ESM case, supra note 2, at para. 203. 74 See Greece Bailout case, supra note 1, at para. 129; ESM Case, supra note 2, at para. 203. 72 German Law Journal [Vol. 14 No. 01 Compliance with the rules of fiscal discipline is an essential condition for stable prices. An institutional framework where the European Central Bank can guarantee stable prices in the monetary union must be supported by sound state finances. V. Could the Senate Not Have Noticed? How was it possible for the Court not to mention the most important mechanism involved in the ESM case, the mechanism implicit in any ex ante crisis scheme? The answer is: Given the facts, it was impossible for the Court to overlook this point. . Task Force” Established by the March 0 0 European Council The Task Force esta lished y the March the problem clearly in its Final Report: Europea Cou cil previously addressed Since the creation of the Task Force, the European Financial Stability Facility (EFSF) for the euro area and the European Financial Stability Mechanism (EFSM) [ . . . offer] a good line of defense for the next three years. The Task Force considers that in the medium term there is a need to establish a credible crisis resolution framework for the euro area capable of addressing financial distress and avoiding contagion. It will need to resolutely address the moral hazard that is implicit in any ex-ante crisis scheme. The precise features and operational means of such a crisis 75 mechanism will require further work. 2. The Bundesbank in the Greece Bailout Case 2011 In particular, the German Bundesbank, which was heard as an expert third party in the Greece Bailout case, had addressed the problem. The expert opinion is even repeated in the respective judgment: A critical view must be taken if the present European Financial Stability Facility, which is subject to a timelimit, were to become a long-term support facility. From the view point of the advocates of such a proposal, this would take better account of the fact that 75 See EUR. UNION COUNCIL REPORT, Doc. No. 15302/10 (Oct. 21, 2010). 2013] Yes, But…. The E“M i Karlsruhe 73 the interconnection of the capital markets has greatly increased since the Maastricht Treaty was passed and thus the effects of economic contagion which the payment default of one state in the monetary union has on the other Member States have increased. But at the same time such a course of action would additionally weaken the personal responsibility of the national financial policies, and it would be a further step in the direction of a liability and transfer community. The risk of default on government bonds of individual Member States would be distributed among all states in the monetary union and thus the disciplining effect of the financial markets would be largely removed. The probability that with such an unsound financial policy the creditors of the state in question would call for adequate risk premiums would be reduced and thus the incentive for a cautious budgetary policy would be 76 weakened. 3. The Senate in the Greece Bailout Case The most interesting detail can be found in the reasoning of the Greece Bailout case where the Second Senate mentioned the problem of moral hazard quite frankly. The Court held: De facto cha ges, which ight cast uestio o the i di g character of this legal framework [that is, the Treaty of Lisbon], cannot at present be established by the Court; the same applies with regard to the current discussion on changes in the incentive system of 77 the o etary u io . 4. Why? So why did the Senate not say a word if it is quite obvious that the mechanisms involved were known? The reason might lie in the procedural rules. It takes a majority of justices to agree on a formulation. In cases addressing the European Union there is also a tradition that unanimous decisions are preferred, so points of disagreement can be solved by silence in a judgment. Omissions in a judgment neither mean that there is no problem, nor do they mean that no Justices recognized the problem. 76 See Greece Bailout case, supra note 1, at para. 89. 77 See id. at para. 137. 74 German Law Journal [Vol. 14 No. 01 D. Tragic Iro y: The FCC’s Re arks o the Role of the Europea Ce tral Ba k There is, however, a certain irony in the fact that the European Central Bank (ECB) is heavily criticized in the judgment. The Second Senate even took the time to announce the review of the ECB’s rescue easures i the pri cipal proceedi gs. Over the strong remarks in the judgment concerning the current and future role of the European Central Ba k there is a Fra kfurt shadow ha gi g, si ce the Go er i g Cou cil of the European Central Bank has taken zealous decisions on a number of technical features regardi g the Euro syste ’s outright tra sactio s i seco dary so ereig o d arkets o 78 September 6, 2012 (known as Outright Monetary Transactions or OMT). Co sideri g how i porta t Me er states’ udgetary discipli e sou d state fi a ces is as support for an institutional framework where the European Central Bank can actually achieve the objective of guaranteeing stable prices in the monetary union, it seems like tragic irony that the Second Senate did not safeguard the European Central Bank. The Court omitted the assessment of an important weakening of the European Central Bank (new Article , ut took the ti e to call o the Ba k to stay stro g. 78 Followi g the ECB’s decisio o Outright Mo etary Tra sactio s, the “ecurities Markets Programme (SMP) was terminated. See Press Release, European Central Bank, Technical Features of Outright Monetary Transactions (Sept. 6, 2012). Special Section The ESM Before the Courts German Constitutional Foundations of, and Limitations to, EU Integration: A Systematic Analysis By Erich Vranes* A. Introduction The relationship between EU law and German constitutional law, and the respective dialogue between the ECJ and the German Federal Constitutional Court (FCC), have considerably shaped the EU integration process by creating fields of tension and demarcating possible legal boundaries. The decisions of the German Federal Constitutional Court and the European Court of Justice concerning the European Stability Mechanism are only the most recent examples of this phenomenon. These developments have, of course, spilled over to other EU Member States. The German constitutional bases of, and limits to, EU integration—especially as articulated in the relevant decisions of the German Federal Constitutional Court—have therefore become a field of particular interest for EU and public lawyers. This article gives an up-to-date overview of relevant constitutional rules, court decisions, and the academic debate in Germany. It does so by systematically distinguishing between an analysis of the German constitutional foundations of EU integration (section B.), constitutional limits to the further transfer of powers to the EU through amendments of EU primary law (section C.I.), and the constitutional confines for the legal effects of EU secondary law in Germany (section C.II.). B. Constitutional Foundations of EU-Membership I. Overview 1 One of the most conspicuous features of the German Basic Law is its comparative openness to EU and international law, which is reflected most notably in its Preamble and in Articles 23, 24, 25, 26 and 59 II. This openness has to be seen in the light of the experiences of World War II, since the opening-up of the constitutional order was * Professor of European, public, international and international economic law, Vienna University of Economics and Business. This paper is an abbreviated version of an outcome of the project National Constitutional Law and European Integration, which examined the constitutional bases and limits for EU integration in eight EU Member States. It was carried out for the EU Parliament in 2010 and 2011 and was led by Prof. Stefan Griller in cooperation with Dr. Stephan Keiler, Dr. Thomas Kröll, Prof. Georg Lienbacher and Prof. Erich Vranes (author of the chapter on Germany). This paper was updated in November 2012. 1 See GRUNDGESETZ FUR DIE BUNDESREPUBLIK DEUTSCHLAND [GRUNDGESETZ] [GG] [BASIC LAW], May 23, 1949, BGBI. I (Ger.). 76 German Law Journal [Vol. 14 No. 01 2 perceived, after 1945, as a means of re-integrating Germany into the international order. It has also been used, by the Federal Constitutional Court, as a basis for inferring the co stitutio al pri ciple of ope ess towards i ter atio al law 3 (Völkerrechtsfreundlichkeit) a d the pri ciple of ope ess towards Europea law 4 (Europarechtsfreundlichkeit). Articles 24 and 23 do not only serve as bases for integration. They also function as barriers to integration: implicit limitations to integration have been inferred by the Federal Constitutional Court from Article 24, read in context with other provisions of the Basic Law. 5 In 1992 these limitations were codified in Article 23. Even in these introductory remarks, however, it must be mentioned that some of the limitations are spelled out in Article 23, but many additional barriers result from the cross-reference in Article 23 to Article 79 II, which contains formal boundaries, and Article 79 III, which sets forth substantive constraints. Further restraints have been derived, by the Federal Constitutional Court, from the electoral guarantees that are laid down in Article 38. This was the distinct 6 co tri utio of the Court’s decisio s i its fa ous Maastricht and Lisbon rulings. The Federal Constitutional Court clarified, in the Maastricht Case and in its 2012 decisions on the European Stability Mechanism (ESM) and the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG), that these limits also apply to the interaction between German constitutional law and legal instruments other than the EU treaties, namely international instruments that are closely intertwined with EU 7 integration, such as the ESM and the TSCG. 2 See for example Karl-Peter Sommermann, Offene Staatlichkeit, 2 HANDBUCH IUS PUBLICUM EUROPAEUM 3, 6 (2008); Kammerentscheidungen des Bundesverfassungsgerichts [Chamber Decisions of the Federal Constitutional Court], Case No. 2 BvE 2/08, June, 30, 2009, 9 BVERFGK 174, 186, para 222 (Ger.) [herinafter Lisbon ruling]; Christian Joerges, The Lisbon Judgment, in THE GERMAN CONSTITUTIONAL COURT’S LISBON RULING 27, 30-31 (ZERPDiskussionspapier, Andreas Fischer-Lescano, Christian Joerges & Arndt Wonka eds., 2010). 3 See Bundesverfassungsgericht [BVerfG - Federal Consitutional Court], case No. X BvR 31 BVerfGE 58, 75-76; FCC, decisions BVerfGE 111, 307, 317, 112, 1, 26 (Ger.); Lisbon ruling, supra note 2; RUDOLF GEIGER, GRUNDGESETZ UND VÖLKERRECHT. MIT EUROPARECHT 2-3 (2009). 4 See Lisbon, supra note 3. 5 See infra, Section C.I.3. 6 C.f. infra, Section C. 7 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], June 19, 2012, 2 BvF 4/11, June 19, 2012, 2012 DIE ÖFFENTLICHE VERWALTUNG (DÖV) 605 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 1390/12, Sep. 12, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 3145 (Ger.) 2013] The German Constitution and EU Integration 77 II. The Individual Legal Provisions 1. Article 24 I For two reasons at least, it is important to be familiar with Article 24 I of the Basic Law, although it has been superseded meanwhile by Article 23 as a lex specialis in matters of EU integration. First, several landmark rulings of the Federal Constitutional Court, such as the Solange I and Solange II cases, have been rendered under Article 24 I. Second, the constitutional barriers to EU integration developed in these rulings (decided on the basis of Article 24 I) have meanwhile been codified in the evolving versions of the superseding 8 Article 23. Article 4 I reads: The Federatio organizations. ay y a law tra sfer so ereig powers to i ter atio al Article 24 I serves several functions. On the one hand, it authorizes the tra sfer of so ereig powers to i ter atio al orga izatio s. Article 4 was therefore see as the constitutional foundation for German EC/EU membership and as the lever opening up the 9 German constitutional order for the direct validity and application of supranational law. Moreover, it has been regarded as the legal basis for the recognition of the primacy of EU 10 law. “o ereig powers i the se se of this pro isio are co o ly u derstood as the competence of the state to regulate legal relationships through legislation, administration 11 and adjudication. The Federal Constitutional Court has stressed that the wording tra sfer of so ereig powers is i precise, gi e that Article 4 ope s the atio al legal order in such a manner that the exclusive sovereignty of Germany within the area of application of the Basic Law is revoked, thus permitting EU law to have direct validity and 12 application within Germany. This opening-up of the legal order has also been understood as a constitutional decision to abstain from exercising certain national sovereign competences and to accept the common exercise, in the EU framework, of respective 8 See Rupert Scholz, ART. 23, in GRUNDGESETZ. KOMMENTAR, LOSEBLATTSAMMLUNG (Theodor Maunz & Günter Dürig eds., 56th instalment, 2009); Wolff Heintschel von Heinegg, ART. 23, in GRUNDGESETZ BECK’SCHER ONLINE-KOMMENTAR (Volker Epping & Christian Hillgruber eds., 2010). 9 See Ingolf Pernice, ART. 23, in GRUNDGESETZ. KOMMENTAR, (Horst Dreier ed. 2nd ed., 2006). 10 See Geiger, supra note 3, at 165; STEFAN GRILLER, FRANZ MAISLINGER & ANDREAS REINDL, FUNDAMENTALE RECHTSGRUNDLAGEN EINER EG-MITGLIEDSCHAFT 15 and 182 (1991). 11 See MICHAEL SCHWEITZER, STAATSRECHT III 23 (2008); Rudolf Streinz, ART. 23, in GRUNDGESETZ. KOMMENTAR (Michael Sachs ed., 5th ed. 2009). 12 See Bu des erfassu gsgericht [BVerfG ‐ Federal Co stitutio al Court], Case No. 2 BvL 52/71, May 29, 1974, 37 BVERFGE 271 (Ger.) [hereinafter Solange I]. 78 German Law Journal [Vol. 14 No. 01 13 supranational competences. The constitutional limits to integration, which have been 14 derived from Article 24, will be discussed below. 2. Article 23 1.1 Overview With the advent of the Maastricht treaty and its widening of EC/EU competences, Article 15 16 24 was commonly regarded as an insufficient anchor for further integration. Therefore, Article 23 was inserted in an effort to overcome such constitutional concerns and to enhance the democratic legitimacy of EU integration by strengthening the role of the German Bundestag and the rights of the German Länder in matters of European integration. 17 Article 23 is considered as a compromise provision characterized by insufficient clarity. The rather complex structure of Article 23 is arguably due to the plurality of aims pursued with this provision. On the one hand, Article 23 I constitutes the central legal basis for German participation in EU integration. On the other hand, Article 23 I sets forth the main legal barriers to integration. Article 23 Ia was introduced in 2009 in order to operationalize 18 the right, granted to national parliaments by the Lisbon Treaty, to bring subsidiarity complaints before the ECJ. Articles 23 II-VII deal with the participation of the Bundestag 19 and the Bundesrat in matters concerning the EU. Article 23 VI was amended in 2006 as 20 part of Ger a y’s e te si e federalis refor . It is commonly pointed out that few 13 See Schweitzer, supra note 11, at 23; Christian Hillgruber, ART. 23, in KOMMENTAR ZUM GRUNDGESETZ (Bruno Schmidt-Bleibtreu, Franz Klein, Hans Hofmann & Axel Hopfauf eds., 2008). 14 See infra, Section C.I.2. 15 For a sceptical view see Pernice, supra note 9. 16 See Hillgruber, supra note 13; Streinz, supra note 12; Pernice, supra note 9. 17 See Streinz, supra note 11. 18 Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community, 2007 O.J. (C 306). 19 In the 2012 ruling on the ESM and the Fiscal Compact (FCC, 2 BvE 4/11, 19 June 2012), the FCC clarified that international treaties that are closely related to EU law constitute matters of EU integration in the sense of Article II, thus triggeri g the Ger a Go er e t’s o ligatio to co prehe si ely i for the Ger a Bu destag in due time so as to enable the latter to effectively exercise its rights to participation in EU affairs. 20 See Heintschel von Heinegg, supra note 8; Act of 26, August 2006 [BGBL. I] at 2034 (Ger.). 2013] The German Constitution and EU Integration constitutions have such elaborate provisions on EU integration. 22 focus, the following analysis concentrates on Article 23 I. 21 I 79 iew of this paper’s 1.2 Article 23 I Article 23 I consists of three sentences of quite different legal import: With a view to establishing a united Europe, the Federal Republic of Germany shall participate in the development of the European Union that is committed to democratic, social and federal principles, to the rule of law, and to the principle of subsidiarity, and that guarantees a level of protection of basic rights essentially comparable to that afforded by this Basic Law. To this end the Federation may transfer sovereign powers by a law with the consent of the Bundesrat. The establishment of the European Union, as well as changes in its treaty foundations and comparable regulations that amend or supplement this Basic Law, or make such amendments or supplements possible, shall be subject to paragraphs (2) and (3) of Article 79. Article 23 I 1 has several normative implications. On the one hand, it concretizes the Preamble, in that it implies that the aim of a united Europe is to be pursued specifically 23 within the EU integration project. Article 23 I 1 thus determines a constitutional 24 objective of the state. On the other hand, Article 23 I 1 spells out structural requirements for the EU that are to be promoted by German organs. To the extent these requirements 25 constitute barriers to integration, they are analyzed below. In its first-mentio ed positi e i tegratio ist fu ctio , Article I is percei ed as a legal mandate that is incumbent on all organs of the German Federation and its Länder, 21 See e.g. Pernice, supra note 9. 22 On the other paragraphs of Article 23 and the federalism reform see e.g. Scholz, supra note 8; Heintschel von Heinegg, supra note 8; Stefanie Schmahl, ART. 23, in GRUNDGESETZ. BECK'SCHER KOMPAKT-KOMMENTAR (Helge Sodan ed., 2009). 23 See, e.g., Hillgruber, supra note 13. 24 See Lisbon ruling, supra note 2, at para 225; Sommermann, supra note 2, at 30. 25 See infra, Section C. 80 German Law Journal [Vol. 14 No. 01 26 including representatives of the German State in the EU, in particular in the Council. 27 28 These organs are subject to a constitutional law yardstick, which necessarily leaves 29 them wide discretion in EU matters. EU organs are not addressees of this provision. But the EU and other Member States may indirectly be affected by the limits ensuing from this 30 provision. According to the Federal Constitutional Court and academic writings, Article 23 I 1 does not establish a determinate obligation to pursue the objective of creating a 31 European federal state, a confederation, or a given intermediate form. In the literature, Article 23 I 1 is also regarded as a German constitutional counterpart of the EU principle of 32 loyalty, which is now enshrined in Article 4 III of the EU Treaty. Article 23 I 2 contains the second main clause of this fundamental provision. Using a construction similar to Article 24, Article 23 I 2 authorizes the Federatio to tra sfer so ereig powers y a law to the EU. The ter so ereig powers esse tially has the 33 meaning that phrase is given under Article 24; it includes the judicial competence to develop the law through judicial interpretation (Rechtsfortbildung), which, according to the 34 35 Federal Constitutional Court, has lawfully been vested in the ECJ. As in the case of Article 4, the otio tra sfer [of] so ereig powers is so ewhat decepti e, gi e that Article 23 I 2 also is seen as opening the national legal order for the direct validity and applicability of EU law and as an authorization for courts and administrative authorities to 36 recognize the supremacy of EU law. Article 23 I 2 thereby permits substantive changes of the Basic Law, even if such amendments of the constitution are not explicitly incorporated 26 Claus Dieter Classen, ART. 23, in KOMMENTAR ZUM GRUNDGESETZ, (Hermann von Mangoldt, Friedrich Klein & Christian Starck eds., 2005); Scholz, supra note 8; Heintschel von Heinegg, supra note 8. 27 See Pernice, supra note 9; Heintschel von Heinegg, supra note 8. 28 This follows inter alia from the fact that the objective of EU integration can only be realized in cooperation with the other EU Member States. See, e.g., Classen, supra note 26. 29 This appears to be the unanimous view in academic writings. See, e.g., Scholz, supra note 8; Heintschel von Heinegg, supra note 8; Streinz, supra note 11; Hillgruber, supra note 13. 30 On these barriers see infra, Section C. 31 See Lisbon ruling, supra note 2; Streinz, supra note 11. 32 See Classen, supra note 26. 33 See, e.g., Schweitzer, supra note 11 at 23; Streinz, supra note 11. 34 Regarding the legal boundaries, see Bundesverfassungsgericht [BVerfG – Federal Constitutional Court], Case No. 2 BvR 2134/92, Oct. 12, 1993, 89 BVERFGE 155 (Ger.) [hereinafter Maastricht ruling]. 35 See Bu des erfassu gsgericht [BVerfG ‐ Federal Co stitutio al Court], Case No. 2 BvR 687/85, Apr. 8, 1987, 75 BVerfGE 223 (Ger.). 36 See Streinz, supra note 11. 2013] The German Constitution and EU Integration 81 37 in the text of the Basic Law. Article 23 I 2 is regarded as not being pertinent for the 38 intergovernmental fields of EU action. For ally, Article I re uires that e ery tra sfer of co pete ces is effectuated y means of a federal law. As compensation for the general loss of Länder competences in the framework of EU integration, the Bundesrat has to consent to every transfer that further opens the legal order, irrespective of whether it actually concerns specific powers 39 of the German Länder. As formerly under Article 24, an amendment of the EU treaties formally must satisfy (by way of a federal law known as an Integrationsgesetz or Zustimmungsgesetz in the sense of Article 23 I 2) the terms of Article 59 II 40 (Vertragsgesetz). Article 23 I 3 sets forth formal and substantive barriers to integration, which aim to secure the fundamental structures of the German constitution. Article 23 I 3 is therefore discussed in detail below, in the context of the German constitutional barriers to EU 41 integration. C. Constitutional Limits to EU-Integration I. Limits to the (Further) Transfer of Powers to the EU 1. Introductory Remarks The constitutional limits to the transfer of competences to the EU through treaty amendments have been developed primarily in the jurisprudence of the Federal Constitutional Court. The early rulings such as Solange I and Solange II, which were rendered under Article 24 of the Basic Law, do not clearly distinguish between limits to the transfer of competences through treaty amendments, on the one hand, and barriers to the effects of EU secondary law, on the other hand. Nonetheless, these rulings contain considerations that confine the legality of transfers of power to the EU level, as follows 37 See Horst Dreier, Grundlagen und Grundzüge staatlichen Verfassungsrechts: Deutschland, in HANDBUCH IUS PUBLICUM EUROPAEUM (Armin von Bogdandy et al. eds., 2008). 38 According to Schweitzer and Streinz, these fields are only indirectly regulated by the Basic Law. See Schweitzer, supra note 11, at 23; Streinz, supra note 11. 39 Article 23 I 2 states that the Federatio Bundesrat. ay tra sfer so ereig powers y a law with the co se t of the 40 On this double function of federal laws in the sense of Article 23 I 2, see Streinz, supra note 11. On the legal questions raised in this context, see Streinz, supra note 11. 41 C.f. infra, Section C.I.3.d. German Law Journal 82 [Vol. 14 No. 01 42 from the wording of these decisions and from the fact that, in the meantime, their 43 principles have been codified in Article 23. 2. Limits Developed under Article 24 In the first of these foundational rulings, Solange I, the Federal Constitutional Court held that Article 4 does ot ope the way to a e di g the asic structure of the Basic Law, 44 which forms the basis of its identity, without a for al a e d e t to the Basic Law. The Court explained that the part of the Basic Law dealing with fundamental rights is an inalienable, essential feature of the valid Basic Law of the Federal Republic of Germany and one which forms part of the constitutional structure of the Basic Law. Article 24 of the Basic Law does not without 45 reservation allow it to be subjected to qualifications. In the next argumentative steps of it’s reasoning the Court described the conditions under which it would be prepared to give up its scrutiny of secondary law. The aforementioned statement has, however, been understood as also indicating limits to the constitutionality 46 of transfers of competences. Similarly, in Solange II, the Federal Constitutional Court ruled that the power conferred by Article 24 (1) of the Basic Law, however, is not without limits under constitutional law. The provision does not confer a power to surrender by way of ceding sovereign rights to international institutions the identity of the prevailing constitutional order of the Federal Republic by breaking into its basic framework, that is, into its very structure. That applies in particular to legislative instruments of the international institution which, perhaps as a result of a corresponding interpretation 42 See infra Subsection 3. 43 Id. 44 See Solange I, supra note 12. 45 See Solange I, supra note 12. 46 See e.g., Griller, Maislinger & Reindl, supra note 10, at 19. 2013] The German Constitution and EU Integration 83 or development of the underlying treaty law, would undermine essential, structural parts of the Basic Law. An essential part which cannot be dispensed with and belongs to the basic framework of the constitutional order in force is constituted in any event by the legal principles underlying the provisions of the Basic Law on 47 fundamental rights. It followed from these rulings that the Federal Constitutional Court classified the protection of German fundamental rights as constitutional requirements for EU 48 membership and treaty amendments. Shortly thereafter the Court implied that it also considered the German constitutional commitment to federalism to be a barrier to the 49 transfer of competences. 3. Limits Developed under Article 23 1.1 Preliminary Remarks 50 51 The Federal Co stitutio al Court’s decisio s i the Maastricht Case and Lisbon Case have established a considerable number of additional constitutional boundaries for EU 52 membership, further transfers of competences, and amendments of EU primary law. 47 See Bu des erfassu gsgericht [BVerfG ‐ Federal Constitutional Court], Case No. 2 BvR 197/83, Oct. 22, 1986, 73 BVERFGE 339 (Ger.) [hereinafter Solange II]. 48 See Griller, Maislinger & Reindl, supra note 10, at 21. 49 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], 2 BvG 1/89, Apr. 11, 1989, 80 BVERFGE 74 (Ger.); Griller, Maislinger & Reindl, supra note 10, at 21. 50 See Maastricht ruling, supra note 34. 51 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvE 2/08, June 30, 2009, 123 BVERFGE 267. On this ruling see also the many contributions in the German Law Journal. See, e.g., Christian Wohlfahrt, The Lisbon Case: A Critical Summary, 10 GERMAN L.J. 1277, 1286 (2009); Matthias Niedobitek, The Lisbon Case of 30 June 2009, 10 GERMAN L.J. 1267, 1267 (2009); Christoph Schönberger, Lisbon in Karlsruhe: Maastricht’s Epigones at Sea, 10 GERMAN L.J. 1201, 1201 (2009); Alfred Grosser, The Federal Constitutional Court’s Lisbon Case: Ger any’s “onder eg”: An Outsider’s Perspective, 10 GERMAN L.J. 1263 (2009); Daniel Halberstam & Christoph Möllers, The German Constitutional Court Says Ja zu Deutschland!”, 10 GERMAN L.J. 1241, 1241 (2009); Frank Schorkopf, The European Union as An Association of “overeign “tates: Karlsruhe’s ‘uling on the Treaty of Lisbon, 10 GERMAN L.J.. 1219, 1219 (2009); Armin Steinbach, The Lisbon Judgment of the German Federal Constitutional Court–New Guidance on the Limits of European Integration?, 11 GERMAN L.J. 367, 367–90 (2010); Philipp Kiiver, German Participation in EU Decision-Making after the Lisbon Case, 10 GERMAN L.J. 1287, 1287 (2009); Christian Tomuschat, The Ruling of the German Constitutional Court on the Treaty of Lisbon, 10 GERMAN L.J. 1260, 1260 (2009). 52 Furthermore, the Maastricht judgment contains important barriers for secondary EU law. These are analyzed below. See infra, Section II.3. German Law Journal 84 [Vol. 14 No. 01 Since these rulings were rendered under Article 23 I of the Basic Law in particular, the following analysis is structured in accordance with the three sentence architecture of Article 23 I, which was described earlier. 1.2 Barriers Derived from Article 23 I 1 a) Legal Relevance in General As noted above, Article 23 I 1 does not only set forth the constitutional aim of establishing a united Europe within the framework of the European Union. It also defines barriers to German participation in EU integration. This becomes clear already from the wording of this provision: With a view to establishing a united Europe, the Federal Republic of Germany shall participate in the development of the European Union that is committed to democratic, social and federal principles, to the rule of law, and to the principle of subsidiarity, and that guarantees a level of protection of basic rights essentially comparable to that afforded by this Basic 53 Law. The explicit barriers defined in this clause (the so-called structure-securing clause or 54 Struktursicherungsklausel ) are the fou datio al pri ciples of Ger a y’s post-war constitutional order, as expressed in various provisions of the Basic Law, including the principles of democracy, social justice, federalism and subsidiarity, the rule of law, and the protection of basic rights. “o e authors also i fer arriers fro the otio Europe 55 itself. As mentioned above, these requirements – although they are aimed at the EU – set forth obligations only for German state organs. In particular, it is inferred from this obligation that German organs are only required to cooperate in a Union that lives up to these 56 requirements. According to the Federal Constitutional Court and some commentators, 53 See GRUNDGESETZ FUR DIE BUNDESREPUBLIK DEUTSCHLAND [GRUNDGESETZ] [GG] [BASIC LAW], May 23, 1949, BGBI. I (Ger.). 54 See Lisbon ruling, supra note 2. 55 See Scholz, supra note 8; see Heintschel von Heinegg, supra ote 8 argui g that the ter Europe does ot co er Turkey, thus posi g a co stitutio al o stacle for Turkey’s accessio to the EU. This iewpoi t is ot shared by other commentators). See Pernice, supra note 9 (emphasizing the semantic openness of this term.) 56 See Streinz, supra note 11. 2013] The German Constitution and EU Integration 85 should the EU break out of these constitutional constraints, Germany would be obliged to 57 withdraw from the EU. Second, it has to be emphasized that these substantive re uire e ts do ot de a d structural co grue ce —in the sense that the EU would have to comply with Ger a sta dards as regards the foundational principles of Ger a y’s co stitutio al order. It is unanimously held in the literature, and has been 58 co fir ed i the Federal Co stitutio al Court’s Lisbon ruling, that these requirements take o a Europea ea i g i the se se of setti g forth sta dards that are 59 commensurate to the status and the function of the Union. An important exception in the context of Article 23 I 1 is the protection of fundamental rights. Article 23 calls for protection of asic rights o the EU le el that is essentially comparable to that afforded by this Basic Law. Thus, the aim is not a European, but a (mitigated) German standard. The potential for constitutional clashes resulting, in the scrutiny of secondary law, from this express link to German standards has meanwhile been defused in the jurisprudence of the 60 Federal Constitutional Court. b) The EU and the Principle of Democracy The requirements arising from the democratic principle under Article 23 I 1 have been elaborated by the Federal Constitutional Court in the Maastricht and Lisbon cases, which, inter alia, concerned constitutional complaints that were brought under Article 38 of the 61 Basic Law. Article 38 guarantees the fundamental right to vote. In both decisions, the German Court has especially emphasized that the principle of democracy cannot be balanced against other legal interests. The principle of democracy, the Court has insisted, 62 is inviolable under the Basic Law where it is protected by the eternity guarantee (Article 63 79 III). The Court has equated the structures and protections permanently secured by 57 See Lisbon ruling, supra note 2; see Hillgruber, supra note 13; Armin von Bogdandy, Prinzipien der Rechtsfortbildung im europäischen Rechtsraum. Überlegungen zum Lissabon-Urteil des BVerfG, NEUE JURISTISCHE WOCHENSCHRIFT 1, 3 (2010) (according to whom the Basic Law only contains a duty of integration, no obligation to withdraw from the EU.) 58 See Lisbon ruling, supra note 2 (with regard to the democratic principle). 59 See Streinz, supra note 11; Pernice, supra note 9; Lisbon ruling, supra note 2. 60 C.f. infra, Section II. 61 See GRUNDGESETZ FUR DIE BUNDESREPUBLIK DEUTSCHLAND [GRUNDGESETZ] [GG] [BASIC LAW], May 23, 1949, BGBI. I (Ger.) ( Me ers of the Ger a Bu destag shall e elected i ge eral, direct, free, equal and secret elections. They shall be representatives of the whole people, not bound by orders or instructions, and responsible only to their co scie ce . 62 See Maastricht ruling, supra note 34. 63 See GRUNDGESETZ FUR DIE BUNDESREPUBLIK DEUTSCHLAND [GRUNDGESETZ] [GG] [BASIC LAW], May 23, 1949, BGBI. I (Ger.) ( A e d e ts to this Basic Law affecti g the di isio of the Federatio i to L der, their participatio o principle in the legislative process, or the principles laid down in Articles 1 and 20 shall be inadmissible. . German Law Journal 86 [Vol. 14 No. 01 64 Article 79 III with Ger a co stitutio al ide tity. Nonetheless, according to the Federal Constitutional Court, the principle of democracy is open to the objective of i tegrati g Ger a y i to the EU. Thus, the EU is ot sche atically su ject to the 65 re uire e ts of a co stitutio al state applica le o the atio al le el. More precisely, the specific re uire e ts i posed y the de ocratic principle depend on the extent of the sovereign powers that have been transferred and on the degree of the independence 66 that European decision- aki g procedures ha e reached. Yet, the Federal Constitutional Court also points to the borderline of this possibility for structural adaptatio s of the de ocratic pri ciple: this possi ility applies as lo g as the li it of the 67 i alie a le co stitutio al ide tity, i.e. Article 79 III, is ot tra sgressed. Should an imbalance arise between the character and extent of EU competences and the degree of its democratic legitimization, then the German organs would be constitutionally required to work towards cha ge, a d if the worst co es to the worst, e e to refuse to further 68 participate i the Europea U io . Having declared this ultima ratio, the Federal Constitutional Court demarcates the space that is left, under the democratic requirements of the German Constitution, for EU integration. It does so by adopting a new twofold Solange formula, in which the principle of conferral is central: As long as the European order of competences according to the principle of conferral in cooperatively shaped decision-making procedures, exists taking into accou t the states’ respo si ility for i tegratio , a d as long as a well-balanced equilibrium of the competences of the Union and the competences of the states is retained, the democracy of the European Union cannot, and need not, be shaped in analogy to that of a state. Instead, the European Union is free to look for its own ways of democratic supplementation by means of additional, novel forms of transparent or 64 See Lisbon ruling, supra note 2; Andreas Voßkuhle, Der europäische Verfassungsverbund, NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT 1, 1 (2010); on the notion of constitutional identity see also Dreier, supra note 37; to an introductory overview of the Lisbon ruling see e.g. Christian Wohlfahrt, The Lisbon Case: A Critical Summary, 10 GER. LAW. J. 1267, 1277-86 (2009). 65 See Lisbon ruling, supra note 2. 66 See id. 67 See id. 68 See id. 2013] The German Constitution and EU Integration participative 69 procedures . . . . political 87 decision-making Still, the possibilities thus bestowed on the EU are legally confined. Despite its repeated 70 emphasis of the fact that the EU need not develop democratically as a state would, the Federal Co stitutio al Court ai tai s that the EU’s de ocratic deficit, whe easured 71 against requirements on democracy in states, cannot be remedied by relevant democratic elements brought about by the Treaty of Lisbon. In particular, a number of Lis o ’s i o atio s are i sufficie t, i cludi g dou le ualified ajority oti g i the Council, the institutional recognition of national parliaments in subsidiarity control, and 72 mechanisms of participative, associative and direct democracy. Moreover, the Federal Constitutional Court has sketched a new barrier to integration by indicating that many of 73 Lis o ’s de ocratic i o atio s ca o ly assu e a co ple e tary fu ctio . Under the heading of the democratic principle, the Federal Constitutional Court also has delineated another barrier to German integration, requiring that the independence of the Commission could ot e pro oted e e further without directly origi ati g from an election by the 74 de os i which due accou t is take of e uality. As in Maastricht, the Federal Constitutional Court in Lisbon designated the European Parliament as nothing more than 75 a additional i depe de t source of de ocratic legiti izatio . As regards the present legal situation, including the changes introduced through the Lisbon treaty, the Court takes 76 the view that the barriers derived from the Basic Law had not been infringed. (Further constraints ensue from the third sentence of Article 23 I, which protects the principle of democracy in Germany. These barriers are discussed below.) 69 See id.; Ulrich Everling, Europas Zukunft unter der Kontrolle der nationalen Verfassungsgerichte, EUROPARECHT 97, 97 (2010). 70 See Lisbon ruling, supra note 2. 71 See id. 72 See id. 73 See id. 74 See id. 75 See id. 76 The restrictive wording is noteworthy: Taking into account the provisos that are specified in the grounds, there are no decisive constitutional objections . . . . See Lisbon ruling, supra note 2. On this, see Everling, supra note 69 at 93, who points out that the extent of the binding effect of grounds of a FCC ruling are disputed; see also the critical remarks by Peter-Christian Müller-Graff, Das Karlsruher Lissabon-Urteil: Bedingungen, Grenzen, Orakel und integrative Optionen, integration 331 (2009); Matthias Niedobitek, The Lisbon Case of 30 June 2009, 10 GERMAN L.J. 1267, 1267 (2009). 88 German Law Journal [Vol. 14 No. 01 These facets of the judgment have attracted criticism. On the one hand, it has been argued that the Federal Co stitutio al Court’s reaso i g is circular, in that it stressed that the EU is not subject to the democratic requirements of a state but nonetheless assesses 77 the EU on the basis of state-centered democratic standards. On the other hand, the ruling has been critiqued for upholding a conception of democracy that is fixated on states and state citizens, thus tending to abnegate the possibility of adequate democratic 78 mechanisms beyond the nation state. Furthermore, it has been submitted that two of the premises on which the Lisbon ruling purportedly relies – namely the conceptions that the individual right to vote can have a notable directive influence on policy-making and that there is a close connection between the democratic principle and the extent of 79 competences – are questionable. Several commentators have argued that the European Parliament, and its contribution to democratic legitimization of EU policy-making, tend to 80 be unduly marginalized i the Federal Co stitutio al Court’s judg e t. Likewise, it has been held that the contribution of double qualified majority voting for democratic 81 legitimacy did not receive sufficient attention in the Lisbon ruling. c) The EU and the Rule of Law Article 23 I 1 designates the principle of the rule of law as a second barrier to integration. Like the other structural specifications in Article 23 I 1, this requirement must be respected by German organs in their decisions about transfers of competences to the EU level, in their participation in the EU legislature, and in the implementation of EU law. Like other re uire e ts i this clause, the pri ciple of the rule of law takes o a Europea ea i g in the sense of a standard flowing from common European constitutional traditions. Exactly defining the contents of such a principle on an abstract level is almost impossible, 82 as the expectations regarding the rule of law tend to vary greatly in European states. Nonetheless, in academic writings, it is generally held that the current shape of the EU does not lead to evident tensions with this principle. It is argued that the EU complies with 77 See Müller-Graff, supra note 76 at 331. For a critique of this part of the judgment, see Arndt Wonka, Accountability Without Politics?, in THE GERMAN CONSTITUTIONAL COURT’S LISBON RULING: LEGAL AND POLITICAL SCIENCE PERSPECTIVES 55 (Andreas Fischer-Lescano, Christian Joerges & Arndt Wonka eds., 2010). 78 See, e.g., Everling, supra note 69, at 98. But see Christian Joerges, The Lisbon Judgment, in THE GERMAN CONSTITUTIONAL COURT’S LISBON RULING: LEGAL AND POLITICAL SCIENCE PERSPECTIVES 27, 30 (Andreas Fischer-Lescano, Christian Joerges & Arndt Wonka eds., 2010) (arguing that this focus on citizens and individual rights is e.g. in line with Kantian and Habermasian premises, according to which those subject to the law must be able to understand themselves as its authors). 79 Müller-Graff, supra note 76, at 331. The first premise is also questioned by Wonka, supra note 77, at 47, 55. 80 See, e.g., Von Bogdandy, supra note 57, at 1, 3; Everling, supra note 69, at 92, 97. 81 See, e.g., Everling, supra note 69, at 98. 82 On this, see Classen, supra note 26, at margin number 35. 2013] The German Constitution and EU Integration 89 core notions associated with the rule of law, given that: the EU has been constituted by law and its institutions are bound by law; there are sufficient (law-based) checks and balances in EU governance; the principle of conferral (which restricts the enactment of secondary law) applies; and the European Court of Justice guarantees effective legal 83 protection, legal security and proportionality. While this principle was not elaborated in the Lisbon ruling, the Federal Constitutional Court has recognized, in the criminal law context, the risks for the protection of the rule of law implicated by the transfer of 84 sovereign powers. d) The EU and the Principle of Social Justice The exact substance of the principle of social justice is as difficult to determine as that of 85 the rule of law, especially if one tries to take a broader European perspective. This is confirmed also by the Lisbon judgment, which, in line with the prevailing opinion in the German literature, holds that the requirements placed on the EU under this principle of the Basic Law are clearly li ited, as they are i eed of political a d legal 86 concretization. I stead the Court e phasized that securi g a i di idual’s li elihood 87 must remain a primary task of the Member States. Arguably, this reasoning is in accord 88 with the demands of the principle of subsidiarity. e) The EU and the Principle of Federalism Like the other requirements of Article 23 I 1, the principle of federalism is directed at the 89 EU. Its legal import, however, is disputed. According to some authors, it is meant especially to prevent the EU from developing into a central state. In this approach, the 90 principle of federalism also guarantees German statehood. Other commentators argue that centralization is excluded by the principle of subsidiarity and that the principle of 83 Classen supra note 26, at margin number 35; Streinz supra note 11, at margin number 27; Pernice, supra note 9 at margin number 56; Hillgruber, supra note 13, at margin number 10 (pointing out that it is problematic that EU competences are interpreted extensively); von Heinegg, supra note 8, at margin numbers 11–11.1. 84 Lisbon ruling, supra note 2, at para. 359. 85 See e.g., Pernice, supra note 9, at margin number 64. 86 Lisbon ruling, supra note 2, at paras. 257–59; see also Streinz, supra note 11, at margin numbers 30; Classen, supra note 26, at margin number 40. 87 Lisbon ruling, supra note 2, at para. 257–59. 88 See, e.g., Pernice, supra note 9, at margin number 64. 89 Id. at margin number 65. Id. at margin number 65; see also Christoph Schönberger, Lisbon in Karlsruhe: Maastricht’s Epigones At “ea, 10 GERMAN L.J. 1201, 1201-18 (2009). 90 90 [Vol. 14 No. 01 German Law Journal 91 federalism obliges the EU to respect national federal structures. In line with the general thrust of Article 23 I 1, the latter view, if correct, could be understood only as an obligation 92 incumbent on German organs when engaging in EU matters. Whatever interpretation the principle is given, it is generally held that it is impossible to infer precise guidelines 93 from this constraint and that this is an issue requiring further judicial concretization by the Federal Constitutional Court. f) The EU and the Principle of Subsidiarity The principle of subsidiarity, which originally was not an explicit part of the Basic Law, has 94 been inspired by the Maastricht Treaty. On the one hand, this principle constitutes a mandate for German governmental representatives to proactively control the exercise of supranational competences in EU institutions and for the German legislature to exercise its control competences. On the other hand, the principle serves to protect the autonomy of 95 the German Länder and communal self-administration, even though this can be 96 effectuated only indirectly through the participation of German organs in the EU. g) The EU and Fundamental Rights The Federal Co stitutio al Court’s la d ark judg e ts o the e us etwee supranational EU governance and German fundamental rights have principally concerned the question of the extent to which German fundamental rights can serve as barriers to the legal effects of secondary law. This issue is discussed below. Nonetheless, Article 23 I 1 is also relevant, as a barrier for treaty amendments implicating fundamental rights because German non-judicial state organs—in particular the Bundestag, the Bundesrat and representatives of the government—are also obliged to promote the protection of 97 fundamental rights within the EU. 91 Classen, supra note 26, at margin number 42. 92 See, e.g., Streinz, supra note 11, at margin number 32. 93 Streinz, supra note 11, at margin number 33. 94 See, e.g., Pernice, supra note 9, at margin number 14. 95 Pernice, supra note 9, at margin number 14; Streinz, supra note 11, at margin number 37; Hillgruber, supra note 13, at margin number 13. 96 Classen, supra note 26, at margin number 45. 97 See Streinz, supra note 11, at margin number 51. 2013] The German Constitution and EU Integration 91 1.3 Barriers derived from Article 23 I 2 Article 23 I 2 has both a positive function, namely authorizing the transfer of competences to the EU level, and a negative one, as it is understood as also containing boundaries for integration. While the first function has already been described, the present section addresses the barriers ensuing from Article 23 I 2. As early as its Maastricht ruling, starting out from a state-centered premise, the Federal Constitutional Court emphasized that democratic legitimacy can only be derived from the Member States as long as the European Community consists of European peoples (in the plural) and not a single European people. The Court concluded that Member States need their own sufficiently important spheres of activity in which the people of each can develop and articulate itself. Fro this it follows that fu ctio s a d powers of su sta tial 98 importance must remain for the German Bundestag. Thus, there would be a breach of the German Constitution if the Act that opens up the German legal system to the direct alidity a d applicatio of EC law does ot esta lish with sufficie t certai ty the powers 99 that are tra sferred a d the i te ded progra e of i tegratio . In Lisbon, the Federal Constitutional Court has placed special emphasis on this point, holding that the German legislature must only consent to transfers of competences, and treaty amendments affecting the exercise of such competences more generally, whose effects are foreseeable for the Ger a legislature. This co stitutio al ersio of a doctri e of i for ed co se t has led the Court to rule that Article 23 I 2 applies to any amendments of the text of primary law, be they simplified revisions of the treaties, the rounding off of EU 100 competences (Article 352 TFEU), or changes of decision-making procedures. The Court’s reaso i g regardi g the Ger a legislature’s special respo si ility for i tegration is clearly 101 interwoven with the democratic principle enshrined under Article 23 I 3. For the same substantive reasons – foreseeability and protection of democracy – German authors take the view that Article 23 I 2 only permits the transfer of individual 102 103 competences, which implicitly prohibits the relinquishing of German sovereignty and, 104 according to several commentators, protects German statehood. 98 See Solange II, supra note 47. 99 Maastricht, supra note 50. 100 Lisbon ruling, supra note 2, at para. 243 101 See the following section. 102 See, e.g., Hillgruber, supra note 13, at margin number 26. 103 Sommermann, supra note 2, at 3, 21. 104 Hillgruber, surpa note 13, at margin number 27. Contra Pernice, supra note 9, at margin number 92. 92 German Law Journal [Vol. 14 No. 01 1.4 Barriers Derived from Article 23 I 3 On one hand, Article 23 I 1 sets forth structural requirements, to be promoted by German organs, for the EU. On the other hand, Article 23 I 3 aims at protecting the German Constitution against undue legal effects of the EU integration project. Article 23 I 3 is, therefore, frequently referred to as a clause securing the acquis of the Basic Law 105 106 Bestandssicherungsklausel . In contrast to Article 23 I 1, the barriers laid down in 107 Article I ha e a Ger a ea i g. Article 23 I 3 subjects changes of the treaty foundations of the EU and comparable regulations that amend or supplement the Basic law, or make such amendments or supplements possible, to a formal and a substantive barrier: in formal respect, by crossreferring to Article 79 II, Article 23 I 3 declares that such measures require a law that is carried by two thirds of the Members of the Bundestag and two thirds of the votes of the Bundesrat. As regards the su sta ti e arrier, y referri g to Article 79 III the Basic Law’s 108 so-called eternity guarantee ), Article 23 I 3 clarifies that such measures may not amount to amendments that affect the division of the Federation into Länder, their participation in the legislative process, or the principles laid down in Article 1 (human dignity, inviolable and inalienable human rights) and Article 20 (the democratic principle, the social state principle, the federal state principle, and the rule of law principle). These foundational pri ciples are co o ly regarded as the co stitutio al ide tity a d the fu da e tal 109 structure of the Basic Law. As Article 79 III refers to Article 20, the eternity clause is 110 seen as also protecting German statehood. Due to the eter ity guara tee, Ger a y’s 111 constitutional identity is not susceptible to the constitution-amending legislature. Therefore, pursuant to Article 23 I 3, the Basic Law can be adapted to the development of 112 the EU, but only subject to the ultimate limit set by Article 79 III. 105 See, e.g., Sommermann, supra note 2, at 3, 24. 106 See id. 107 Hillgruber, supra note 13, at margin number 29. 108 See, e.g., CHRISTOPH DEGENHART, STAATSRECHT I. STAATSORGANISATIONRECHT 82-83 (24th ed. 2008). 109 Lisbon ruling, supra note 2; Andreas Haratsch, Änderungen des Grundgesetzes, in GRUNDGESETZ: BECK’SCHER KOMPAKT-KOMMENTAR margin number 31 (Helge Sodan ed., 1st ed. 2009). 110 Id. at margin number 31. Contra Classen supra note 26, at margin number 23. 111 Lisbon ruling, supra note 2, at para. 216; Degenhart, supra note 108, at 82–83. 112 Lisbon ruling, supra note 2, at para. 231. 2013] The German Constitution and EU Integration 93 a) EU Integration and German Democracy The barriers protecting German democracy that ensue from Article 23 I 3 have been concretized in the Maastricht and Lisbon judgments. To begin, as regards the constitutional empowerment to transfer competences to the EU level, the Federal Constitutional Court has defined three conditions in Lisbon: Ger a y’s so ereig statehood must be maintained on the basis of an integration programme that is based on the pri ciple of co ferral; this progra e is to respect the co stitutio al ide tity of the Me er “tates ; a d the Me er “tates ust ot lose their ability to politically and 113 socially shape living conditions o their ow respo si ility . From this it follows for the 114 FCC that the EU may not be transformed into a federal state, the Member States re ai i g the asters of the Treaties, as EU co pete ces are o ly deri ed fro the 115 Member States. Hence, there may be no transfer of legislative Kompetenz-Kompetenz, and, in the same vein, there must not be brought about an independence of EU powers through steadily i creased [EU] co pete ces a d y gradually o erco i g e isti g 116 unani ity re uire e ts or rules of state e uality agai st the will of the people. Moreover, according to the Federal Constitutional Court, the national parliament must retain substantial influence. Although the Court emphasized that it is not possible, in principle, to legally determine a given number, or types of, non-transferable competences, 117 it declared that there are certai esse tial areas of de ocratic for ati e actio , which comprise: inter alia, citizenship, the civil and the military monopoly on the use of force, revenue and expenditure including external financing and all elements of encroachment that are decisive for the realisation of fundamental rights, above all as regards intensive encroachments on fundamental rights such as the deprivation of liberty in the administration of criminal law or the placement in an institution. These important areas also include cultural issues such as the disposition of language, the shaping of circumstances concerning the family and education, the ordering of 113 See id. at para. 226–27. 114 See id. at para. 228. 115 See id. at para. 229–31. 116 See id. at para. 233. 117 See id. at para. 244. German Law Journal 94 [Vol. 14 No. 01 the freedom of opinion, of the press and of association and the dealing with the profession of faith or 118 ideology. In this context, the Federal Constitutional Court enumerated several constitutional constraints, all of which are inferred from the principle of democracy. Thus, for example, as regards criminal law, harmonization must be restricted to cross-border criminal 119 enterprises, and the Member States must retain substantial space of action. The deployment of the German Bundeswehr abroad is made dependent, in line with standing 120 case-law, to approval by the German Bundestag. There may be no supranationalization of the deter i atio of the character a d the a ou t of the le ies affecti g Ger a y’s citizens, as this would undermine the space for political discretion requisite for German 121 national democracy. Furthermore, the Lisbon ruling also lays down a series of national constitutional barriers for simplified treaty amendments. In view of the fact that the legal implications of a simplified revision of EU primary law (in line with Article 48 VI TEU) are regarded, by the Federal Constitutional Court, as being hardly predictable for the Bundestag, the Court finds that there is a constitutional obligation to generally treat the simplified revision procedure like a transfer of competences, requiring the approval of two thirds of the members of the 122 German Bundestag and two thirds of the votes of the Bundesrat. Analogous provisions in primary law (e.g. Articles 42 II 1 TEU, Article 25 II TFEU, Article 318 VIII 2 2 TFEU) are 123 subject to similar requirements. Moreover, the use of the general brigding clause Article 48 VII TEU , co stituti g a Treaty a e d e t u der pri ary law, re uires a law within the meaning of Article 23 I 2 and, if necessary, Article 23 I 3. This requirement is 124 applied also to the special bridging clause in Article 81 III 2. Such a law is not necessary, 118 See id. at para. 249. 119 See id. at para. 253. On this aspect of the ruling, see, for example, Frank Meyer, Die Lissabon-Entscheidung des BVerfG und das Strafrecht, NEUE ZEITSCHRIFT FÜR STRAFRECHT 657 (2009). 120 Lisbon ruling, supra note 2, at para. 254. But see Josef Isensee, Integrationswille und Integrationsresistenz des Grundgesetzes. Das Bundesverfassungsgericht zum Vertrag von Lissabon, ZEITSCHRIFT FÜR ROMANISCHE PHILOLOGIE 35 (2010) (submitting that the argumentation of the FCC is old verwegen a d hardly reco cila le with the wording and meaning of the treaties; see also Andreas Fischer-Lescano, Judicial Sovereignty Unlimited? in THE GERMAN CONSTITUTIONAL COURT’S LISBON RULING: LEGAL AND POLITICAL SCIENCE PERSPECTIVES 63, 67 (Andreas FischerLescano, Christian Joerges & Arndt Wonka eds., 2010). 121 Lisbon ruling, supra note 2, at para. 256. 122 See id. at para. 312. 123 See id. at para. 313–14. 124 See id. at para. 319. 2013] The German Constitution and EU Integration 95 according to the Federal Constitutional Court, if special bridging clauses are restricted to areas already sufficiently determined by primary law. With regard to such clauses, howe er, a special respo si ility for i tegratio arises, re uiri g a prior appro al y the Bundestag and, if necessary, the Bundesrat, i.e., a parliamentary authorization that precedes the consent given by the representative of the German government in the 125 European Council or in the Council. In the same vein, and given that the flexibility clause (Article 352 TFEU) makes it possible to amend the treaty foundations of the EU in almost the entire area of application of primary law without participation of the legislative bodies, its use requires ratification by the Bundestag and the Bundesrat under Article 23 I 2 and 23 I 3, before the German 126 representative in the Council approves a pertinent proposal of the Commission. Finally, further barriers have been erected by the Federal Constitutional Court for competences that have been newly conferred on the EU by the Lisbon treaty. With respect to the areas of judicial cooperation in criminal and civil matters, external trade, common defense and social policy, the Court insisted, especially, that the pertinent competences must be exercised by the EU in such a way that tasks of sufficient weight remain for the 127 Member States, as this is considered a precondition for a living democracy. In particular, 128 the competences pertaining to criminal law must be interpreted strictly, and the use of the emergency brake proceedings is subjected, by the Federal Constitutional Court, to the 129 additional constitutional requirement of an instruction of the German legislative bodies. As would be expected, the boundaries erected by the Court have been quite intensively discussed in the academic reactions to the Lisbon ruling. On a general level, it has been held that, despite the fact that the judgment designates integration as a constitutional 130 131 obligation, it appears even more restrictive than the Maastricht judgment. More specifically, it has ee criticized that the Basic Law’s eter ity clause Article 79 III , which 125 See id. at para. 320 , 401. 126 See id. at para. 235–328, 401. 127 See id. at para. 351. 128 See id. at para. 358. 129 See id. at para. 365, 401. 130 On this, see also the comment by the President of the FCC, Voßkuhle, supra note 64, at 1, 2. 131 Von Bogdandy, supra note 57, at 1; see also Alfred Grosser, The Federal Constitutional Court’s Lisbon Case: Ger any’s “onder eg”: An Outsider’s Perspective, 10 GERMAN L.J. 1263, 1263-66 (2009); Daniel Halberstam & Christoph Möllers, The Ger an Constitutional Court says Ja zu Deutschland!,” 10 GERMAN L.J. 1263, 1241-58 (2009); Frank Schorkopf, The European Union as An Association of “overeign “tates: Karlsruhe’s ‘uling on the Treaty of Lisbon, 10 GERMAN L.J. 1219, 1219-40 (2009). 96 German Law Journal [Vol. 14 No. 01 is seen as being meant to protect Germany against dictatorship, is now turned into a shield 132 133 against integration; an appraisal which has, however, not remained uncontested. It has also been argued that there is a tendency in the judgment to sanctify national democracy and to abnegate EU democracy, a bias contrasting unfavorably with judicial approaches i other cou tries, e.g. with the Czech Co stitutio al Court’s state e t that its commitment to European integration lies in the basis of its being law-based and 134 democratic. Also, it has ee argued that the Federal Co stitutio al Court’s sta ce is paradoxical in that it insinuates that a (welcomed) further augmentation of democratic structures at EU level would lead to EU statehood, which, however, is prohibited on the 135 asis of the Court’s readi g of the Basic law. According to other commentators, the constitutional right to vote has been overstated by the Federal Co stitutio al Court. Accordi g to this criti ue the Court’s i terpretatio of this right has resulted in the possibility that constitutional complaints can be brought by any individual person claiming that German statehood or constitutional identity is 136 endangered by EU integration. While some authors have argued that this remarkable 137 emphasis on individual rights amounts to a legal misconception or is at least disturbing 138 in terms of traditional constitutional law doctrine, others have observed that, by empowering the individual in this way, the Court has followed in the footsteps of the 139 ECJ. The differe ce i the two courts’ approaches o this issue ei g, of course, that the Federal Co stitutio al Court’s o e ca e percei ed as ha i g a opposite effect, a ely 140 that of decelerating integration. 132 Von Bogdandy, supra note 57, at 1. 133 See Josef Isensee, supra note 120, at 34, 35-36, who argues that the eternity guarantee has always had a roader thrust tha the protectio agai st dictatorship, which was due to Ger a y’s historic e perie ces. 134 Damian Chalmers, A Few Thoughts on the Lisbon Judgment, in THE GERMAN CONSTITUTIONAL COURT’S LISBON RULING: LEGAL AND POLITICAL SCIENCE PERSPECTIVES 7 (Andreas Fischer-Lescano, Christian Joerges & Arndt Wonka eds., 2010). 135 Jörg Philipp Terhechte, Anmerkungen zum Lissabon-Urteil des BVerfG, EUROPÄISCHE ZEITSCHRIFT FÜR WIRTSCHAFTSRECHT 724 (2009); Frank Schorkopf, Die Europäische Union im Lot–Karlsruhes Rechtsspruch zum Vertrag von Lissabon, EUROPÄISCHE ZEITSCHRIFT FÜR WIRTSCHAFTSRECHT 718, 720 (2009). 136 Müller-Graff, supra note 76, at 331. 137 Martin Nettesheim, Ein Individualrecht auf Staatlichkeit? Die Lissabon-Entscheidung des BVerfG, NEUE JURISTISCHE WOCHENSCHRIFT 2867, 2868 (2009). 138 Isensee, supra note 120, at 33; see also Jörg Philipp Terhechte, Anmerkungen zum Lissabon-Urteil des BVerfG, EUROPÄISCHE ZEITSCHRIFT FÜR WIRTSCHAFTSRECHT 724, 726-27 (2009). 139 Josef Isensee, supra note 120, at 33. 140 See also Terhechte, supra note 138, at 724. 2013] The German Constitution and EU Integration 97 Further ore, the Federal Co stitutio al Court’s afore e tio ed e u eratio of esse tial areas of de ocratic for ati e actio has attracted co sidera le criticis . E e ad ocates of EU-critical parts of the Lisbon judg e t ha e held that this te t ook-style 141 enumeration of essential state functions is hardly in keeping with supranational reality. Moreover, the requirements of ratification for simplified treaty amendments and uses of the flexibility clause – introduced by the Federal Constitutional Court under the afore e tio ed headi g special respo si ility for i tegratio – have come under severe criticism for several reasons. On the one hand, it has been submitted that these 142 requirements might be contrary to EU law. On the other hand, many commentators have held that these requirements unduly restrict the flexibility of German government 143 representatives in negotiations at the EU level, even though non-German observers have pointed out that, as respects the degree of parliamentary scrutiny of EU matters resulting from the Lisbon ruling, Germany is still i the oderate ca p whe co pared 144 with other Member States. b) Further Barriers Protecting the German Constitution As noted above, Article 23 I 3 in conjunction with Article 79 III defines further substantive barriers, beside the democratic principle, that protect the German Constitution against undue legal effects of EU integration of chief significance here are the principles of the rule of law, social justice, and federalism. The principle of the rule of law in Germany (ensuing from Article 23 I 3 read together with Article 79 III and Article 20 II 2 and 20 III) is regarded, in principle, as not being endangered by the EU integration process. Only selected issues are seen as potentially giving rise to 145 tensions, such as the primacy of supranational law, in particular. 141 Isensee, supra note 120, at 36; a similar critique has been voiced by Wonka, supra note 77, at 47, 60; on this debate see also Matthias Ruffert, An den Grenzen des Integrationsverfassungsrechts: Das Urteil des Bundesverfassungsgerichts zum Vertrag von Lissabon, DEUTSCHE VERWALTUNGSBLATT 1197, 1204–05 (2009); Everling, supra note 69 at 92, 100; Schorkopf, supra note 135, at 718, 721; Armin Steinbach, The Lisbon Judgment of the German Federal Constitutional Court – New Guidance on the Limits of European Integration?, 11 GERMAN L.J. 367, 367–90 (2010). 142 von Bogdandy, supra note 57, at 1, 3. 143 See, e.g., von Bogdandy, supra note 57, at 1, 4; Isensee, supra note 120, at 33. 144 Philipp Kiiver, German Participation in EU Decision-Making after the Lisbon Case, 10 GERMAN L.J. 1287 (2009). 145 See e.g., Hillgruber, supra note 13, at margin number 30; Classen, supra note 26, at margin number 39; Hillgruber and Classen id. with further references. As indicated above, the Lisbon judgment has stressed, however, that the Member States must retain sufficient space for the political formation of the social circumstances of life, including social security; cf. also Lisbon ruling, supra note 2, at para. 249. 98 German Law Journal [Vol. 14 No. 01 Similarly, it is held that the principle of social justice (guaranteed by Article 23 I 3 read together with Article 79 III and Article 20 I) is strained in individual contexts, particularly by the market-opening effect of the fundamental freedoms. Yet, to this point, no 146 infringements of this principle have been stated in the literature. The federal structure of the German state is protected by Article 23 I 3 in conjunction with Article 79 III. Because Article 79 III does not guarantee that the Länder retain concretely deter i ed co pete ces, it is hardly possi le to esta lish the tur i g poi t at which the transfer of competences to the EU level would become unconstitutional as a violation of 147 federalism. c) Constraints on German Participation in the EMU Additional limits are inferred, by the Federal Constitutional Court, from Article 38, which provides for the right to vote. In the Maastricht ruling, the Court reasoned for the first time that the right to vote encompasses a right to exercise actual influence on the political process. Consequently, the Court ruled that the German Parliament may not give up its legislative and control functions by transferring competences to the EU to an extent that would void the principle of democracy. Therefore, the legislator may only assent to an 148 integration program that is sufficiently foreseeable. This guiding idea of parliamentary foreseeability is also relevant for German participation in the EMU and related budgetary issues. According to the Maastricht ruling, the future developments within the EMU were sufficiently predictable, at least under the very 149 reduced degree of scrutiny applied by the Federal Constitutional Court in this context. Similarly, the Court held in the 2011 case on emergency help for Greece that the German Parlia e t’s udgetary rights are ut the opposite side of the coi of the de ocratic principle and that, therefore, the German Parliament must not give its consent to a direct or indirect communitarization of debts, to the extent that the resulting budgetary implications could lead to an unforeseeable abandonment of the room necessary for democratic policy-making in Germany. Yet, the Federal Constitutional Court indicated that it is required to respect the estimations of the legislator in principle and that it will exercise 150 its scrutiny only if there are evident transgressions of the outermost limits. 147 See Hillgruber, supra note 13, at margin number 31; Classen, supra note 26, at margin number 44. 148 Maastricht ruling, supra note 50. 149 Id. 150 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 987/10, 2 BvR 1485/710, 2 BvR 1099/10, Sept. 7, 2011, 129 BVERFGE 124, paras. 130–32 (Ger.). 2013] The German Constitution and EU Integration 99 These standards have been re-applied in the September 2012 judgment on the European Stability Mechanism (ESM) and the Treaty on Stability, Coordination and Governance in the Eco o ic a d Mo etary U io , where the Federal Co stitutio al Court added that the larger the financial amount of the commitments to accept liability or of commitment appropriatio s is, the ore effecti ely ust the Ger a Bu destag’s rights to appro e a d 151 to refuse a d its right of o itori g e ela orated. The Court once more stressed that its re iew is restricted to e tre e cases i which parlia e tary udget auto o y, at least 152 for a apprecia le period of ti e, was ot erely restricted ut effecti ely failed . II. Scrutiny of Secondary Legislation 1. Main Types of Constitutional Constraints While the preceding Section has examined the limits on the transfer of competences by means of treaty amendments, the present Section examines the German constitutional barriers that are relevant for the legal effects of secondary law. In the case of Germany, it is important to distinguish two main types of such constraints, namely the fundamental rights arrier, which is deri ed fro the fu da e tal rights e shri ed i the Ger a Basic Law, a d the co pete ce arrier, u der which EU seco dary law is su jected to 153 ultra vires scrutiny by the Federal Constitutional Court. 2. Limits Developed under Article 24 1.1 Solange I and Solange II The first key ruli g i this co te t is the Federal Co stitutio al Court’s Solange I decision, which is co o ly see as the egi i g of a judicial dialogue etwee atio al courts 154 155 and the ECJ. In this judgment, the Court held that in case of conflict between EC law and national fundamental rights, the guara tee of fu da e tal rights i the Co stitutio 151 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 1390/12, Sept. 12, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 3145, para. 212 (Ger.). 152 Id. at para. 216. 153 This section draws on Erich Vranes, European Human Rights Protection and the Contested Relationship of the ECJ and National Courts - Convergent Solutions under International, European and National Law? in THE EU BANANA DISPUTE - AN ECONOMIC AND LEGAL ANALYSIS 195 (Fritz Breuss, Stefan Griller & Erich Vranes eds., 2003). It is an abbreviated version of the respective subsections in the latter contribution, which was updated in 2012 so as to take into account the legal developments in Germany between 2000 and 2012. 154 See, e.g., FILIPPO FONTANELLI ET AL., SHAPING THE RULE OF LAW THROUGH DIALOGUE (2010). 155 See Solange I, supra note 12. 100 German Law Journal [Vol. 14 No. 01 prevails as long as the competent organs of the Community have not removed the conflict of or s i accorda ce with the Treaty echa is . Yet, the possibility of giving German fundamental rights protections priority in this way inverted the hierarchy of norms that the ECJ had developed as regards the conflict-loaded zone of fundamental rights. The Federal Constitutional Court, however, issued an important reservation implying that it’s finding was based on the state of integration at the time of its judgment and was meant to apply provisionally. At that stage, in the view of the Court, the Community lacked a de ocratically legiti ated Parlia e t directly elected y ge eral suffrage, a d i particular a codified catalogue of fu da e tal rights . As long as (or in German: solange) this remained the case, national German fundamental rights standards would serve as 156 grounds for rendering inapplicable EC legislative measures. A judicial re-orie tatio occurred i the Federal Co stitutio al Court’s 98 Solange II ruling, when, having taken into account the developments in fundamental rights protection on the Community level since the Solange I judgment, the Court pronounced that it would ot e ercise its re iew jurisdictio so long as the European Communities, and in particular the case law of the European Court, generally ensure an effective protection of fundamental rights as against the sovereign powers of the Communities, which is to be regarded as substantially similar to the protection of fundamental rights required unconditionally by the Constitution, and in so far as they generally safeguard the 157 essential content of fu da e tal rights. The Federal Constitutional Court supported this fi di g with a detailed a alysis of the EC ’s fundamental rights jurisprudence and several declarations made by Community organs on the protection of fundamental 158 rights. The Solange II ruling showed that the German Court would only exercise its review competence in rare instances, but it also raised several intricate questions. For example, 159 so e co e tators ha e see the real pro le of Solange II to be the ambiguity in the Court’s use of the sta dard ge eral safeguard, which ight e i te ded to allow the Court to continue to rule in concrete cases or, alternatively, might mean that the Court would exercise its residual review authority only as a more general review of the 156 For critical reviews of this ruling see e.g. Meier, Annotation to the Solange I decision, NEUE JURISTISCHE WOCHENSCHRIFT 1705 (1974); Riegel, Annotation to the Solange I decision, NEUE JURISTISCHE WOCHENSCHRIFT 2176 (1974); Hans Georg Rupp, Annotation to the Solange II decision, JZ 241 (1987); see also the analysis in the broader context of Solange I, Solange II and Maastricht judgment in the following sections. 157 See Solange I, supra note 12. 158 Id. at 581. 159 Cf. Christoph Schmid, Ein enttäuschender Rückzug. Anmerkungen zum Bananenbeschluss des BVerfG, NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT 249, 253; Peter M. Huber, Das Kooperationsverhältnis zwischen BVerfG und EuGH in Grundrechtsfragen, EUROPÄISCHE ZEITSCHRIFT FÜR WIRTSCHAFTSRECHT 159 (1997). 2013] The German Constitution and EU Integration 101 160 Community fundamental rights protection system as such. Furthermore, uncertainties persist as to the deter i atio of the esse tial co te t of fu da e tal rights a d as to the issue of whether the Federal Constitutional Court can actually determine its own jurisdiction—not only through interpretation but by overtly restricting or declining to 161 exercise it. He ce, the e sui g uestio is: u der what co ditio s the Court’s reser ed co pete ce ca possi ly e re i ed ? As there are conceptual affinities between the Solange II ruli g a d the Court’s Bananas decision of 2000, these issues will be addressed in the analysis of the Bananas decision below. 3. Limits Developed under Article 23 U der Article , the atio al fu da e tal rights arrier to seco dary law that was developed under Article 24 has been reconfirmed, and elaborated, in particular in the 1993 162 Maastricht and the 2000 Bananas decisions of the Federal Constitutional Court. 163 Moreover, in Maastricht, the Court mounted new constitutional barriers for secondary law, in that it scrutinized secondary law also under the angle of national constitutional restraints for Community competences. 160 Cf. e.g., RUDOLF STREINZ, BUNDESVERFASSUNGSGERICHTLICHER GRUNDRECHTSSCHUTZ UND EUROPÄISCHES GEMEINSCHAFTSRECHT 283-284 (1989); see also Classen, supra note 175, at 1158 with further references. 161 Cf. e.g., Streinz, supra note 160, at 283-84; Huber, supra note 159, at 159; see also the analysis in Schmid, supra note 159, at 249, 253-254; it is notable that the then president of the FCC still held in 2000 that the court does ot e ercise its jurisdictio , cf. utta Li ach, Die Kooperation der Gerichte in der zukünftigen europäischen Grundrechtsarchitektur, Vortrag am Walter-Hallstein-Institut Berlin vom 29. Juni 2000, available at www.rewi.hu-berlin.de/WHI Limbach) marginal note 19. 162 163 See in the following text. See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 2134/92, 2 BvR 2159/92, Oct. 12, 1993, 1993 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 3047 (Ger.); The Maastricht Judgment of the German Federal Constitutional Court and its Significance for the Development of the European Union, YEARBOOK OF EUROPEAN LAW 1 (1994); Matthias Herdegen, Maastricht and the German Constitutional Court: Constitutional ‘estraints for an Ever Closer Union” 31 COMMON MKT. L. REV. 235 (1994); Günther Hirsch, Europäischer Gerichtshof und Bundesverfassungsgericht—Kooperation oder Konfrontation?, NEUE JURISTISCHE WOCHENSCHRIFT 2457 (1996); Reimer Voss, Das Maastricht-Urteil und die Folgen, RIW 324 (1996); Ulrich Everling, Will Europe slip on bananas? The Bananas Judgment of the Court of Justice and National Courts, 33 COMMON MKT. L. REV. 401 (1996); Gert Nicolaysen, Der Streit zwischen dem deutschen Bundesverfassungsgericht und dem Europäischen Gerichtshof, in WELCHE VERFASSUNG FÜR EUROPA? 91, 101 (Thomas Bruha, Joachim Hesse & Carsten Nowak eds., 2001); Joseph H. H. Weiler, European Democracy and its Critics: Polity and System, in THE CONSTITUTION OF EUROPE: DO THE NEW CLOTHES HAVE AN EMPEROR? AND OTHER ESSAYS ON EUROPEAN INTEGRATION 238 (Joseph H. H. Weiler, 1999). [Vol. 14 No. 01 German Law Journal 102 1.1 The Fundamental Rights Barrier In Maastricht, the Federal Constitutional Court re-addressed the fundamental rights barrier to secondary law, when dealing with a constitutional complaint for scrutiny with 164 Article 38 (right to elections) of the Grundgesetz. As regards fundamental rights, the Court introduced a new qualification according to which it exercises their jurisdiction on the applica ility of seco dary law i Ger a y i a relatio ship of cooperatio with the ECJ. It was u clear what the Court actually ea t whe it coi ed the ew co cept relatio ship of cooperation. This offer of cooperatio was criticized as a ou ti g to a de ial of the 165 absolute supremacy of Community law and the accompanying superiority of the ECJ and 166 was read as perpetuating German control of secondary law. Even after the Maastricht decision it remained unclear whether a complainant or referring tribunal would have to submit evidence that, in the concrete case, there was insufficient protection of fundamental rights or that the level of protection on the EC plane was too low in general 167 for systemic reasons. Two further rulings, pronounced by the Federal Constitutional Court in 2000, shed more light on these issues. In Alcan, the Federal Constitutional Court held that there is no reaso to assu e that the EC fu da e tal rights jurisprude ce generally calls into question the indispensable fundamental rights protection required by the German 168 Co stitutio . Nonetheless, the Court undertook a hypothetical scrutiny under German 164 Article 38 on elections stipulates: (1) The deputies to the German Bundestag are elected in universal, direct, free, equal and secret elections. They are representatives of the whole people, are not bound by orders and instructions and are subject only to their conscience. (2) Anyone who has attained the age of eighteen is entitled to vote, anyone who has attained the age of twenty-five is eligible for election. (3) Details will be regulated by a Federal law. 165 See Herdegen, supra note 163, at 235, 239; similarly e.g. Gert Nicolaysen and Carsten Nowak, Teilrückzug des BVerfG aus der Kontrolle der Rechtmäßigkeit gemeinschaftlicher Rechtsakte: Neuere Entwicklungen und Perspektiven, NEUE JURISTISCHE WOCHENSCHRIFT 1233, 34 (2001). 166 Huber, supra note 159, at 159. 167 See e.g. Frank Hoffmeister, Annotation to the Alcan and Bananas Decisions of the German Constitutional Court, 38 COMMON MKT. L. REV. 791 (2001). 168 Es ist icht erke ar, dass durch diese Vore tscheidu g der o Grundrechtsschutz generall in Frage gestellt würde. Id. at II.1.a. Gru dgesetz als u a di g ar ge ote e 2013] The German Constitution and EU Integration 103 169 Constitutional law, which indicated that the German Court intended to continue 170 e ercisi g so e sort of reser ed re iew authority. The details of this reserved review authority were further clarified in the Bananas decision. According to the Federal Constitutional Court, constitutional complaints and submissions by courts are inadmissible, if their grounds do not state that the evolution of EU law, including the rulings of the ECJ, has resulted in a decline below the indispensable standard 171 of fundamental rights protection after the Solange II decision. Any claim of an infringement by secondary EC law of the fundamental rights guaranteed in the Basic Law ust thus state i detail that the protectio re uired u co ditio ally y the Basic Law is not generally assured in the respective case. The Court specified that this re uires a comparison of the protection of fundamental rights on the national and on the Community 172 level similar to the one made by the Federal Constitutional Court [in Solange II]. T he Federal Constitutional Court concluded this seminal case by emphasizing that the latter 173 decision of the ECJ and the Federal Co stitutio al Court’s jurisprude ce illustrate that the judicial protection of fundamental rights by national courts of justice and Community 174 courts of justice i terlock o the Europea le el. This milestone ruling on the fundamental rights barrier to secondary law was largely 175 welcomed with approval. Nevertheless, some comments are in order. First, the Federal Constitutional Court has made it clear that, from a formal point of view, it still claims a 169 E e if o e scruti ized the lower court's decisio which relies on the ECJ's judgment) under German Constitutional . . . . Id. at II.1.b. 170 On the extent of control that is legally permissible see the following. 171 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvL 1/97, June 7, 2000, 102 BVERFGE 147 (Ger.). 172 Id. 173 See, for example, the 1995 decision on the grant of interim relief for German banana importers, which indicated that the banana market regulation 404/93 is flexible enough to enable interim relief measures in hardship cases. See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 2689/94, 2 BvR 52/95, Jan. 25, 1995, 1995 EUROPÄISCHE ZEITSCHRIFT FÜR WIRTSCHAFTSRECHT (EUZW) 126 (Ger.). 174 Id. 175 See e.g. Claus Dieter Classen, Annotation to the 2000 Banana Decision of the German Constitutional Court, JZ 1158 (2000); Nicolaysen & Nowak, supra note 165, at 1233, 1234, 1236; Josef Franz Lindner, Annotation to the 2000 Alcan and Banana Decisions of the German Constitutional Court, BAVARIAN OFFICIAL GAZETTE 758, 759 (2000); Hoffmeister, supra note 167, at 791, 802; Franz C. Mayer, Grundrechtsschutz gegen europäische Rechtsakte durch das BVerG: Zur Verfassungsmäßigkeit der Bananenmarktordnung, EUROPÄISCHE ZEITSCHRIFT FÜR WIRTSCHAFTSRECHT 685 (2000). But see Schmid, supra note 159, at 249 (speaking of a disappoi ti g retreat of the Bundesverfassungsgericht); see also Angelika Emmerich-Fritsche, Annotation to the 2000 Banana Decision of the German Constitutional Court, BAVARIAN OFFICIAL GAZETTE 758 (2000) (providing a very trenchant critique and bemoaning the retrogressio of the attai e ts of the Maastricht judg e t. ). German Law Journal 104 [Vol. 14 No. 01 176 reser ed re iew authority for itself, as it agai emphasizes in the very first sentence of its reasoning that the decision is based on the present state of fundamental rights 177 protection in the EU. Yet, the hurdles that the Court introduced for the exercise of this jurisdiction (i.e. the requirement of a comparison of the protection of fundamental rights on the national and on the Community level similar to the one made by the Federal Constitutional Court in Solange II) are unanimously regarded in the academic literature as 178 practically insurmountable. (noting, however, that these hurdles may have been 179 reduced in what appears to be a new approach in the Data Retention Case ). Second, even after this decision, uncertainties have persisted as to how one should exactly co strue the ualifyi g ter ge eral decli e i EU fu da e tal rights protectio that the Court has upheld since the Solange II precedent and that it imposes as the essential precondition for the exercise of its jurisdiction. For some authors it is sufficient that there is a decline in a concrete case that entails a decline in fundamental rights protection below the indispensable level that is held to be essentially comparable to German Constitutional 180 standards by the German Constitutional Court. Others maintain that it is the level in general that has to decline, irrespective of a given concrete case. This would especially be 181 true if there were a structural deficit in fundamental rights jurisprudence. It is notable, 176 See the Solange I and Solange II decisions which also emphasized that they were to apply "provisionally"; on this see the preceding analysis. 177 See B.I.: Submissions of cases to the Federal Constitutional Court for constitutional review under Article 100(1) GG which refer to rules that are part of secondary European Community law are only admissible if their grounds show in detail that the present evolution of law concerning the protection of fundamental rights in European Community law, especially in case law of the Court of Justice of the European Communities, does not generally ensure the protection of fundamental rights required unconditionally in the respective case. 178 This view has recently also been taken by the President of the FCC. See Voßkuhle, supra note 64, at 1, 6; see also e.g. Classen, supra note 175, at 1158; Nicolaysen & Nowak, supra note 165, at 1233, 1234, 1236; Lindner, supra note 175, at 758, 759; Schmid, supra note 159, at 249; Hoffmeister, supra note 167, at 791, 802; Mayer, supra note 175, at 685; Emmerich-Fritsche, supra note 175, at 758; Rudolf Streinz, Verfassungsvorbehalte gegenüber Gemeinschaftsrecht—eine deutsche Besonderheit? Die Schranken der Integrationsermächtigung und ihre Realisierung in den Verfassungen der Mitgliedstaaten, in TRADITION UND WELTOFFENHEIT DES RECHTS: FESTSCHRIFT FÜR HELMUT STEINBERGER (Hans-Joachim Cremer et al. eds., 2002). 179 See in the following text. 180 Cf., e.g., Emmerich-Fritsche, supra note 175, at 758; Nicolaysen & Nowak, supra note 165, at 1233, 1235; Schmid, supra note 159, at 249, 253 and Hoffmeister, supra note 167, at 791, 797. 181 Manfred Zuleeg, Bananen und Grundrechte—Anlaß zum Konflikt zwischen europäischer und deutscher Gerichtsbarkeit, NEUE JURISTISCHE WOCHENSCHRIFT 1201 (1997); Huber, supra note 159, at 159, all with further references; Hoffmeister, supra note 167, at 791, 797; see also Hirsch, supra note 163, at 2457, 2460; Günther Hirsch, Der EuGH im Spannungsverhältnis zwischen Gemeinschaftsrecht und nationalem Recht, NEUE JURISTISCHE WOCHENSCHRIFT 1818 (2000); Limbach, supra note 161, at margin numbers 23; Jutta Limbach, Das 2013] The German Constitution and EU Integration 105 in this context, that the then President of the Federal Constitutional Court repeatedly maintained in public after the Bananas decision was rendered that the Court will not 182 exercise a case by case review of ECJ judgments. Rather, while the protection of fundamental rights on the EU level may indeed drop below the German standard, the reser ed re iew authority of the Ger a Co stitutio al Court will o ly re i e if the indispensable fundamental rights standard is generally not guaranteed by the ECJ, that is, if 183 it falls below the standard recognized in Solange II. According to a third reading, 184 howe er, the co plete picture of fundamental rights protection is decisive, which means that a constitutional complaint must demonstrate a decrease of protection 185 enco passi g all ra ges of hu a acti ities that are protected y hu a rights. Shortly after the Bananas decision was issued, it emerged as probable that the Federal Constitutional Court was indeed pursuing a new judicial policy that is apt to give a new meaning to the much-criticized co cept of the relatio ship of cooperatio . Thus, in a 186 2001 decision, it confirmed the Bananas decision, and emphasized that it will monitor Bundesverfassungsgericht und der Grundrechtsschutz in Europa, NEUE JURISTISCHE WOCHENSCHRIFT 2913, 2915 (2001) with further references; Nicolaysen, supra note 163, at 101, 102. 182 Cf. Limbach in a speech on 29 June 2000 at the Berlin Walter Hallstein Institut: Der Grundrechtsschutz auf europäischer Ebene darf hinter dem atio ale deutsche Gru drechtsschutz zurück lei e , a d Da sich das Bundesverfassungsgericht auf die generelle Gewährleistung des unabdingbaren Grundrechtsschutzes beschränkt, können Grundrechtsverstöße von europäischen Organen nicht im Einzelfall geltend gemacht werden. Nur dann, wenn der unabdingbare Grundrechtsstandard generell nicht mehr gewährleistet ist, sind Verfassungsbeschwerden und Richtervorlagen zulässig. Also nur dann revitalisiert sich die Reservezuständigkeit, wenn die Rechtsprechung des EuGH allgemein hinter das im Jahre 1986 erreichte Schutzniveau zurückgefallen ist. Der Respekt vor der grundsätzlichen Letztentscheidungskompetenz des EuGH und die Leitidee vom Kooperationsverhältnis vertragen sich nicht mit einer Einzelfallkontrolle durch nationale Verfassungsgerichte und deren Ei satz als watchdogs. Limbach, supra note 161, at margin numbers 23 and 25. 183 See id. 184 Classen, supra note 175, at 185 Hoffmeister, supra note 167. 186 8 icht der Ei zelfall, so der das Gesa t ild ist ausschlagge e d . Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 1 BVR 1036/99, Jan. 9, 2001, 2001 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 1267, para. 15 (Ger.). Ge ei schaftsrecht wird gru ds tzlich icht a Maßstab der Grundrechte durch das Bundesverfassungsgericht geprüft; Verfassungsbeschwerden und Vorlagen von Gerichten sind von vornherein unzulässig, wenn ihre Begründung nicht darlegt, dass die europäische 106 German Law Journal [Vol. 14 No. 01 the obligation of national courts of last instance to refer cases to the ECJ, which is competent to exercise the fundamental rights jurisdiction pursuant to Community 187 fundamental rights. Applying the concept of the multi-level European constitutional 188 model, which consists of at least two complementary constitutional layers, this means, first, that it is incumbent on national tribunals—acting as European tribunals— to refer cases involving fundamental rights protection to the ECJ. Second, it is the ECJ that is, in principle, solely competent to invalidate the legislative measures at issue. Third, this system is completed by the task of the Federal Constitutional Court (which it emphasized in this 2001 decision) of monitoring whether national authorities comply with their duty of 189 referring pertinent cases to the ECJ a d y its reser ed re iew authority that will e 190 revived as an ultima ratio. In 2007, the Federal Constitutional Court transposed this reasoning to EU directives as well. It suspended its control of national implementing acts to the extent that EU law contains relevant binding provisions, which do not leave a margin of discretion to German state organs, as long as the ECJ in general guarantees an effective protection of fu da e tal rights that is esse tially e ui ale t to the Basic Law’s i dispe sa le fundamental rights standards. German tribunals are required to review such requirements of EU law under EU fundamental rights standards and, if need be, to refer the case to the 191 ECJ. A new approach appears to have been taken, however, in the 2010 Data Retention Case, in which the Federal Constitutional Court took the view that constitutional complaints against national acts implementing EU directives may be permissible, to the extent that relevant 192 provisions in an EU directive do not leave any margin of discretion to national organs. This ruling has been understood as possibly deviating from existing case law, in that the Court has indicated that it is prepared to declare as void legal acts in single concrete cases, i.e. without checking whether the level of fundamental rights protection is insufficient, at Rechtsentwicklung einschließlich der Rechtsprechung des Europäischen Gerichtshofs unter den erforderlichen Grundrechtsstandard abgesunken ist. . 187 Id. at paras. 16. 188 Pernice, supra note 9, at margin numbers 20; Ingolf Pernice, Deutschland in der Europäischen Union in HANDBUCH DES STAATSRECHTS DER BUNDESREPUBLIK DEUTSCHLAND 225 (Josef Isensee and Paul Kirchhof eds., 1995). 189 See. Pernice, supra note 9, at margin numbers 30–31. 190 See Pernice, supra note 9; Schmid, supra note 159, at 249, 256. 191 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 1 BvF 1/05, Mar. 13, 2007, 118 BVERFGE 79, paras. 69 (Ger.). 192 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 1 BvR 256/08, 1 BvR 263/08, 1 BvR 586/08, Mar. 2, 2010, 125 BVERFGE 260, paras. 182 (Ger.) [hereinafter Data Retention ruling]. 2013] The German Constitution and EU Integration 107 193 the EU level, in general. Furthermore, there are indications in this judgment that the Court might subject legal acts, which may violate German fundamental rights, to the new echa is of co stitutio al ide tity re iew, which, too, ay a ou t to a circu e tio 194 of the high hurdles erected in the Solange II and Bananas line of jurisprudence. Moreover, this decision has been criticized as the first obvious infringement of EU law perpetrated by the Federal Constitutional Court. This would be the case because, with this reasoning, it has annulled the German implementing act, including parts of the act that 195 were fully determined by the underlying EU directive. Finally, it should be mentioned that the Federal Constitutional Court had already addressed the issue as to whether EU action in intergovernmental policy fields remains subjected to full review under the German fundamental rights standards articulated in its Maastricht ruli g. It held that, i such fields, the protection of basic rights provided by the 196 Basic law is ot eclipsed y supra atio al legislatio that ay take precede ce. It has 197 ee argued that the Court’s rece t jurisprude ce ota ly i the Arrest Warrant Case ) 198 and the entry into force of the Lisbon Treaty have not changed this legal situation. 193 Matthias Bäcker, Solange II a oder Basta I? EUR 103, 107 (2011); see also Dietrich Westphal, Leitplanken für die Vorratsdatenspeicherung, EUROPÄISCHE ZEITSCHRIFT FÜR WIRTSCHAFTSRECHT 494 (2010). 194 Data Retention at para. 218; on this see also Bäcker, supra note 193, at 103, 116; and Heiko Sauer, Europas Richter Hand in Hand?, EUROPÄISCHE ZEITSCHRIFT FÜR WIRTSCHAFTSRECHT 94 (2011). 195 Bäcker, supra note 193, at 103, 116. 196 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 2134/92, 2 BvR 2159/92, Oct. 12, 1993, 89 BVERFGE 155, part B 2 c5 (Ger.). In cases in which joint action and measures pursuant to Titles V and VI of the Maastricht Treaty impose a binding obligation upon the Member States under international law to interfere with basic rights, any such interference which takes place in Germany may be subjected to full review before the German courts. In this respect the protection of basic rights for which the Basic law provides is not eclipsed by supranational legislation which may take precedence. Id. 197 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 1826/09, Sept. 3, 2009, 16 BVERFGK 177 (Ger.). 198 Stefanie Schmahl, Art. 23 in GRUNDGESETZ: BECK'SCHER KOMPAKT-KOMMENTAR margin number 25 (Helge Sodan ed., 1st ed., 2009). 108 German Law Journal [Vol. 14 No. 01 1.2 Limits to EU Competences a) FCC Case Law The Federal Constitutional Court introduced a new additional barrier to the European integration process in its Maastricht decision, a barrier that concerns the exercise of EU competences and the scrutiny of secondary law. This barrier is derived from the consideration that the act opening up the German legal system to the direct validity and applicatio of supra atio al law ust esta lish with sufficient certainty the powers that 199 are tra sferred a d the i te ded progra e of i tegratio . On this basis, the Court has i troduced a re iew [of] legal i stru e ts of Europea i stitutio s a d age cies to see whether they remain within the limit of the sovereign rights conferred on them or transgress the . “uch legal acts tra sgressi g li its of EU co pete ces ha e eco e k ow as ausbrechende Rechtsakte seco dary legal acts reaki g out of atio al constitutional constraints). It follows from this judgment that the Federal Constitutional Court claims to be competent to decide whether a act of seco dary law is ultra vires or falls withi the foreseea le i tegratio progra e. The Court therefore was understood as regarding itself as the final arbiter on these issues. Some authors even inferred from the Maastricht judgment that any German tribunal would be competent to decide on these issues of constitutional 200 importance, and, as several proceedings in the 1990s in the Bananas litigation showed, several German tribunals actually understood the Maastricht judgment in this way and started scruti izi g EC regulatio s for co stitutio ality whe they suspected 201 transgressions of EC competences. From the viewpoint of EU law, it is clear that this approach is problematic, at least as regards the extent of control that the Federal Constitutional Court purports to exercise, namely a continuous control of the EU legislature, since this endangers the unity of EU law. 202 The Court's approach was heavily criticized by German and foreign commentators alike. 199 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 2134/92, 2 BvR 2159/92, Oct. 12, 1993, 89 BVERFGE 155 (Ger.). 200 See Everling, supra note 163, at 1, 11; Hirsch, supra note 163, at 2457, 2460. 201 On this, see Vranes, supra note 153, at 195; Erich Vranes, Introduction to the Problems of EU Fundamental Rights Protection, the Status of WTO Law Within the EU, and Community Liability for Infringements of WTO Law, in THE EU BANANA DISPUTE—AN ECONOMIC AND LEGAL ANALYSIS 185. 202 Everling, supra note 163, at 1, 18; Herdegen, supra note 163, at 235, 242; Nicolaysen, supra note 163, at 101, 102; Georg Ress, Case note on the Maastricht Judgment, AM. J. INT’L L. 539, 547 (1994). 2013] The German Constitution and EU Integration 109 But it is widely held that the supremacy of supranational EU law depends on a 203 corresponding authorization by national law. By implication, it also follows that the 204 issue of which court is the fi al ar iter of co stitutio ality i Europe cannot be decided solely from the perspective of EU law, but has to take into account national law and—in the view of some authors—also public international law. Following the Maastricht judgment, an intense academic discussion therefore arose on the issue of which legal order—the European or the national legal order—was to ser e as the yardstick for the exercise of EU competences, and on which court(s)—the ECJ or national courts—was co pete t to act as the fi al ar iter of co stitutio ality i Europe. A new layer of complexity has been added by the Lisbon ruling, according to which the Federal Constitutional Court will, in the future, scrutinize the exercise of EU competences y ea s of a ide tity re iew i order to preserve the inviolable core content of the Basic Law’s co stitutio al ide tity. This type of re iew will e ist eside the ultra vires re iew just discussed. Apparently, both mechanisms function on a subsidiary basis, being 205 evocable only if legal protection cannot be obtained at the EU level. Both types of review can result in EU law being declared inapplicable in Germany, with the Federal 206 Constitutional Court alone being competent in these proceedings. In this context, it is of particular relevance that the Court has emphasized that this type of review is restricted to 207 obvious tra sgressio s of EU co pete ces, i.e. to situations where the mandatory 208 co stitutio al order to apply EU law is evidently lacki g. This review applies only 209 exceptionally, and under special and narrow conditions. 203 See FRANZ C. MAYER, KOMPETENZÜBERSCHREITUNG UND LETZTENTSCHEIDUNG 140 (2000; see also Streinz, supra note 160, at 346 (arguing in a comparative perspective that there are constitutional restraints in all (of the then 12) Member States). 204 See e.g. Theodor Schilling, The Autonomy of the Community Legal Order: An Analysis of Possible Foundations, 37 HARV. INT’L L.J. 389 (1996); Joseph H. H. Weiler, The Autonomy of the Community Legal Order: Through the Looking Glass, in THE CONSTITUTION OF EUROPE: DO THE NEW CLOTHES HAVE AN EMPEROR? AND OTHER ESSAYS ON EUROPEAN INTEGRATION 286 (Joseph H. H. Weiler, 1999); 415 (1998). 205 See Lisbon ruling, supra note 2, at para. 240; Everling supra note 69, at 92, 102; see also Ruffert supra note 141, at 1197, 1205 (arguing that the exact preconditions for the exercise of this subsidiary reserve-competence of the FCC are not made clear in the Lisbon ruling). 206 Lisbon ruling, supra note 2, at para. 239–40. On the instrument of identity review, see Frank Schorkopf, The European Union as an Association of “overeign “tates: Karlsruhe’s ‘uling on the Treaty of Lisbon, 10 GERMAN L.J. 1219–40 (2009). 207 Lisbon ruling, supra note 2, at para. 239. 208 Id. at para. 339. 209 Id. at para. 340. 110 German Law Journal [Vol. 14 No. 01 First academic reactions have held that the object of the identity review, which apparently is meant to apply even within those parts of the legal order that have constitutionally been 210 211 opened up for the effects of EU law, is uncertain. Some commentators have taken the view that this new review mechanism will primarily be relevant for transfers of additional 212 competences to the EU. Others have read the Lisbon judgment as implying that every single EU legal act is pote tially su ject to scruti y as to whether it i fri ges Ger a y’s 213 constitutional identity, the contents of which have been held to be ambiguous. Against this backdrop the President of the Federal Constitutional Court has confirmed that the identity review will apply to possible violations of the substantive core of constitutional 214 identity in the sense of Article 23 I in conjunction with Article 79 III. As has also been re-affir ed y the Court’s Preside t, the ultra vires re iew theoretically 215 applies to legal acts of all EU institutions, including the ECJ. Importantly, as an apparent reaction to academic writings that had argued that the relevant parts of the Lisbon ruling 216 may have to be read as indicating an imminent intensification of the Court’s co trol (which, according to some observers may already have taken place after the Lisbon 217 judgment , the Court’s Preside t has also poi ted out that the co stitutio al sta dard applicable within ultra vires review—and apparently also within identity review—is modified in accordance with Article 23 I, when German legal acts with EU-relevance are at 218 issue. Arguably, this may be in line with voices in the academic commentary that have argued that the identity review mechanism must be restricted to evident and extreme 219 cases. 210 See, e.g., von Bogdandy, supra note 57, at 1, 4. 211 Everling, supra note 69, at 92, 101; von Bogdandy, supra note 57, at 4. 212 Everling, supra note 69, at 92, 101; see also Terhechte, supra note 138, at 724. 213 von Bogdandy, supra note 57, at 1, 4; see also Schorkopf, supra note 135, at 718, 722. 214 Voßkuhle, supra note 64, at 1, 6–7. 215 Id. at 7 theoretisch ‘echtsakte aller Ge ei schaftsorgane . . . auch E tscheidu ge des EuGH . 216 Christian Tomuschat, The Ruling of the German Constitutional Court on the Treaty of Lisbon, 10 GERMAN L.J. 1260 (2009). 217 See von Bogdandy, supra note 57, at 1, 4, (according to whom the FCC has already struck a rougher tone vis à vis the ECJ in its 3 September 2009 ruling on the European arrest warrant. See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 1826/09, Sept. 3, 2009, 16 BVERFGK 177 (Ger.). 218 219 Voßkuhle, supra note 64, at 1, 6–7. Ruffert, supra note 141, at 1197, 1206; see also Heiko Sauer, Kompetenz- und Identitätskontrolle nach dem Lissabon-Urteil, ZEITSCHRIFT FÜR ROMANISCHE PHILOLOGIE 195, 196 (2009). 2013] The German Constitution and EU Integration 111 b) Convergent Guidelines in EU Law, International and National Law? This reading of the judgment shows conceptual affinities to views in the literature that had stressed, already before the Lisbon ruling, that there may be convergent guidelines under EU law, international law and national law that help delineate a framework solution to the problem of which court—the ECJ or national courts like the Federal Constitutional Court— is competent to address transgressions of EU competences (and violations of national 220 fundamental rights): a first key to this problem is constituted by the concept of 221 222 223 necessity, which is recognized in EU, international, and German constitutional law. An analogous approach to this problem is possible on the basis of the international law 224 theory of evidence. A third approach, which is apparently adopted by the Federal 225 226 Constitutional Court in Lisbon and has been reinforced in the 2010 Honeywell case, is based on constitutional law. This draws on the claim that, because the EU is not yet a state, it follows that Member State courts retain a restricted reserve competence to review 227 secondary law for evident and/or serious breaches of national law. The approaches based on the concept of necessity and on the theory of evidence both lead to a 220 On this and the following cf. Vranes, supra note 153, at 195 with further references. 221 On this, seePernice, supra note 9, at margin numbers 29; Ingolf Pernice, Les Bananes et les droits fondamentaux, CAH. DR. EUROP. 427, 436 (2001). According to Pernice, the competence of the FCC is restricted to cases of evident, serious and general violations. See Pernice, supra note 188, at 225 margin number 59. 222 On this reading of Articles 6 and 7 TEU see Vranes, supra note 153 at 195. 223 See Pernice, supra note 9, at margin numbers 29 referri g to co stitutio al ecessity ). 224 This approach is taken by Schmid, supra note 197, at 415. A similar approach was proposed by GERHARD EIBACH, DAS RECHT DER EUROPÄISCHEN GEMEINSCHAFTEN ALS PRÜFGEGENSTAND DES BUNDESVERFASSUNGSGERICHTS 107 (1986). 225 Lisbon ruling, supra note 2, at para. 334: From the continuing sovereignty of the people which is anchored in the Member States and from the circumstance that the states remain the masters of the Treaties, it follows - at any rate until the formal foundation of a European federal state and the change of the subject of democratic legitimisation which must be explicitly performed with it - that the member states may not be deprived of the right to review adherence to the integration programme. This consideration constitutes the basis for the FCC’s clai to its co pete ce to e ceptio ally, a d u der special a d arrow co ditio s re iew, a d declare i applica le, EU law. Id. at para. 340. 226 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 2661/06, July 6, 2010, 126 BVERFGE 286 (Ger.) [hereinafter Honeywell]; see also Heiko Sauer, Europas Richter Hand in Hand? EUROPÄISCHE ZEITSCHRIFT FÜR WIRTSCHAFTSRECHT 94 (2011); Mehrdad Payandeh, Constitutional Review of EU Law after Honeywell, 48 COMMON MKT. L. REV. 9 (2011). 227 Stefan Griller, Grundrechtsschutz in der EU und in Österreich. Gutachten zum 12. Österreichischen Juristentag in 2 VERHANDLUNGEN DES ZWÖLFTEN ÖSTERREICHISCHEN JURISTENTAGES 7, 54-55 (1994). 112 German Law Journal [Vol. 14 No. 01 compulsory conciliation procedure, whose exact procedural requirements ensue from EU law in conjunction with national law, which are confirmed and complemented by relevant 228 guidelines from international law. D. Concluding Remarks As can be seen from this analysis, the relationship between EU law and German law is particularly complex and subject to developments that result in particular from the many landmark rulings of the Federal Constitutional Court. Most recently, this relationship has been shaped in particular by the Federal Constitutional Court decisions in the Lisbon, Arrest Warrant, Data Retention and the EMU-related cases. Many commentators disagree about the exact import of the many constraints that have been laid down in the Lisbon case. Still, there is a relatively clear, almost twenty year old leitmotif running from the Maastricht ruling to the 2011 and 2012 decisions on fiscal help for Greece, the ESM and the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union: the German Parliament may not give its consent to legal instruments that could lead to an unforeseeable abandonment of the room necessary for democratic policy229 making in Germany. But the Court has also made it clear that it will normally exercise its jurisdictio so as to acti ate these a d other co stitutio al co strai ts o i tegratio 230 o ly uite e ceptio ally, a ely u der special a d arrow co ditio s and only if there 231 are evident transgressions of outermost limits. 228 See Schmid, supra note 197, at 415; Vranes, supra note 153, at 195, 231. 229 See the possible judicial re-orientation as regards fundamental rights in the data retention case in Section C.II.3.a. 230 231 Lisbon ruling, supra note 2, at para. 340. Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 987/10, 2 BvR 1485/10, 2 BvR 1099/10, Sept. 7, 2011, 129 BVERFGE 124, para. 130–32 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvE 1390/12, Sept. 12, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 3145, para. 212–16 (Ger.). Special Section The ESM Before the Courts The ESM a d the Europea Court’s Predica e t i Pringle By Vestert Borger* A. Introduction On 27 November 2012, the Europea Court of ustice the Court re dered its judg e t 1 in the Pringle case. Sitting as a plenum, which is extremely rare, the Court did what had been expected. Just as the Bundesverfassungsgericht (German Federal Constitutional 2 Court or BVerfG) had done two months earlier, it gave the go-ahead for the euro area’s permanent emergency instrument, the European Stability Mechanism E“M . With this decision, the possibility of granting assistance to financially distressed euro area Member States has now been secured for the future. Despite this u surprisi g outco e, the Court’s judg e t is fasci ati g for se eral reaso s. First, it informs the ordinary Treaty revision procedure of Article 48(6) TEU and the scope of the Court’s jurisdictio to re iew Europea Cou cil Decisio s adopted i this co te t. Second, it defines the relationship between the ESM and the existing Treaty framework on Economic and Monetary Union (EMU), in particular its economic branch. Lastly, it clarifies how and to what extent Union institutions can be deployed by the Member States in the context of intergovernmental initiatives that do not have their basis in the EU legal 3 framework. * PhD-fellow at the Europa Institute of the University of Leiden. The euro crisis forms one of the focal points of the I stitute’s research. I a ost grateful to “tefaa Va de Bogaert, Tom Eijsbouts, and Jorrit Rijpma for their valuable comments on earlier versions of this case note. The usual disclaimer applies. E-mail: [email protected]. 1 Case C-370/12, Pringle v. Ir., 2012 E.C.R. I-____, available at http://curia.europa.eu/juris/document/document.jsf?text=&docid=130381&pageIndex=0&doclang=EN&mode=ls t&dir=&occ=first&part=1&cid=274536. 2 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 1390/12, Sept. 12, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 3145 (Ger.). 3 Next to the ESM Treaty, Union institutions are also used in the context of the recently concluded Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. See Paul Craig, The Stability, Coordination and Governance Treaty: Principles, Politics and Pragmatism, 37 EUR. L. REV. 231 (2012). But see Vestert Borger & Armin Cuyvers, Het Verdrag inzake Stabiliteit, Coördinatie en Bestuur in de Economische en Monetaire Unie: de juridische en institutionele complexiteit van de eurocrisis, 60 TIJDSCHRIFT VOOR EUROPEES EN ECONOMISCH RECHT 370 (2012) (providing a different view). 114 German Law Journal [Vol. 14 No. 01 This case note will focus on the second of these points, namely, the relationship between the ESM and the existing framework on economic governance in the Union Treaties. In this respect the Court found itself between a rock and a hard place in Pringle. With the fate of the euro area hanging in the balance, it had to approve the ESM. Yet, in order to do this, it had to reconcile this new financing instrument with key provisions on EU economic policy, including the emergency exception in Article 122(2) TFEU and the no-bailout clause of Article 125 TFEU. The Court managed to achieve this goal, but only by resorting to the strained reasoning that Member States have always had the ability to provide financial assistance via an instrument such as the ESM and that nothing has changed as a result of the debt crisis. According to this reasoning, the revision of the TFEU, initiated to clear the way for the ESM, is no more than a cosmetic exercise. B. Factual Background The legal framework of the Economic and Monetary Union (EMU) was not built to withstand a crisis of the current proportions. When it erupted late 2009, no mechanism existed to support Member States facing debt and bond-market difficulties. Under great market pressure, the Union and the euro area Member States pursued improvised solutions. On 2 May 2010, the euro area Member States first established the Green Loan Facility GLF , a set of pooled ilateral loa s worth €8 illio that were coordi ated a d 4 administered by the Commission. Only a few days later, the Union and the euro area Member States supplemented this facility with two emergency funds. One of them is the European Financial Stabilization Mechanism (EFSM), an EU law construct, based on the 5 emergency clause of Article TFEU, with a fire power of € illio . The other is the European Financial Stability Facility (EFSF), a Special Purpose Vehicle (SPV) with an effecti e le di g capacity of €44 illio , which, howe er, does ot ha e its asis in the EU 6 legal framework. During the last several years, these funds have proven their worth as they have been used to pro ide fi a cial assista ce to Greece, Irela d, Portugal a d “pai ’s aili g a ki g 4 The GLF is founded on two agreements concluded on 8 May 2010, which are available at http://www.minfin.gr/contentapi/f/binaryChannel/minfin/datastore/30/2d/05/302d058d2ca156bc35b0e268f9446a71c92782b9/application/pd f/sn_kyrwtikoimf_2010_06_04_A.pdf. The first concerns an inter-creditor agreement among the euro area lender Member States, containing the modalities of their involvement in the loan facility. The second forms a loan facility agreement which sets out the provisions governing the pooled bilateral loans. 5 6 Council Regulation 407/2010, 2010 O.J. (L 118) 1 (EU) [hereinafter Regulation 407/2010]. The basic arrangements concerning the EFSF are laid down in a framework agreement between the euro area Member States, in their capacity as shareholders, and the EFSF. See European Financial Stability Facility, EFSF Framework Agreement, available at http://www.efsf.europa.eu/about/legal-documents/index.htm [hereinafter EFSF Framework Agreement]. 2013] The ESM and Pringle 115 7 sector. But they could only provide a temporary solution. In order to structurally strengthen EMU, a permanent rescue facility had to be established. Realizing this, the European Council took the initiative at its meeting of 28–29 October 2010 to create a permanent crisis mechanism in order to safeguard the financial stability of the euro area as a whole. It invited its president Van Rompuy to undertake consultations with the Member “tates o a li ited treaty cha ge re uired to that effect, ot odifyi g Article TFEU 8 (no- ailout clause . On the basis of a proposal of the Belgian government, the European Council decided, at its meeting of 16–17 December 2010, to launch a simplified Treaty revision procedure on the basis of Article 48(6) TEU in order to add a third paragraph to 9 Article 136 TFEU, a provision that specifically concerns euro area Member States. This third paragraph reads as follows: The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject 10 to strict conditionality. After the European Parliament, the European Commission, and the European Central Bank 11 submitted opinions on the initiative, the European Council adopted Decision 2011/199 on 12 25 March 2011, adding this paragraph to Article 136 TFEU. The Decision will only enter into force after all Member States have approved it in accordance with their respective constitutional requirements. The envisaged date of 1 January 2013 was not met because, 7 The assista ce of up to € illio ear arked for the “pa ish a ki g sector—granted by the Eurogroup on 20 July 2012—was first disbursed by the EFSF but was transferred to the ESM on 29 November 2012. In addition to these existing assistance operations, Cyprus lodged an official request for assistance on 25 June 2012. 8 European Council Conclusions, No. 25/1 REV 1 of 28–29 Oct. 2010, para. 1. 9 European Council Conclusions, No. 30/1 REV 1 of 16–17 Dec. 2010, para. 2. 10 Id. at annex I. 11 European Parliament Resolution of 23 March 2011 on the Draft European Council Decision Amending Article 136 of the Treaty on the Functioning of the European Union with Regard to a Stability Mechanism for Member States Whose Currency is the Euro, 2012 O.J. (C 247 E) 22; Commission Opinion on the Draft European Council Decision Amending Article 136 of the Treaty on the Functioning of the European Union with Regard to a Stability Mechanism for Member States Whose Currency is the Euro, COM (2011) 70 final (Feb. 15, 2011); Opinion of the European Central Bank on a Draft European Council Decision Amending Article 136 of the Treaty on the Functioning of the European Union with Regard to a Stability Mechanism for Member States Whose Currency Is the Euro, 2011 O.J. (C 140) 8. 12 European Council Decision 2011/199, 2011 O.J. (L 91) 1 [hereinafter Decision 2011/199]. 116 German Law Journal [Vol. 14 No. 01 13 at that time, the Czech Republic had not yet completed its approval procedure. The Decision will now enter into force on the first day of the month following receipt of all 14 notifications of approval by the Secretary General of the Council. Parallel to this simplified Treaty amendment procedure, euro area Member States also began working on an international treaty governing the European Stability Mechanism (ESM). The amendment of the TFEU was thought to clear the way for this international treaty that is not rooted in the EU Treaty structure. The ESM Treaty, to which all euro area 15 Member States are party, was signed on 2 February 2011. It was initially foreseen that 16 the treaty would enter into force in July 2012. Due to delays in the national ratification procedures, however, this deadline was not met. In particular, constitutional complaints agai st the E“M i Ger a y, Europe’s ai pay aster, delayed the treaty’s e try i to force. According to Article 48 of the ESM Treaty, the agreement can only take effect once the instruments of ratification have been deposited by signatories whose initial capital su scriptio s represe t o less tha 9 % of the E“M’s authorized capital stock. Given that Ger a y’s su scriptio to this capital stock is ore tha 7%, the E“M Treaty could ot 17 enter into force without German consent. After the BVerfG gave the green light for 18 ratification on 11 September 2012, Germany finally deposited its instrument of 19 ratification on 27 September 2012 and the ESM Treaty entered into force that day. The 13 For information about the ratification of Decision 2011/199, see Agreements Database, COUNCIL OF THE EUROPEAN UNION, http://www.consilium.europa.eu/policies/agreements?lang=en. 14 Decision 2011/199 art. 2. 15 Treaty Establishing the European Stability Mechanism (ESM), Feb. 2, 2012 [hereinafter ESM Treaty]. 16 Euro Area Member States, Agreed Lines of Communication by Euro Area Member States, Jan. 30, 2012, para. 2, available at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/127633.pdf. 17 ESM Treaty, supra note 15, at annex I–II (providing overviews of the contribution key of the ESM and of the E“M Me ers’ respecti e su scriptio s to the authorized capital stock . 18 Bundesverfassungsgericht [BVerfG—Federal Constitutional Court], Case No. 2 BvR 1390/12, Sept. 12, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 3145 (Ger.). The BVerfG did rule, however, that ratification of the ESM would only be in compliance with the German constitution if, at the same time, two things would be ensured under international law. First, without the consent of the German representative, the amount of all payment obligations of Germany under the ESM Treaty cannot exceed its maximum subscription to the authorised capital stock. In addition, the provisions in the ESM Treaty on the inviolability of documents, professional secrecy and immunities of persons cannot stand in the way of the comprehensive information of the Bundestag and Bundesrat. Euro area Member States have complied with these requirements by adopting an interpretative declaration on the ESM Treaty. 19 See also Statement, Jean-Claude Juncker, President, Eurogroup (Sept. 27, 2012), available at http://www.eurozone.europa.eu/documents/statement-by-the-president-of-the-eurogroup-jean-claude-junckeron-the-entry-into-force-of-the-esm-treaty. 2013] The ESM and Pringle 117 mechanism was subsequently inaugurated on 8 October 2012 during the first meeting of 20 the E“M’s Board of Go er ors. The ESM forms an international institution governed by public international law and is 21 located in Luxembourg. It has a authorized capital stock of €7 illio , which is divided 22 in paid in shares and callable shares. This arrangement should ensure that the ESM has 23 an effective lending capacity of € illio . The emergency mechanism can provide financial assistance via several instruments, including loans, bond purchases on the 24 primary and secondary markets, and the indirect recapitalization of banks. Any 25 assistance granted is subject to strict conditionality. C. The Legal Background The ESM must be understood in the context of the legal framework on economic and 26 monetary policy. This framework is asymmetric in nature. Since the introduction of the euro on 1 January 1999, monetary policy competences have been transferred to the Union 27 level and are firmly in the hands of the European System of Central Banks (ESCB). Yet, no such transfer has taken place in the area of economic policy; when it comes to economic 20 Press Release, European Stability Mechanism (ESM) is inaugurated (Oct. 8, 2012), available at http://www.esm.europa.eu/press/releases/20121008_esm-is-inaugurated.htm. The Board of Governors is the E“M’s highest decisio -making body. The Governors are members of the governments of the ESM Members who are responsible for finance. See ESM Treaty, supra note 15, at art. 5. 21 ESM Treaty, supra note 15, at art. 8(1). 22 Id. at art. 8(2). 23 Id. at recital 6. 24 See id. at arts. 14–18 (providing an overview of the assistance instruments). The list of financial assistance instruments may be reviewed and changed by the Board of Governors. See id. at art. 19. 25 Id. at arts. 3, 12(1), 13(3). 26 On 13 December 2011, a six-pack of EU legislative measures, inter alia amending the SGP and introducing a mechanism to prevent and correct macro-economic imbalances, entered into force. These measures cannot, however, completely undo the asymmetry between economic and monetary governance as this stems from primary Treaty law. See Council Regulation (EU) 1173/2011, 2011 O.J. (L 306) 1; Council Regulation (EU) 1174/2011, 2011 O.J. (L 306) 8; Council Regulation (EU) 1175/2011, 2011 O.J. (L 306) 12; Council Regulation (EU) 1176/2011, 2011 O.J. (L 306) 25; Council Regulation (EU) 1177/2011, 2011 O.J. (L 306) 33; Council Directive (EU) 2011/85, 2011 O.J. (L 306) 41. 27 Consolidated Version of the Treaty on the Functioning of the European Union art. 127(2), 2010 O.J. (C 83) 47 [hereinafter TFEU]; Protocol (No. 4) on the Statute of the European System of Central Banks and of the European Central Bank art. 3(1), 2010 O.J. (C 83) 230 [hereinafter Statute of the ESCB and of the ECB]. Member States that have not (yet) adopted the euro are not subject to TFEU art 127(2). See also infra note 39. Only the ECB and the national central banks of euro area Member States, which constitute the Eurosystem, conduct the monetary policy of the Union. See TFEU, at art. 282(1). 118 German Law Journal [Vol. 14 No. 01 policy the Member States have retained their priority. As Articles 5(1) and 119(1) TFEU confirm, at the EU level economic policy is based on the close coordination of Member “tates’ eco o ic policies. For the most part, as becomes apparent from Articles 120 and 121 TFEU, EU competences in the economic sphere are limited to coordination and the adoption of guidelines. These instruments are characteristic for the Open Method of 28 Coordination (OMC). Despite ei g differe t i ature, the U io ’s eco o ic a d o etary ra ches are 29 strongly interrelated. Pursuit of the U io ’s ai o etary policy goal, price sta ility, requires that governments maintain solid budgetary policies. This inter-linkage has also found specific recognition in Article 119(3) TFEU, which states that both the Union and its Member States should be guided by the following principles when carrying out their respective competences: Stable prices, sound public finances and monetary conditions and a sustainable balance of payments. Although the U io ’s eco o ic competences are fairly limited, the TFEU sets out a legal framework to ensure that Member States comply with the principle of sound public finances. This framework relies on two mechanisms: Self-restraint and market discipline. The most important provision concerning self-restraint is Article 126(1) TFEU, which prohibits Member States from carrying excessive government deficits and debts. Article 1 of Protocol no. 12 on the excessive deficit procedure, annexed to the Union Treaties, considers a planned or actual government deficit in excess of 3% of GDP to be excessive. Similarly, debts should not exceed 60% of GDP. To ensure that Member States comply with these norms Article 126 TFEU sets out the excessive deficit procedure (EDP), which is 30 further worked out in the corrective part of the Stability and Growth Pact (SGP). Member States subject to an EDP may eventually face financial sanctions, which are to be imposed 31 by the Council. 28 The multilateral surveillance procedure in TFEU art. 121 is further worked out in the preventive part of the Stability and Growth Pact (SGP). See Council Regulation (EC) 1466/97, 1997 O.J. (L 209) 1 (last amended by Council Regulation (EU) 1175/2011, 2011 O.J. (L 306) 11) [hereinafter Regulation 1466/97]; see also Dermot Hodson & Imelda Maher, The Open Method as a New Mode of Governance: The Case of Soft Economic Policy Coordination, 39 J. COMMON MKT. STUDS. 719–46 (2001); Fabian Amtenbrink & Jakob de Haan, Fiscal Policy Discipline Versus Flexibility, 40 COMMON MKT. L. REV. 1075–106 (2003). 29 Consolidated Version of the Treaty on European Union art. 3(3), 2010 O.J. (C 83) 13 [hereinafter TEU]; TFEU, supra note 27, at arts. 119(2), 127(1), 282(2); Statute of the ESCB and of the ECB, supra note 27, at art. 2. The Treaties do not define what is to be understood by price stability. However, the ECB has defined it as a rate of inflation below, but close, to 2% over the medium term. See EUROPEAN CENTRAL BANK, THE MONETARY POLICY OF THE ECB 64 (2011). 30 Council Regulation (EC) 1467/97, 1997 O.J. (L 209) 6 (last amended by Council Regulation (EU) 1177/2011, 2011 O.J. (L 306) 33). 31 TFEU, supra note 27, at art. 126(11). 2013] The ESM and Pringle 119 As regards market discipline, Articles 123–125 TFEU are central. Together these provisions aim to discipline individual Member States through the markets to keep their budgets 32 within acceptable parameters. When the markets lose confidence in the policies of a Member State, this should result in higher risk premiums on government bonds. Article 123(1) TFEU contains a ban on monetary financing by prohibiting both the ECB and national central banks from allocating credit to the Union or Member State authorities let alone to purchase directly government bonds from them. Additionally, Article 124(1) TFEU forbids measures, not based on prudential considerations, establishing privileged access to financial institutions for Union or Member State authorities. The fi al piece is the oailout clause of Article TFEU, according to which neither the Union nor the Member states shall be liable for or assume the financial commitments of another Me er “tate’s authorities. This provision is formulated as follows: The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific 33 project. As a cou terweight to the focus o udgetary discipli e e odied i the o- ailout clause, the drafters of the Treaty of Maastricht provided Article 122 TFEU. Its second paragraph is formulated in the following terms: Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State 32 RENÉ SMITS, THE EUROPEAN CENTRAL BANK—INSTITUTIONAL ASPECTS 77–78 (1997). 33 TFEU, supra note 27, at art. 125(1). German Law Journal 120 [Vol. 14 No. 01 concerned. The President of the Council shall inform 34 the European Parliament of the decision taken. The provision forms a compromise between strong-currency countries and those with 35 weaker economies. On the one hand, in the run-up to the Treaty of Maastricht, strongcurrency countries such as Germany urged a strict system of market discipline and argued against provisions on financial assistance because they would carry the risk of creating a transfer union. On the other hand, the Commission and countries with weaker economies emphasized the need for instruments to enhance convergence of economies and grant 36 financial assistance. The assistance provisions that were eventually included in the 37 Treaty of Maastricht can be seen as a compromise between these opposing views. The stri ge tly for ulated o- ailout clause i Article TFEU for s the asic agree e t, 38 while Articles 143(2) and 122(2) TFEU its exceptions. Euro area Member States can only 39 benefit from the latter provision, the scope of which in the end has been defined more 40 narrowly than some had argued for during the negotiations on the Treaty of Maastricht. In the Pringle case the Court was in essence called upon to determine how Article 136(3) TFEU and the ESM Treaty can be made fit into this existing Treaty framework on economic go er a ce, i particular regardi g the o- ailout clause i Article TFEU a d the emergency exception in Article 122(2) TFEU. 34 Id. at art. 122(2). 35 Jörn Pipkorn, Legal Arrangements in the Treaty of Maastricht for the Effectiveness of the Economic and Monetary Union, 31 COMMON MKT. L. REV. 263, 273–74 (1994); Ernest Gnan, Artikel 104b, in KOMMENTAR ZUM EU/EG-VERTRAG 96–98 (Hans von der Groeben et al. eds., 1999); Jean-Victor Louis, Guest Editorial: The No-Bailout Clause and Rescue Packages, 47 COMMON MKT. L. REV. 971, 982–83 (2010); Alberto de Gregorio Merino, Legal Developments in the Economic and Monetary Union During the Debt Crisis: The Mechanisms of Financial Assistance, 49 COMMON MKT. L. REV. 1613, 1632–35 (2012). 36 See Ulrich Häde, Haushaltdiziplin und Solidarität im Zeichen der Finanzkrise, 20 EUROPÄISCHE ZEITSCHRIFT FÜR WIRTSCHAFTSRECHT 399, 402–03 (2009). 37 Pipkorn, supra note 35, at 273; Doris Hattenberger, Artikel 100, in EU—KOMMENTAR 1186 (Jürgen Schwarze et al. eds., 1999); Louis, supra note 35, at 982. 38 Yet not exceptions in the literal sense of the word. Neither TFEU art. 143(2) nor TFEU art. 122(2) are formulated as exceptions similar to those relating to the free movement provisions—TFEU arts. 45(3), 52, 65—or internal or external security—TFEU art. 346–47. 39 The balance of payments assistance clause in TFEU art. 143(2) only applies to Member States that have not yet adopted the euro. The legal status of these states, called Me er “tates with a derogatio , is regulated i TFEU arts. 139–44. Special rules apply to the United Kingdom and Denmark. See Protocol No. 15 on Certain Provisions Relating to the United Kingdom of Great Britain and Northern Ireland, 2010 O.J. (C 83) 284; Protocol No. 16 on Certain Provisions Relating to Denmark, 2010 O.J. (C 83) 287. These latter two states can benefit from balance of payments assistance on the basis of TFEU art. 143(2) as well. 40 Häde, supra note 36, at 403. 2013] The ESM and Pringle 121 D. The National Proceedings and Preliminary Questions Although during the months prior to the entry into force of the ESM Treaty all eyes were on Germany, preliminary questions about the ESM did not reach the Court via the BVerfG. Instead, they originated in Ireland. On 13 April 2012, Mr. Pringle, a member of the Irish Parlia e t, challe ged the Irish Go er e t’s i ol e e t i the E“M efore the Irish High Court. Pringle raised two sorts of claims relating to Union law. First, he argued that the amendment of Article 136 TFEU by Decision 2011/199 constituted an unlawful change of the TFEU. More specifically, he argued that Decision 2011/199 was not lawfully adopted pursuant to the simplified treaty revision procedure of Article 48(6) TEU because the amendment entailed an alteration of the competences of the Union. Pringle further argued that Decision 2011/199 would be inconsistent with provisions of the TEU and TFEU concerning economic and monetary policy and general principles of Union law. Second, Pringle argued that, by ratifying the ESM Treaty, Ireland would undertake obligations incompatible with Treaty provisions on economic and monetary policy and would directly encroach on the exclusive competence of the Union in relation to monetary policy. Pringle claimed that, by establishing the ESM, the Member States of the euro area are creating an autonomous and permanent international institution, thereby aiming to circumvent the prohibitions and restrictions in the TFEU in relation to economic and monetary policy. Additionally, Pringle argued that, in the ESM Treaty, the institutions of the Union are granted competences and tasks that are incompatible with the functions accorded to them by the Union Treaties. Finally, Pringle asserted that the ESM Treaty was incompatible with the general principle of effective judicial protection and with the principle of legal certainty. After the High Court of Irela d dis issed Pri gle’s actio i its e tirety o 7 uly , he appealed from that judgment to the Irish Supreme Court. The Supreme Court decided to 41 stay proceedings and referred three questions to the Court. 1. Is Decision 2011/199 valid in so far as it amends Article 136 TFEU by providing for the insertion, on the basis of the simplified revision procedure under Article 48(6) TEU, of a third paragraph on the establishment of a stability mechanism? 2. Do the Articles 2 TEU, 3 TEU, 4(3) TEU and 13 TEU and Articles 2(3) TFEU, 3(1)(c) and (2) TFEU, 119 TFEU to 123 TFEU and 125 TFEU to 127 TFEU, as well as the general principles of effective judicial protection and 41 The questions are presented in the way they have been reformulated by the Court. 122 German Law Journal [Vol. 14 No. 01 legal certainty preclude a Member State of the euro area from concluding and ratifying an agreement such as the ESM Treaty? 3. May Member States conclude and ratify the ESM Treaty before the entry into force of Decision 2011/199? The Europea Court’s a swers to these uestio s will e discussed elow o ly i as far as they express its view on the relationship between the ESM and economic policy in the Union. Given the limited space available, the opinion of Advocate General (AG) Kokott will 42 not be discussed separately. However, it will be referred to where it helps to illuminate the Court’s judg e t a d reaso i g. E. The Judgment In answer to the first question, the Court established that it had jurisdiction to examine the validity of Decision 2011/199 in the light of the conditions of Article 48(6) TEU, which sets 43 out the simplified Treaty revision procedure. After dismissing challenges to the 44 admissibility of the case, the Court turned to its consideration of whether Decision 2011/199 complies with the conditions of Article 48(6) TEU. This means it had to do two things. First, it had to investigate whether the Treaty amendment solely concerns Part Three of the TFEU. Second, it had to make sure that the revision of the TFEU does not increase the competences of the Union. The Court did not limit itself to the formal finding that Article 1 of Decision 2011/199, because it only adds a third paragraph to Article 136 TFEU, complies with the condition that the revision may only concern Part Three of the TFEU. Instead, it examined whether the monetary and economic policy competences are affected by the Treaty amendment. Gi e that the ature of the U io ’s o etary a d eco o ic co pete ces are deter i ed in Articles 2(3), 3(1)(c) and 5(1) TFEU respectively, any change in these competences would concern Part I of the TFEU and would therefore require the use of the ordinary Treaty revision procedure in Articles 48(2)–(5) TEU. The Court found that neither the U io ’s o etary or its eco o ic co pete ces are affected and that the Treaty amendment is therefore restricted to Part Three of the 42 Opinion of Advocate Gen. Kokott, Case C-370/12, Pringle v. Ir., 2012 E.C.R. I-____. 43 Case C-370/12, Pringle v. Ir., 2012 E.C.R. I-____, at para. 37. 44 Id. at para. 43. 2013] The ESM and Pringle 123 45 TFEU. With regard to the U io ’s e clusi e o etary co pete ce the Court e a i ed whether the objectives and instruments of a stability mechanism, of the kind envisaged by Decisio / 99, fall withi the real of o etary policy. It fou d that the echa is ’s purpose of safeguarding the stability of the euro area cannot be equated with the monetary policy objective of price stability. Furthermore, the Court concluded that the instrument of granting financial assistance constitutes an economic policy competence and 46 falls outside the area of monetary policy. The Court, therefore, concluded that the stability mechanism does not belong to the area of monetary policy. Instead, explained the Court, it falls within the area of economic policy because it complements the existing 47 economic policy framework of the Union. As far as economic policy is concerned, the Court stressed the fact that the Union merely plays a coordinating role and does not have the power to establish a stability mechanism like the one envisaged by Decision 2011/199. It explicitly differentiated between the stability mechanism referred to in Decision 2011/199 and the power to grant assistance provided by Article 122(2) TFEU. According to the Court, the latter provision can be used to grant ad hoc financial assistance to Member States in need; it does not enable the Union to establish a mechanism of a permanent nature focusing on the financial stability of the 48 euro area as a whole. Member States are therefore entitled to establish a stability mechanism of the kind referred to by Article 1 of Decision 2011/199 outside the EU Treaty structure. But they may not disregard Union law when exercising this competence. Yet, precisely for this reason, Article 136(3) TFEU provides that any assistance granted must be subject to strict conditionality. In the view of the Court this proviso ensures that a stability mechanism like the ESM, which is based on a legal framework outside the EU Treaty structure, complies with Union law, in particular the regulatory framework on economic 49 policy. As far as the co ditio that the re isio ay ot i crease the U io ’s co petences was concerned, the Court recalled that Member States have the competence to establish a stability mechanism of the kind envisaged by Decision 2011/199. The Court reasoned that Article 136(3) TFEU confirms this and does not entail a transfer of power to the Union. Decision 2011/199, therefore, does not create a legal basis for the Union to undertake any 50 action that was not possible before the entry into force of the Treaty amendment. 45 Id. at para. 70 46 Id. at paras. 55–57. 47 Id. at paras. 58–60. 48 Id. at paras. 64–65. 49 Id. at paras. 68–69. 50 Id. at paras. 72–75. 124 German Law Journal [Vol. 14 No. 01 With regard to the second question, the Court arrived at the heart of the matter when it examined the ESM Treaty in the light of various provisions in the TFEU on economic policy. First, the Court i estigated whether the E“M Treaty su erts the U io ’s coordi ati g role in this area as determined by the Articles 2(3), 119 to 121 and 126 TFEU. The Court concluded that the ESM is not concerned with the coordination of economic policies but, 51 instead, constitutes a financing mechanism. The fact that several provisions of the ESM Treaty determine that any assistance granted shall be subject to strict conditionality did 52 not change this finding. This conditionality, the Court explained, is not an instrument for the coordi atio of Me er “tates’ eco o ic policies ut is i te ded to e sure that the activities of the ESM are compatible with Article 125 TFEU and the coordinating measures 53 adopted by the Union. The ESM Treaty, therefore, also does not affect the competence of the Council to issue recommendations on the basis of Article 126(6) and 126(8) TFEU to 54 a Member State with an excessive deficit. In relation to Article 122(2) TFEU the Court referred to its statement, made earlier, that 55 this provision is not an appropriate legal basis for a permanent stability mechanism. Furthermore, the Court found that Article 122(2) TFEU contains no indication that the Union has an exclusive competence to grant financial assistance. Member States, therefore, are free to establish the ESM, provided that the mechanism complies with Union law, in particular the measures on the coordi atio of Me er “tates’ eco o ic 56 policies. Similarly, the prohibition on monetary financing in Article 123 TFEU does not 57 preclude the conclusion and ratification of the ESM Treaty. The Court’s ost difficult task was to reco cile the E“M Treaty with the o- ailout provision in Article 125 TFEU. It pointed out that the language of the provision makes clear that the prohibition does not cover every form of financial assistance to a Member State. The Court supported this reading of Article 125 TFEU with a reference to the Articles 122(2) and 123 TFEU. It reasoned that, if Article 125 TFEU prohibits any form of financial assistance by the Union or the Member States, then Article 122(2) TFEU would have had to declare that it constitutes a derogation from this prohibition. Furthermore, the Court noted that Article 123 TFEU specifically forbids the ECB and the national central banks 51 Id. at para. 110. 52 See ESM Treaty, supra note 15, at arts. 3, 12(1), 13(3). 53 See Case C-370/12, Pringle v. Ir., 2012 E.C.R. I-____, at para. 111; see also id. at art. 13(4). 54 Case C-370/12, Pringle v. Ir., 2012 E.C.R. I-____, at para. 113. 55 Id. at para. 116. 56 Id. at paras. 120–22. 57 Id. at para. 128. 2013] The ESM and Pringle 125 NCB fro gra ti g o erdraft facilities or a y other type of credit facility. As this wording is much stricter than the language used in Article 125 TFEU, the Court concluded that this supports the iew that the o- ailout clause does ot prohi it all for s of 58 assistance to a Member State. In order to find out which forms of assistance are compatible with the prohibition on 59 bailout the Court stressed that it is necessary to look to the objective of the provision. Examining the preparatory work relating to the Treaty of Maastricht, the Court concluded that the aim of Article 125 TFEU is to ensure that Member States pursue prudent budgetary policies by submitting them to the discipline of the markets. According to the Court this, in turn, contributes at the Union level to the attainment of a higher objective, 60 namely the maintenance of the financial stability of the monetary union. The Court then made two central observations. First it stated that: the activation of financial assistance by means of a stability mechanism such as the ESM is not compatible with Article 125 TFEU unless it is indispensable for the safeguarding of the financial stability of the euro area 61 as a whole and subject to strict conditions. Immediately thereafter, the Court stipulated that: Article 125 TFEU does not prohibit the granting of financial assistance by one or more Member States to a Member State which remains responsible for its commitments to its creditors provided that the conditions attached to such assistance are such as to prompt that Member State to implement a sound 62 budgetary policy. The Court ruled that the ESM Treaty conforms with this readi g of the o- ailout clause. None of the instruments of assistance available to the ESM has the effect of positioning the ESM to serve as a guarantor of the debts of the recipient Member State. The Court noted that a Member State receiving aid from the ESM will remain responsible to its 58 Id. at paras. 130–32. 59 Id. at para. 133. 60 Id. at paras. 134–35. 61 Id. at para. 136. 62 Id. at para. 137. 126 German Law Journal [Vol. 14 No. 01 63 creditors for its financial commitments. Moreover, the ESM will not grant assistance as soon as a Member States suffers impaired market access. The Court noted that Articles 3 and 12(1) of the ESM Treaty provide that stability support may be granted to Member States which are coping with severe financing problems only when this is indispensable to safeguard the financial stability of the euro area as a whole and of its Member States. Furthermore, the Court pointed out that the grant of any assistance is subject to strict conditionality. This ensures that the ESM and the recipient Member State comply with Union law, in particular the measures on the coordination of national economic policies 64 that aim to support budgetary prudence on the side of Member States. The Court also examined whether Article 25(2) of the ESM Treaty, which regulates the issue of i creased capital calls, is i co plia ce with the o- ailout clause. On the basis of this provision, in case an ESM Member fails to meet a required payment under a capital 65 call, a revised capital call shall be made to the other Members in order to ensure that the ESM receives the required amount of paid-in capital. The Court found that this arrangement does ot iolate the o- ailout clause ecause the other E“M Me ers are not acting as guarantors of the debt of the defaulting Member. Articles 25(2) and 25(3) ESM Treaty make clear, the Court explained, that the defaulting ESM Member remains 66 bound to pay its part of the capital. According to the Court Article 125 TFEU, therefore, 67 does not preclude the conclusion and ratification of the ESM Treaty. The Court only summarily treated the third question, given that it is very much linked to the first and second questions. It concluded that, because the future Article 136(3) TFEU will only confirm the existence of the power of the Member States to establish a permanent stability mechanism, the right of a Member State to conclude and ratify the 68 ESM Treaty is not subject to the entry into force of Decision 2011/199. 63 Id. at paras. 138–41. 64 Id. at paras. 142–43. 65 The issue of capital calls is regulated in ESM Treaty arts. 9(2), 9(3). 66 Case C-370/12, Pringle v. Ir., 2012 E.C.R. I-____, at paras. 144–46. 67 Id. at para. 147. 68 Id. at paras. 184–85. 2013] The ESM and Pringle 127 F. Analysis By approving of the ESM, the Court has not blocked the path to financial assistance to Member States in the future. The ESM will take over the tasks hitherto fulfilled by the 69 emergency funds EFSM and EFSF. I porta tly, the Court’s appro al also e a les the ECB to resume its interventions on the secondary markets for sovereign bonds on the basis of its new Outright Monetary Transactions programme (OMT). The ECB has linked the activation of this bond buying programme to the lodging of a formal request for stability 70 support by a Member State to the ESM. The e te si e judg e t also e poses the Court’s legal predica e t. There was a great urgency to approve of the ESM. Legally the Court had to reconcile Article 136(3) TFEU and the ESM Treaty with the existing economic governance framework in the Union Treaties. The Court had to clear three particularly difficult hurdles. The first was that it had to find that Article 136(3) could be incorporated into TFEU via the simplified revision procedure in Article 48(6) TEU. This procedure may only be used if the amendment is confined to Part III of the TFEU and does not increase the competences of the Union. Article 136(3) TFEU, therefore, ay either affect the U io ’s eco o ic co pete ces, i particular its power to grant assistance in Article 122(2) TFEU, nor increase them. The second hurdle was that the Court had to rule that the conclusion and ratification of the ESM Treaty does not violate Union law. The ESM Treaty, therefore, had to be brought into compliance with Article TFEU a d the o- ailout clause i Article TFEU. Finally, the Court had to confirm that the conclusion and ratification of the ESM Treaty was possible before the entry into force of Decision 2011/199, which adds Article 136(3) to the TFEU. The Court has managed to clear these hurdles and find a way out of its predicament, but not without engaging in a mighty struggle with the economic policy provisions of the TFEU. Several aspects of this struggle will be analysed. First, the Court’s view on Article 122(2) TFEU will be discussed (I). “eco d, the Court’s i terpretatio of the o- ailout clause will 69 See ESM Treaty, supra note 15, at recital 1. Initially, it was foreseen that the EFSF would be able to provide new stability support until the ESM entered into force. Hereafter, the EFSF would only stay involved in assistance programs in which it was already active. In accordance with ESM Treaty recital 6 and art. 39, until the complete run-dow of the EF“F, the co i ed o erall EF“F/E“M le di g capacity would e set at € illio . Howe er, o 30 March 2012, the Eurogroup decided that, for a transitional period until mid-2013, the EFSF may engage in new assista ce progra s i order to e sure a full, fresh le di g capacity of € illio . The co i ed o erall EF“F/E“M le di g capacity was therefore set at €7 illio . After id-2013, the maximum ESM lending volume will be € illio . Accordi g to Article 11(2) of the EFSF Framework Agreement, the EFSF shall be liquidated at the earliest date after 30 June 2013 on which there is no financial assistance outstanding and funding instruments and any reimbursements due to Member State guarantors have been repaid in full. EFSF Framework Agreement, supra note 6, at art. 11(2). 70 See Press Release, European Central Bank, Technical Features of Outright Monetary Transactions (Sept. 6, 2012), available at http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html. 128 German Law Journal [Vol. 14 No. 01 be considered (II). Finally, the meaning and significance of Article 136(3) TFEU and the otio of sta ility of the euro area will e e a i ed III . I. Ad Hoc Assistance, Permanent Mechanisms and Article 122(2) TFEU According to the Court Article 122(2) TFEU cannot provide a legal basis for the ESM. This conclusion seems to follow the view of the European Council, which held that the provision 71 should ot e used for such purposes. A mechanism of a permanent nature that aims to safeguard the financial stability of the euro area as a whole falls outside the scope of the provision. It only provides a legal basis for ad hoc financial assistance. Why is this such an important element of the judgment? First, this was necessary to allow the Court to conclude that Decision 2011/199 does not affect the U io ’s eco o ic competences which are laid down in the Treaties. And if these competences are not affected, then the simplified revision procedure is a suitable instrument for the introduction of Article 136(3) in the TFEU. Second, it forms the starting point for the Court’s reaso i g, which co cluded that the E“M does ot e croach o the powers that 72 Article 122(2) TFEU confers on the Council. But is this conclusion legally compelling? Outside the constraints of this situation, one might wonder, on the one hand, whether Article 122(2) TFEU really only provides a legal basis for ad hoc financial assistance. It is true that one of the conditions to qualify for assista ce u der this pro isio is that a Me er “tate is co fro ted with a e ceptio al 73 occurrence beyond its control. As suggested y Louis, e ceptio al ea s te porary. Article 122(2) TFEU cannot be used to set up permanent capital flows to a Member State. But neither can the ESM! From the condition that assistance may only be granted when this is i dispe sa le for the safeguardi g of the fi a cial sta ility of the euro area as a whole, one can conclude that assistance operations have to be stopped as soon as the threat to this stability no longer exists. Therefore, it may well be argued that a permanent mechanism, such as the ESM, can be based on Article 122(2) TFEU, provided that assistance operations to individual States only endure for as long as a threat to the financial stability of the euro area exists. It even seems possible to use Article 122(2) TFEU for assistance that aims to safeguard the financial stability of the euro area as a whole. The emergency fund EFSM, which is based 71 Decision 2011/199, at recital 4. 72 Even if it would, the question would still need to be answered as to whether TFEU art. 122(2) forms an exclusive competence which excludes the possibility of Member States granting a similar kind of assistance. The Court explicitly states this in paragraph 120 of the judgment. 73 Louis, supra note 35, at 985. 2013] The ESM and Pringle 129 74 on this provision, has exactly that objective, although it is not limited to the financial 75 stability of the euro area but to that of the Union. Article 122(2) TFEU, however, does require that every time assistance is granted to safeguard the financial stability of the euro area as a whole, it has to be verified whether, in addition, the recipient Member State is 76 confronted with an exceptional occurrence beyond its control. Seen from this perspective Article 136(3) TFEU is actually less demanding. Even if a Member State suffers impaired market access because it has simply pursued unsound budgetary policies, which pro a ly does ot ualify as a e ceptio al occurre ce withi the ea i g of Article 77 122(2) TFEU, the State may qualify for assistance under Article 136(3) TFEU if its situation 78 poses a threat to the euro area as a whole. II. The E“M and the No Bailout” Clause . Ho to Interpret the No Bailout” Clause? Before the Court’s judg e t i Pringle the o- ailout clause i Article TFEU was interpreted in various ways, which can be grouped into three basic approaches: Literal, purposive, and ultima ratio. 74 See Regulation 407/2010, supra note 5, at art. 1. 75 In order to make it a truly euro area instrument, one could consider the use of enhanced cooperation—TEU art. 20 and TFEU arts. 326–34. In this scenario, the use of enhanced cooperation for assistance targeted at the stability of the euro area has to be reconciled with the requirement of TFEU art. 328 that enhanced cooperation shall be open to all Member States subject to compliance with any conditions of participation. 76 The EFSM satisfies this requirement because, according to Regulation 407/2010 art. 3(2), the Council has to make a decision each time it wants to grant aid to a Member State. See Matthias Rüffert, The European Debt Crisis and European Union Law, 48 COMMON MARKET L. REV. 1777, 1787 (2011). Under the ESM, this task would fall on the Board of Governors which must decide on the initiation of assistance operations. See ESM Treaty, supra note 15, art. 13(2). 77 Louis, supra note 35, at 984. 78 A different question, which the Court did not have to deal with, is whether a permanent stability mechanism based on TFEU art. 122(2) can mobilize enough funds. The EF“M’s fire power is a mere € illio ecause the outsta di g a ou t of assista ce ca ot e ceed the argi a aila le u der the U io ’s ow resources ceili g for payment appropriations. See Regulation 407/2010, supra note 5, at art. 2(2). Interestingly, instead of funds being disbursed by the EFSM and the EFSF in May 2010, the Commission initially proposed to establish one rescue fund on the basis of TFEU art. 122(2) which could only have been relied upon by euro area Member States. See Commission Proposal for a Council Regulation Establishing a European Financial Stabilization Mechanism, COM (2010) 2010 final (May 9, 2010). Similar to the arrangement that was eventually chosen for the EFSM, Union assista ce would ha e ee li ited to the argi a aila le u der the U io ’s ow resources ceiling for payment appropriations. Assistance above this ceiling would have been realized on the basis of the joint and pro-rata guarantee of euro area Member States. This construction was not chosen in the end, partly because of doubts as to whether it conforms to the U io ’s budget rules. 130 German Law Journal [Vol. 14 No. 01 A literal interpretation of the bailout ban concentrates on the wording of the clause. The provision only states that neither the Union nor the Member States shall be liable for or assume the financial commitments of other Member States. As was correctly noted by AG Kokott in her opinion, in this reading a contravention of Article 125(1) TFEU would only occur when the Union or Member States guarantee the financial commitments of another 79 Member State or when they take up these commitments. An example would be a 80 guarantee or subrogation on the side of the debtor. A purposive i terpretatio of the a focuses o the purpose of the o- ailout clause and its place within the Treaty framework on economic governance, especially Articles 123–126 TFEU. As mentioned earlier, the prohibitions laid down in Articles 123–125 TFEU aim to establish market discipline. Member States need to be disciplined by the markets through the risk premiums the latter charge for buying their bonds. High premiums simply reflect the arkets’ lack of trust i the eco o ic a d udgetary policies of a Me er State. Any form of assistance by the Union or its Member States, either direct or indirect, 81 ex ante or ex post, would distort the functioning of this market mechanism. 82 As a result of the crisis, a third type of reading of Article 125 TFEU has emerged. This ultima ratio interpretation attributes to Article 125 TFEU a dual aim. The objective to establish market discipline so as to force Member States to pursue prudent budgetary policies and not pass on their debts to the Union or other Member States is not the only goal of the o- ailout clause, ut ust e placed withi the roader perspecti e of maintaining the stability of the currency union itself. Normally these two objectives coincide, but the crisis pulls them apart. Leaving a Member State alone was not an option 79 Opinion of Advocate Gen. Kokott, Case C-370/12, Pringle v. Ir., 2012 E.C.R. I-____, paras. 114–15, 121. 80 Cristoph Herrmann, Griechische Tragödie—der währungsverfassungsrechtlige Rahmen für die Rettung, den Austritt oder den Ausschluss von überschuldeten Staaten aus der Eurozone, 21 EUROPÄISCHE ZEITSCHRIFT FÜR WIRTSCHAFTSRECHT 413, 415 (2010); Gnan, supra note 35, at 99–100; Phoebus Athanassiou, Of Past Measures and Future Plans for Europe’s Exit fro the Sovereign Debt Crisis: What Is Legally Possible (and What Is Not), 36 EUR. L. REV. 558, 561 (2011). Smits, supra note 32; Kurt Fassbender, Der europäische “tabilisierungs echanis us” i Lichte von Unionsrecht und deutschem Verfassungsrecht, NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT 799, 800 (2010); Vestert Borger, De eurocrisis als katalysator voor het Europese noodfonds en het toekomstig permanent stabilisatiemechanisme, 59 TIJDSCHRIFT VOOR EUROPEES EN ECONOMISCH RECHT 207, 212 (2011); Rainer Palmstorfer, To Bail Out or not To Bail Out? The Current Framework of Financial Assistance for Euro Area Member States Measured Against the Requirements of EU Primary Law, 37 EUR. L. REV. 771, 778 (2012). 81 82 See Ulrich Häde, Die europäische Währungsunion in der internationalen Finanzkrise—An den Grenzen europäischer Solidarität?, 45 EUROPARECHT 854, 859–62 (2010); Contra Kai Hentschelmann, Finanzhilfen im Lichte der No Bailout-Klausel—Eigenverantwortung und Solidarität in der Währungsunion, 46 EUROPARECHT 282, 294–95 (2011); Rüffert, supra note 76, at 1786–87; see also Ulrich Jan Schröder, Die Griechenlandhilfen im Falle ihrer Unionsrechtswidrigkeit, 64 DIE ÖFFENTLICHE VERWALTUNG 61, 64 (2011) (dismissing the argument that TFEU art. 125 could have been modified through practice so as to allow financial assistance to safeguard stability in the euro area as a whole). 2013] The ESM and Pringle 131 when the crisis erupted in the beginning of 2010. The risk of contagion made it impossible not to rescue Greece and other peripheral Member States. Applying Article 125 TFEU with full rigor would have threatened the stability of the currency union. In such a situation, therefore, pro idi g fi a cial assista ce would ot ru cou ter to the o- ailout clause. . The Court’s Interpretation of the No Bailout” Clause and its Conse uences In its judgment the Court had to combine elements of all three interpretation techniques to reco cile Article TFEU a d the E“M Treaty with the o- ailout clause. It started from a literal interpretation and stated that, from the wording used in Article 125 TFEU, it is apparent that not all forms of assistance are prohibited. It supported this reading by referring to Articles 122(2) and 123 TFEU. What is prohibited, according to the te t of Article TFEU, is appare t fro the Court’s phrase that a Me er “tate should 83 re ai respo si le for its co it e ts to its creditors. The assistance instruments laid down in Articles 14–18 of the ESM Treaty do not have the effect that the recipient Member State is no longer responsible for its financial commitments. The same is true for Article 25(2) of the ESM Treaty, which regulates the issue of increased capital calls to ESM Members, as the defaulting ESM Member stays bound to pay its part of the capital to the ESM. But the Court also stipulated that not all forms of assistance, even if they are not prohibited by the text of Article 125 TFEU, are allowed. Adopting a purposive i terpretatio of the o- ailout clause, a d supporti g this with a reference to the preparatory works relating to the Treaty of Maastricht, the Court acknowledged that Article 125 TFEU aims to achieve budgetary discipline on the side of Member States by subjecting them to the logic of the markets. According to the Court the o- ailout clause, therefore, prohibits the granting of assistance which diminishes the incentive of the recipient Member State to pursue budgetary prudence. In addition to this purposive readi g of the o- ailout clause, the Court adopted an ultima ratio interpretation, stating that maintenance of budgetary discipline contributes to a higher objective, namely, the maintenance of the financial stability of the monetary union. Financial assistance by means of a stability mechanism such as the ESM, the Court explained, is permitted when this is indispensable for safeguarding the financial stability of the euro area as a whole. Only on the basis of this analysis one can find that assistance granted via a stability mechanism such as the ESM falls outside the scope of the ban on bailout in Article 125 83 See Stefaan Van den Bogaert & Vestert Borger, Rechterlijke interpretaties ESM op de pijnbank van de crisis, HET FINANCIEELE DAGBLAD (Dec. 7, 2012), (raising the question of to what extent this requirement prohibits the Union a d euro area Me er “tates fro accepti g a olu tary haircut’ o Greek de t . 132 German Law Journal [Vol. 14 No. 01 TFEU if (1) the recipient Member State remains responsible for its financial commitments to its creditors, (2) assistance is subject to strict conditions, and (3) provided that it is indispensable for the safeguarding of the financial stability of the euro area as a whole. This i terpretatio of the o- ailout clause has se eral i porta t co se ue ces. First, from this reading it follows that the future Article 136(3) TFEU is only of a declaratory 84 nature. Member States have always had the possibility of establishing a stability mechanism such as the ESM and Article 136(3) TFEU merely confirms this. Therefore, as the Court concluded, the conclusion and ratification of the ESM Treaty is not dependent on the entry into force of Decision 2011/199, which adds Article 136(3) to the TFEU. Second, the Court’s reaso i g also esta lishes that the assista ce operatio s carried out y the E“M’s predecessor, the EF“F, do ot iolate the o- ailout clause. After all, any assistance granted by the EFSF is subject to strict conditionality and is granted with the aim 85 of safeguarding financial the stability of the euro area as a whole. Third, this explanation of the o- ailout clause e sures that Me er “tates outside the euro area will also be 86 able to participate in assistance operations. Although these Member States have not yet i troduced the euro, they are all ou d y the o- ailout clause. Recent events suggest that it is more than an imaginary scenario that such countries will participate in 87 assistance operations. In the fall of 2010, the United Kingdom, Denmark and Sweden took part i the assista ce operatio relati g to Irela d after the latter’s fi a cial positio had deteriorated sharply as a result of the financial support it had granted to its banking 88 sector during the financial crisis. These actio s will ot iolate the o- ailout clause as long as the recipient Member State remains responsible for its commitments to its creditors, as long as assistance is subject to strict conditions, and only if the action is indispensable for safeguarding the financial stability of the euro area as a whole. 84 The view of the Court is, therefore, in line with that of the European Council which had called for a Treaty a e d e t ot odifyi g the o- ailout clause. See supra note 8. 85 EFSF Framework Agreement, supra note 6, at pmbl. (1). It must be admitted, however, that the EFSF Framework Agreement does not specifically state that assistance may only be granted when this is i dispe sa le for safeguardi g the sta ility of the euro area as a whole. 86 See also ESM Treaty, supra note 15, at recital 9, art. 6(3) (paying specific attention to non-euro area Member States that provide financial assistance alongside the ESM on an ad hoc basis). 87 Each of these three Member States is subject to a different legal regime concerning their position in the EMU, see supra note 39. All three states are, however, subject to the no-bailout clause in TFEU art. 125. 88 See Statement by the Eurogroup and ECOFIN Ministers (Nov. 28, 2010), available at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/118051.pdf. The financial rescue package consists of an Irish contribution, financed by a Treasury cash buffer and investments by the National Pension Reserve Fu d, of € 7. illio a d € 7. illio of e ter al support. The latter is ade up of € . illio fro the IMF, € . illio fro the EF“M, a d € 7.7 illio fro the EF“F. The U ited Ki gdo € .8 illio , “wede € . illio a d De ark € .4 illio pro ide further support through ilateral loa s totalli g €4.8 billion. 2013] The ESM and Pringle 133 3. Questioning the Court’s Interpretation of the No Bailout Clause The Court’s i terpretatio of the o- ailout clause raises so e i teresti g poi ts. The first relates to the use of Articles 122(2) and 123 TFEU in support of a restrictive reading of Article 125 TFEU. The second has to do with the objective of safeguarding the financial stability of the euro area as a whole. The third focuses on the relationship between the no-bailout clause and market discipline. 3.1 The Reference to Articles 122(2) TFEU and 123 TFEU The Court observed that not all forms of assistance are precluded by Article 125 TFEU. It is indeed possible to adopt such an interpretation. Yet, according to the Court, this interpretation is supported by other provisions in the TFEU, in particular Articles 122(2) and 123 TFEU. It is questionable whether these two provisions actually support the conclusion that Article 125 TFEU does not prohibit all forms of assistance. The Court stated that if Article 125 TFEU would have been an all-encompassing prohibition, then Article 122(2) TFEU should have stated that it constituted a derogation from Article 125 TFEU. But this is not necessarily the case. Articles 122(2) and 125 TFEU are both EU Treaty provisions. Since Article 122(2) TFEU is not formulated as an exception, neither of the former provisions can take precedence over the other. Instead, they need to be reconciled with each other. This can also be deduced from declaration no. 6 to the Treaty 89 of Nice, which specifically states: decisions regarding financial assistance, such as are provided for in Article 100 (now Art. 122) and are compatible with the no-bailout rule laid down in 90 Article 103 (now Art. 125) . . . 91 The application of Article 122(2) TFEU therefore involves a delicate balancing. In carrying out this exercise attention should be paid to the legislative history and the drafting process of the Treaty of Maastricht, which has been discussed above. The starting point should be that Article 125 TFEU forms the basic assumption and that the emergency clause in Article 122(2) TFEU is its exception, even though it is not literally formulated as such. 89 See De Gregorio Merino, supra note 35, at 1633–34. 90 Treaty of Nice Amending the Treaty on European Union, The Treaties Establishing the European Communities and Certain Related Acts, decl. 6, March 10, 2001, 2001 O.J. (C 80) 78. 91 For an elaborate discussion of how to carry out this balancing exercise, see Louis, supra note 35, at 983–85. 134 German Law Journal [Vol. 14 No. 01 Yet, this required balancing exercise does not lead to the conclusion that, besides assistance of the Union on the basis of Article 122(2) TFEU, other forms of assistance would be possible under Article 125 TFEU. It simply means that the Union has been granted a power to grant financial assistance and that it can only be exercised by having due regard to the o- ailout clause. It does not provide any further information on the scope of the o- ailout clause in relation to assistance granted by Member States. Similarly, Article 123 TFEU does not provide convincing evidence in support of a restricted 92 scope of the o- ailout clause. I li e with AG Kokott’s opi io , the Court pointed to the wording of Article 123 TFEU, according to which the ECB and national central banks are prohi ited fro gra ti g o erdraft facilities or a y other types of credit facility to the Member States. As this wording is stricter than that used in Article 125 TFEU the Court co cluded that the o- ailout clause was ot i te ded to prohi it all fi a cial assista ce. On the one hand, given that monetary financing of public deficits and debts can have particularly harmful consequences for price stability, one can argue that the wording of Article TFEU supports a restricti e readi g of the o- ailout clause. Whereas the ECB and national central banks are not allowed to grant credit to the public sector, such a prohibition does not apply to the Union and its Member States. On the other hand, the wording of Article 123 TFEU is strongly inspired by the position of central banks prior to the launch of EMU. In several Member States central banks had certain credit arrangements in place for public authorities. The drafters of the Treaty of Maastricht specifically wanted to 93 exclude the possibility that such practices would endure after the launch of EMU. Article 123 TFEU therefore specifically addresses this issue. As the wording of the provision is so much focused on the specific nature of central banks and their position before the launch of EMU, it cannot provide strong guidance on the interpretation of Article 125 TFEU. 3.2 The Objective of Safeguarding the Financial Stability of the Euro Area as a Whole Article 125 TFEU aims to ensure budgetary discipline by subjecting Member States to the logic of the market. From various provisions in the TFEU it is clear that budgetary prudence is not only a goal in itself. It also contributes to the higher objective of price stability. The Court has ow recog ized that the o- ailout clause pursues a other higher objective: Safeguarding the financial stability of the monetary union. But, unlike 92 Opinion of Advocate Gen. Kokott, Case C-370/12, Pringle v. Ir., 2012 E.C.R. I-____, at para. 141. 93 See Smits, supra note 32, at 289–91. 2013] The ESM and Pringle sound public finances and price stability, 95 recognition in the Treaties. 94 135 this objective has to date not found specific It seems that by referring—very exceptionally—to the preparatory work relating to the Treaty of Maastricht, in particular the paragraphs on budgetary discipline, the Court tried 96 to legitimize the identification of this additional objective. In several instances in these paragraphs there are references to price stability as well as to broader notions such as sta ility, o etary sta ility, a d sustai a ility of the u io . This ay le d so e support to the ide tificatio of fi a cial sta ility as a o jecti e of the o- ailout clause. At the same time a clear definition of this objective is lacking. What exactly does financial stability of the euro area mean and when is this so much at risk that it warrants activation of a stability mechanism such as the ESM? These uncertainties surrounding the objective ake it difficult to defi e the scope of the o- ailout clause. Yet, one cannot lose sight of the difficult position in which the Court found itself. If it had identified the safeguarding of the financial stability of the monetary union as a new objective of economic policy, to be introduced by Article 136(3) TFEU, then this would have a ou ted to a i plicit odificatio of the o- ailout clause. Conclusion and ratification of the ESM Treaty would then have been possible only after the entry into force of Decision 2011/199. 3.3 The No Bailout” Clause and the Objective of Market Discipline To a certain extent the euro crisis is due to the malfunctioning of the markets. Since the start of the third stage of the EMU markets have not properly performed their disciplining role. Instead of interest rates reflecting differences in country risk, spreads between the 97 bonds of peripheral countries and those of France and Germany narrowed. Only after 94 See e.g. TEU, supra note 29, at art. 3(3) TEU (mentioning price stability as an objective to be achieved by the Union) and TFEU, supra note 27, at art. 119(3) (mentioning both sound public finances and stable prices as guiding principles for the economic policies of the Union and the Member States). 95 See also Jean Pisani-Ferry, The Known Unknowns and Unknown Unknowns of EMU, 7 (Bruegel, Bruegel Policy Contributions, No. 12, 2012), who states: When thinking about possible threats that EMU should be defended against, policymakers in Maastricht looked back at past experience and identified two: inflation and fiscal laxity. Financial instability was at the time perceived as being of minor importance and, even though currency unification was expected to reinforce financial integration, no provision was envisaged to deal with the effects of private credit booms-and-busts.” 96 Bulletin of the European Communities, Supp. 2/91 COMMISSION OF THE EUR. COMMUNITIES (1991). 97 Since the start of the third stage of EMU and until the first half of 2008, the spread between 10-year government bonds of euro area Member States, relative to the German bond, were 16 basis points (bps) on average. After September 2008, the spread for most euro area Member States rose sharply. The case of Greece is illustrative in this regard. Before September 2008, the average spread between Greek and German bonds was 30 bps. However, it rose dramatically after September 2008 to 270 bps in March 2009. See Maria-Grazia Atinnasi 136 German Law Journal [Vol. 14 No. 01 the outbreak of the financial crisis did markets seem to rediscover the differences in country risk, often overreacting given the steep, sudden surge in interest rates on mainly 98 peripheral cou tries’ o ds. By subjecting financial assistance to strict conditions the emergency funds are meant to achieve what the markets could not: Inducing Member States to maintain budgetary discipline and pursue economic reforms. This raises the question: What role does the o- ailout clause’s ost asic o jecti e, su jecti g Member States to market discipline, still have? It can be argued that it was exactly the absence of a crisis resolution mechanism that made the o- ailout rule lack credi ility, especially gi e the high degree of financial 99 integration in the euro area. A o- ailout clause without rules for deali g with a Me er “tate’s default is ot effecti e ecause go er e ts will try to a oid a default 100 when a crisis hits. The establishment of a mechanism that involves investors in the crisis resolutio ight actually estow the o- ailout clause with eeded credi ility. The possibility of an orderly default would induce markets to care about the creditworthiness of Member States, thereby increasing the chance that differences in country risk will be 101 reflected in interest rates. The question, of course, is to what extent the structure of the 102 ESM is fit to achieve this goal, which is an issue outside the scope of this case note. For present purposes, however, it suffices to note that the Court did not address the 103 relationship between the ESM and market discipline at all. et al., What Explains the Surge in Euro Area Sovereign Spreads During the Financial Crisis in 2007–09?, 12–13 (Eur. Cent.l Bank, Working Paper Series, No. 1131, 2009). 98 Catharina Klepsch & Timo Wollmerhäuser, Yield Spreads on EMU Government Bonds—How the Financial Crisis Has Helped Investors to Rediscover Risk, 46 INTERECONOMICS 169, 169–70 (2011). 99 Daniel Gros & Thomas Mayer, How to Deal With Sovereign Default in Europe: Create a European Monetary Fund Now!, 2 (Centre For Eur. Policy Studies, Policy Briefs, No. 202, 2010). 100 François Giaviti et al., A European Mechanism for Sovereign Debt Crisis Resolution: A Proposal, 9 (Bruegel, Bruegel Blueprint Series, No. 10, 2010). 101 Id. at 10. 102 But see The European Stability Mechanism, 7 EUR. CENTRAL BANK MONTHLY BULLETIN, 78–82 (2011). The insertion of Collecti e Actio Clauses CACs i euro area Me er “tates’ go er e t o ds, which is prescri ed y E“M Treaty art. 12(3), may enhance market discipline. As such, CACs facilitate private sector involvement in the context of debt restructuring and may support an appropriate pricing of risk in government bond markets. 103 In her opinion, AG Kokott addressed this issue. See Opinion of Advocate Gen. Kokott, Case C-370/12, Pringle v. Ir., 2012 E.C.R. I-____, at paras. 148, 151–52. She held the view that market discipline is ensured as long as the U io a d the Me er “tates do ot directly eet the de a ds of the recipie t Me er “tate’s creditors. As long as uncertainty exists about whether the recipient Member State will actually use the assistance to pay off its creditors, which is the case under the ESM, a sufficient degree of market discipline would be ensured. However, it is doubtful whether this uncertainty really guarantees a sufficient degree of market discipline. 2013] The ESM and Pringle 137 Interestingly, the BVerfG did consider this relationship in its judgment on the ESM. In its view Article 136(3) TFEU forms an exception to Article 125 TFEU, which mitigates market 104 discipline. But the German Constitutional Court considered this acceptable because other foundations of the Stabilitätsgemeinschaft (stability union), which forms a precondition for the BVerfG’s acceptance of Ger a y’s participatio i the third stage of the EMU, are still in place. The German Court was particularly comforted by the fact that there was no departure from several key elements of the Stabilitätsgemeinschaft, including the independence of the ECB and its focus on price stability, the prohibition on 105 monetary financing, and the obligation to avoid excessive deficits. It would have been hard to for the European Court to reach a similar conclusion in Pringle because this would have meant that Article 136(3) TFEU is not only of a declaratory nature, ut actually adjusts the scope a d ea i g of the o- ailout clause. Again, in that reading, the conclusion and ratification of the ESM Treaty prior to the entry into force of Decision 2011/199 would not have been possible. III. Article 136(3) TFEU and the Stability of the Euro Area as a Whole The Court’s defi itio of the power of Me er “tates to gra t assista ce is ore li ited than the actual wording of Article 136(3) TFEU. The Court reached the conclusion that assistance can be granted to safeguard the financial stability of the euro area, which is also 106 specifically mentioned as the objective of the ESM in the ESM Treaty. But Article 136(3) TFEU erely speaks a out sta ility . Given that the Court regards Article 136(3) TFEU as ei g declaratory i ature, it see s that the ea i g of sta ility is li ited to fi a cial sta ility. In its opinion on the draft of Decision 2011/199 the European Parliament expressed its concerns about this financial conception of stability. It argued that all euro area Member States should have recourse to assistance of the ESM, even those whose economies are 107 too small to pose a threat to the financial stability of the euro area as a whole. Interestingly, in practice it is already possible to discern a departure from this financial conception of stability. The following statement of the Heads of State and Government of 104 Case No. 2 BvR 1390/12, supra note 2, at paras. 232-33. 105 Id. at paras. 233–34. 106 ESM Treaty, supra note 15, at art. 3. 107 European Parliament Resolution of 23 March 2011 on the Draft European Council Decision Amending Article 136 of the Treaty on the Functioning of the European Union With Regard to a Stability Mechanism for Member States Whose Currency is the Euro, para. 6, 2012 O.J. (C 247 E) 22, 24. 138 German Law Journal [Vol. 14 No. 01 the euro area, issued shortly before they decided to establish the EFSF in May 2010, is illustrative: In the current crisis, we reaffirm our commitment to ensure the stability, unity and integrity of the euro 108 area. These words reveal a different, and broader notion of stability, a notion that is no longer confined to economics and finance but is also of a political nature and relates to euro area membership. On the basis of this broader concept of stability, assistance is granted to keep Member States within the currency union, even if they do not pose a threat to the financial stability of the euro area as a whole. Would it be possible for the Court to rule that this broader form of stability has also always ee a o jecti e of the o- ailout clause? Perhaps it would. From the preparatory works relating to the Treaty of Maastricht it is apparent that the interlocking of Member “tates’ e cha ge rates a d the acco pa yi g i troductio of the euro is a irre oca le 109 process. By i duci g Me er “tates to udgetary discipli e the o- ailout clause intends to ensure this irreversibility. Granting assistance in order to preserve a Member State within the euro area would therefore not run counter to Article 125 TFEU. At the same time, this shows the open-ended nature of defining the scope of a prohibition by attributing to it a chain of objectives for which support may be found in preparatory works. G. Conclusion The euro springs from a French-German compromise. The currency itself is a French desire 110 and a German concession. For France a European single currency formed an opportunity to end the German monetary hegemony on the continent. For Germany acceptance of the euro was a means to realize the reunification of its country after the fall of the Berlin wall in 1989. By binding itself to a monetary union, it could ease fears among its European partners for renewed German dominance on the continent. But Germany was only willing to exchange its Deutsche Mark for a European alternative that would be at least as strong and stable. The governance framework of the EMU was, therefore, strongly focused on price stability. 108 Statement, Heads of State or Government of the Euro Area, (May 7, 2010). 109 Bulletin of the European Communities, supra note 96, at 20, 64–65 (Dutch version). The irrevocability of fixing the exchange rates also becomes apparent from the provisions in the TFEU on Member States with a derogation, in particular TFEU article 140(3). 110 André Szász, Een Duits Dilemma: De Euro van Geloofwaardigheids-naar Vertrouwenscrisis, 66 INTERNATIONALE SPECTATOR 137, 139 (2012). 2013] The ESM and Pringle 139 As a result of the crisis the euro has come to rest on a new compromise, one that is based not only on price stability, but also on financial stability. Yet, according to the Court, this compromise is not new at all but has existed in the law since the conception of EMU. Withi the li its set y the U io Treaties, i particular the o- ailout clause, Me er States have always had the possibility to grant assistance to their partners in need in order to safeguard the financial stability of the currency union. Article 136(3) TFEU only makes this explicit. Given its predicament in Pringle the Court could not have reached a different conclusion, but in reaching this inevitable conclusion it was forced to play a little with history as well. Sooner rather than later this new compromise will also have to be redefined, as a consequence of the transformation the currency union is currently undergoing. The ESM is only an intermediate step. In practice, a shift in focus from financial to political stability may already be observed. But what is driving this transformation? In Pringle, the Court did not have to deal with this question, the importance of which reaches beyond the law. In her opinion, AG Kokott touches upon the answer: It is, probably, the development of 111 solidarity in the Union. 111 Opinion of Advocate Gen. Kokott, Case C-370/12, Pringle v. Ir., 2012 E.C.R. I-____, paras. 142–43. 140 German Law Journal [Vol. 14 No. 01 Special Section The ESM Before the Courts Pringle: A Paradigm Shift in the European Union’s Monetary Constitution By Pieter-Augustijn Van Malleghem* A. Introduction The reference from the Irish Supreme Court seeking a preliminary ruling in the Pringle case concerns the compatibility of the Treaty establishing the European Stability Mechanism 1 (hereinafter ESM Treaty or ESMT) with European Union (EU) law. The Irish Supreme Court 2 was concerned with the legal significance of Council Decision 2011/199, which amended 3 the Treaty on the Functioning of the European Union (TFEU) by inserting a third paragraph in Art 136 TFEU. The new Art 136(3) provides that the Member States whose currency is the euro, may establish a mechanism such as the European Stability Mechanism (ESM) so long as that mechanism is only activated when indispensable to safeguarding the stability of the euro area as a whole, and only if the financial assistance is made subject to strict conditionality. But, because Decision 2011/199 has not yet been ratified by all Member 4 States, the TFEU has not yet been amended. The ESMT nevertheless entered into force at 5 6 the end of September 2012, and the ESMT commenced its operations in December 2012. * Pieter-Augustijn Van Malleghem, M.Sc., L.L.M. (waived) is an F.W.O. Fellow and Ph.D. Candidate at KU Leuven and an S.J.D. Candidate at Harvard Law School. Special thanks to F. De Witte and Professor R. Miller for their comments on a previous draft of this note. All errors are my own. 1 See Reference for a Preliminary Ruling from Supreme Court (Ireland) Made on 3 August 2012–Thomas Pringle v. Government of Ireland, Ireland and the Attorney General, 2012 O.J. (C 303) 18. 2 Europea Cou cil Decisio / 99/EU, L9 a ending Article 136 of the Treaty on the Functioning of the Europea U io with regard to a sta ility echa is for Me er “tates whose curre cy is the euro . 3 Consolidated Version of the Treaty on the Functioning of the European Union, art. 136, Dec. 13, 2007, 2012 O.J. (C 326) 47 [hereinafter TFEU]. 4 See Peter Laca, Czech President Klaus Refuses to Sign EU Rescue Fund, CTK Says, BLOOMBERG (Dec. 7, 2012), http://www.bloomberg.com/news/2012-12-07/czech-president-klaus-refuses-to-sign-eu-rescue-fund-ctksays.html (noting Czech President Vaclav Klaus has refused to sign the amendment to the Lisbon Treaty). 5 See Treaty Establishing the European Stability Mechanism (ESM), Feb. 2, 2012, 2011 O.J. (L 91) 1 [hereinafter ESM Treaty]; see also Ratification Details, Treaty Establishing the European Stability Mechanism, COUNCIL OF THE EUROPEAN UNION, available at http://www.consilium.europa.eu/policies/agreements/search-the-agreementsdatabase?command=details&lang=en&aid=2012002&doclang=EN (last visited 1/8/2013). 142 German Law Journal [Vol. 14 No. 01 Furthermore, the Irish Supreme Court sought to ascertain whether the promulgation and ratification of the ESMT was compatible with numerous provisions of European law, 7 i cludi g the o ailout clause co tai ed i Art TFEU. The European Court of Justice (ECJ) held that the treaty amendment merely confirmed the competence of the Member States to conclude a treaty such as the ESMT, though it sought to ensure the 8 compatibility of that Treaty with EU law through the imposition of strict conditionality. The ECJ also held that the Member States had not otherwise conferred any powers to the Union to establish a mechanism such as the ESM, and hence retained the power to do so 9 themselves. The ECJ further ruled that the ESMT was compatible with EU law, i terpreti g the o ailout clause as allowi g gra ts of fi a cial assista ce to Me er States in need when the stability of the euro area as a whole is at risk and so long as a grant of financial assistance does not diminish the incentive of the beneficiary state to 10 conduct sound budgetary policies. The ECJ’s ruling comes amidst the EU’s deepest existential crisis. At the impulse of the financial markets, several members of the euro area faced growing borrowing costs, 11 sometimes nearing unsustainable levels. The threat of a Member State leaving the euro area became greater as currency devaluation appeared to be the only way to give imperiled economies some breathing room. The effects of the eurozone crisis have been reinforced by the still-lingering 2007–2008 financial crisis. The EU’s existential crisis is also, 12 in part, a growing social crisis. The symptoms of this include unemployment figures at record heights (especially for the young), growing social inequality, and real wage cuts. Resentment for austerity measures is tangible in economically troubled eurozone countries. In this context, the significance of the ECJ’s judgment is ambiguous. Has the ECJ endorsed what could be described as the triumph of rational European economic governance over the irrationality of democratic budgetary policies? Or does the Pringle 6 See ESM Issues Bonds for the Recap of the Spanish Banking Sector, EUROPEAN STABILITY MECHANISM, http://www.esm.europa.eu/press/releases/ESM%20issues%20bonds%20for%20recap%20of%20Spanish%20bank ing%20sector.htm. 7 See TFEU, supra note 3, at art. 125(1). 8 See Case C-370/12, Pringle v. Ir., 2012 E.C.R. I-____, available at http://curia.europa.eu/juris/document/document.jsf?text=&docid=130381&pageIndex=0&doclang=EN&mode=ls t&dir=&occ=first&part=1&cid=274536 [hereinafter Pringle] (challenging the legality of the ESM). 9 See id. at para. 168. 10 See id. at paras. 135–36. 11 See Timeline: The Unfolding Eurozone Crisis, BBC NEWS (June 13, 2012), http://www.bbc.co.uk/news/business13856580. 12 See EUROPEAN COMMISSION, EMPLOYMENT AND SOCIAL DEVELOPMENTS IN EUROPE 2012, available at http://ec.europa.eu/social/BlobServlet?docId=9604&langId=en. 2013] Pringle: A Paradigm Shift 143 judgment mark the moment when European citizens are presented with the bill for the bailout of the financial sector during the 2007–2008 financial crisis? I begin this note with a description of the facts leading up to the ECJ’s judgment (B). Then, I analyze the ECJ’s ruling in further detail (C). Next, I consider the relevance of the ECJ’s judgment for the constitutional law of the European Union in a narrow (D.I) and in a wide (D.II) sense. The note ends with brief concluding remarks (E). B. Facts The Pringle case is a challenge to the institutional framework governing the response—in 13 the form of the ESMT—to the eurozone economic and financial crisis. That institutional framework cannot be understood without reference to previous policy measures. The sovereign debt crisis erupted in April 2010, when it appeared Greece was in dire need of a 14 bailout. In May 2010, alongside the IMF, the eurozone countries agreed to grant Greece a number of bilateral loans. Greece was gra ted fi a cial assista ce e uali g € illion, 15 conditioned on its adoption of an austerity package. Fears of contamination of the sovereign debt crisis across the eurozone forced European leaders to adopt a European 16 framework to deal with the issue. As a result, the summit of eurozone countries of the 7th and 8th of May and the ECOFIN Council of the 8th and 9th of May presented a temporary European framework to deal with the eurozone crisis. These temporary measures were based partly on EU law and partly on an intergovernmental agreement; they included a le di g capacity of €44 17 billion. On the one hand, the European Council adopted Regulation No. 407/2010 13 See ESM Treaty, supra note 5; Pringle, supra note 8. See IMF Approves €30 Bln Loan for Greece on Fast Track, INTERNATIONAL MONETARY FUND (May 9, 2010), http://www.imf.org/external/pubs/ft/survey/so/2010/new050910a.htm (reporting an approval of a three year loan to Greece as part of a joint effort with the European Union to assist Greece). 14 15 See Letter of Intent, Memorandum of Economic and Financial Policies, Technical Memorandum Understanding, and Memorandum of Understanding on Specific Economic Policy Conditionality from Greece the Int’l Monetary Fund, European Comm’n, and European Central Bank (Aug. 6, 2010), available http://www.imf.org/external/np/loi/2010/grc/080610.pdf (detailing the financial policies Greece plans implement with the borrowed funds). of to at to 16 See Jean-Victor Louis, The No-Bailout Clause and Rescue Packages, 47 COMMON MKT. L. REV. 971, 973 (2010) (discussing the impact of Greece’s debt crisis on the Eurozone). 17 See Press Release, Council of the European Union, Decision of the Representatives of the Governments of the Euro Area Member States Meeting Within the Council of the European Union (May 10, 2010), available at http://register.consilium.europa.eu/pdf/en/10/st09/st09614.en10.pdf. 144 [Vol. 14 No. 01 German Law Journal 18 establishing a European Financial Stabilization Mechanism (EFSM) with a lending capacity of € illio . On the other hand, the eurozone members set up the European Financial Stability Facility (EFSF), a private company under Luxembourg law, with a lending capacity 19 of €44 illio . The legal framework for these measures has proven to be controversial. Some argued that the o ailout clause of Art TFEU prohi ited fi a cial aid a o g eurozo e e er 20 states. The EFSM was based upon Art 122(2) TFEU, which provided that the Council could gra t fi a cial assista ce to the Me er “tates i case of a threat of se ere 21 difficulties caused by . . . e ceptio al circu sta ces eyo d its co trol. Doubts were raised about whether Greece’s high pu lic de t should cou t as a e ceptio al 22 circu sta ce eyo d its co trol. 23 The EFSM and EFSF were part of a wider package of regulatory reforms. The Treaty on 24 Stability, Coordination and Governance (Fiscal Compact), which was designed to reinforce the fiscal discipline of the member states, is the most significant for the ESMT. Ratification of the Fiscal Compact is a political pre-condition for receiving financial 25 assistance from the ESM. In addition, the European Central Bank (ECB) took several decisions, the legality of which is controversial, in an attempt to reinforce the economic health of the eurozone members. For example, the ECB has repeatedly intervened in the bond markets in an attempt to decrease unsustainably high financing costs for some 18 See Council Regulation 407/2010, (2010) O.J. (L 118) 1 (establishing a European financial stabilisation mechanism). 19 See European Financial Stability Facility, EFSF Framework Agreement, available at http://www.efsf.europa.eu/about/legal-documents/index.htm; Approved by All Members, EUROPEAN FINANCIAL STABILITY FACILITY (Oct. 13, 2011), http://www.efsf.europa.eu/mediacentre/news/2011/2011-011-efsfamendments-approved-by-all-member-states.htm (noting that the lending capacity had ee i creased to €44 billion). 20 See Lothar Knopp, Griechenland-Nothilfe auf dem verfassungsrechtlichen Prüfstand, 63 NEUE JURISTISCHE WOCHENSCHRIFT 1778, 1779–80 (2010). 21 See TFEU, supra note 3, at art. 122(2). 22 Knopp, supra note 19, at 1779–80. 23 See EU Economic Governance, http://ec.europa.eu/economy_finance/economic_governance/index_en.htm economic decisions and the impact of those new policies). 24 EUROPEAN (explaining the COMMISSION EU’s recent See Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, Mar. 2, 2012, http://european-council.europa.eu/media/639235/st00tscg26_en12.pdf [hereinafter Fiscal Compact]. 25 See ESM Treaty, supra note 5, at 4. 2013] Pringle: A Paradigm Shift 145 eurozone members, most recently through the Outright Monetary Transactions (OMT) 26 programme. Because of the legal uncertainty surrounding the ESFM and EFSF, the European Council made the political decision in December 2010, to amend the TFEU. It was hoped that this 27 move would lay to rest any controversies surrounding the legality of the ESM. On 25 March 2011, the European Council formally adopted Decision 2011/199, amending Art 136 28 TFEU. The new third paragraph to Art 136 that would be added by the amendment pro ides that the Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality. 29 It was the first time that the Simplified Revision Procedure (SRP), introduced by the Lisbon Treaty into Art 48(6) of the Treaty on the 30 31 European Union (TEU), was used. The entry into force of Decision 2011/199, and with it the amendment of the TFEU, is subject to the approval by the Member States in 32 accordance with their constitutional requirements. Currently, the Czech Republic has not 33 yet ratified the Decision due to political objections by President Václav Klaus. This has delayed the Decision’s entry into force, which had originally been planned for 1 of January 2013. 26 See Press Release, European Central Bank, Technical Feature of Outright Monetary Transactions (Sept. 6, 2012), http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html (detailing the bank’s program). 27 See Press Release, European Council, Conclusions of the European Council Meeting Dec. 16–17, 2010, 1 (Jan. 25, 2011), http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/118578.pdf#page=6. 28 See supra note 2 and accompanying text. 29 Id. 30 See Consolidated Version of the Treaty on European Union, arts. 48(6), Feb. 7, 1992, 2012 O.J. (C 326) 13, 42 [hereinafter TEU]. 31 The Simplified Revision Procedures allows Member States to amend the Treaty without having to comply with all the requirements of the Ordinary Revision Procedure, such as convening an intergovernmental conference. 32 33 See TEU, supra note 30, at art. 48(6), para. 2. See Agreement and Ratification Details, Treaty Establishing the European Stability Mechanism, COUNCIL OF THE EUROPEAN UNION, http://www.consilium.europa.eu/policies/agreements/search-the-agreementsdatabase?command=details&lang=en&aid=2011030&doclang=EN (last visited 8 Jan. 2013) (detailing the ratification of the original treaty). 146 German Law Journal [Vol. 14 No. 01 34 The ESMT was originally concluded on 11 July 2011. The ESMT was later re-negotiated in 35 order to provide more flexibility and the new version was concluded on 2 February 2012. The E“M has a le di g capacity of € illio , acked up y a authorized capital of €700 36 billion. The ESMT entered into force on 27 September 2012, two months prior to the 37 ECJ’s ruling in Pringle. The ESMT provides for a number of mechanisms of financial assistance to eurozone members with financial difficulties, subject to an overarching policy of strict 38 conditionality to which the Treaty amendment makes reference. These conditions are implemented through a Memorandum of Understanding (MoU) reflecting a macro39 economic adjustment programme concluded with the ESM Member concerned. The ESM can grant loans, to eurozone members who have lost access to financial markets either 40 through excessive lending costs or lack of lenders. The Primary Market Support Facility (PMSF) allows the ESM to buy bonds in the primary bond market of the eurozone member either to facilitate that state’s return to the financial markets or to increase the efficiency 41 of other ESM financial aid, whereas intervention in the secondary bond markets is designed to help reduce interest rates in the secondary market and to help eurozone 42 members struggling with the refinancing of their banking systems. The ESMT also provides for financial assistance to be used in order to recapitalize the financial institutions 43 of a specific member state. Finally, the ESM can provide precautionary financial assistance when the economic condition of a member state is sound enough to retain 44 access to the market, but financial aid is necessary in order to avoid a crisis. The IMF with 45 which the ESM will work in close cooperation inspired the ESM. 34 See id. 35 See ESM Treaty, supra note 5 and accompanying text. 36 See ESM Treaty, supra note 5, at art. 41(2) and Annex II. 37 See Ratification Details, supra note 5 and accompanying text. 38 See ESM Treaty, supra note 5, at art. 12. 39 See id. at art. 13(3). 40 See id. at art. 16. 41 See id. at art. 17. 42 See id. at art. 18. 43 See id. at art. 15. 44 See id. at art. 14. 45 See id. at art. 5. 2013] Pringle: A Paradigm Shift 147 The ESM entrusts existing EU institutions with crucial tasks in the process of granting and supervising financial assistance. The European Commission and the ECB assess the 46 financing needed. They also assess the sustainability of the member state’s public debt 47 as well as the corresponding risk of financial stability to the eurozone as a whole. Both of these reviews are undertaken prior to the decision of the Board of Governors leading to a 48 grant of financial aid from the ESM. Subsequent to a decision to grant aid and in liaison 49 with the ECB, the Commission negotiates the MoU with the Member State concerned. 50 Thereafter, the Commission signs the MoU on behalf of the ESM. Furthermore, the ESM 51 and the ECB monitor compliance with the conditionality laid down in the MoU. The ECJ is entrusted with the task of adjudicating disputes between the ESM and a Member State or among several Member States relating to the interpretation and application of the ESMT 52 when a decision of the Board on the matter is contested. The ESMT has been the subject of constitutional review in several of the Member States. 53 In Estonia, a constitutional complaint was rejected. The German Constitutional Court 54 subjected the ratification of the treaty to several conditions. A constitutional challenge 55 to the ESMT is still pending in Austria. In Ireland, Thomas Pringle, an independent member of Parliament, introduced a challenge against the ratification of the ESMT on the 56 grounds that it was incompatible with the Irish Constitution and the EU Treaties. Pringle 57 requested a preliminary reference to the European Court of Justice. On 17 July 2012, the Irish High Court ruled that the Treaty was compatible with the Irish Constitution and that the Irish Constitution did not require a referendum prior to the Irish government’s 46 See id. at art. 13(1). 47 See id. 48 See id. 49 See id. at art. 13(3). 50 See id. at art. 13(4). 51 See id. at art. 13(7). 52 See id. at art. 37(3). 53 See Riigikohus [Supreme Court Republic of Estonia], Case No. 3-4-1-6-12, July 12, 2012, available at http://www.nc.ee/?id=1347. 54 See Bundesverfassungsgericht [BverfG - Federal Constitutional Court], Case No. 2 BvR 1390/12, Sept. 12, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 3145 (Ger.). 55 See Constitutional Court: ESM Examination Takes up to 6 Months, FRIEDL NEWS (July 25, 2012), http://www.friedlnews.com/article/constitutional-court-esm-examination-takes-up-to-6-months; 56 See Pringle, supra note 8, at para. 2. 57 See id. at para. 1. German Law Journal 148 [Vol. 14 No. 01 58 ratification of the ESMT. On appeal of the High Court’s decision, the Irish Supreme Court 59 requested a preliminary ruling from the ECJ on 31 July 2012. Given the urgent nature of the subject, the Supreme Court asked the ECJ to apply its accelerated procedure when dealing with the matter. On 19 October 2012, the Supreme Court confirmed the High 60 Court’s decision with respect to Irish constitutional law. Due to the exceptional nature of the financial crisis the ECJ, by order on 4 October 2012, 61 decided to apply the accelerated procedure. The ECJ relied on Art 23(a) of the ECJ 62 6364 Statute and Art 104(a) of the ECJ’s (old) Rules of Procedure for this decision. In accordance with the ECJ’s practice, Ad ocate Ge eral Kokott offered her iews to the 65 ECJ, rather than issuing an opinion. The exceptional importance of the case also led the 66 67 ECJ to assign the case to the full Court in accordance with Art. 16 of the ECJ Statute and 68 Art. 60(2) of the (new) ECJ Rules of Procedure. The full court rendered its judgment on 69 27 November 2012. 58 See Pringle v. Ir., [2012] IEHC 296, paras. 208–09 (H. Ct.) (Ir.), available at http://www.courts.ie/__80256F2B00356A6B.nsf/0/0CA92DB7C606F3C680257A4B003AA637?Open&Highlight=0, pringle,~language_en~. 59 See Pringle v. Ir., [2012] IESC 47, para. 5 (S.C.) (Ir.), available at, http://www.courts.ie/__80256F2B00356A6B.nsf/0/E7504392B159245080257A4C00517D6A?Open&Highlight=0,p ringle,~language_en~ (noting the appeal has been sent to the ECJ on July 31, 2012). 60 See id. at paras. 208–09 (affirming the High Court’s decision). 61 See Case C-370/12, Order of the President of the Court in Pringle v. Ir., para. 8 (Oct. 4, 2012), available at http://curia.europa.eu/juris/document/document_print.jsf;jsessionid=9ea7d2dc30db57774ff134e343399983e12 7354ae11d.e34KaxiLc3qMb40Rch0SaxuKbxb0?doclang=EN&text=&pageIndex=0&part=1&mode=DOC&docid=128 422&occ=first&dir=&cid=581740 [hereinafter Order of the President of the Court]. 62 See Protocol (No. 3) on the Statute of the Court of Justice of the European Union, art. 23(a), 2012 O.J. (C 326) 210, 217 [hereinafter Protocol No. 3] (noting that accelerated procedures may be used for a preliminary ruling). 63 See Rules of Procedure of the Court of Justice, art. 104(a), 2010 O.J. (C 177) 1, 28 (noting the President has the power to decide to apply accelerated procedures). 64 Interestingly, the ECJ made reference to Art 105(1) of its new Rules of Procedure, which had entered into force during the interval. 65 See Opinion of Advocate Gen. Kokott, Case C-370/12, Pringle v. Ir., 2012 E.C.R. I-____. 66 See Order of the President of the Court, supra note 61 and accompanying text. 67 See Protocol No. 3, supra note 62, at art. 16. [W]here it considers that a case before it is of exceptional importance, the Court may decide, after hearing the Advocate-General, to refer the case to the full Court. . 68 See Rules of Procedure of the Court of Justice, art 60(2), 2012 O.J. (L 265) 20 (detailing when the Court may sit in full court). 69 See Pringle, supra note 8, at para. 2. 2013] Pringle: A Paradigm Shift 149 C. Reasoning of the Court I. The Treaty Amendment: Questions 1 and 3 The amendment of Art 136 TFEU contained in Decision 2011/199 was originally designed to avoid any legal uncertainty as to the compatibility of the ESMT with EU law. Paradoxically, the anticipated entry into force of the ESMT raised the question whether that amendment was the legal basis for the ESM. If so, then the ratification of the ESMT prior to the entry into force of the Decision would have been incompatible with EU law. With its first reference to the ECJ the Irish Supreme Court inquired whether Council Decision 2011/199 was valid, having regard to the procedural requirements of the new SRP as well as its content. With its third reference to the ECJ, the Supreme Court wished to know whether the ESM Treaty could validly be ratified prior to the entry into force of the Decision amending the TFEU. 1. Jurisdiction and Admissibility of the First Question The European Council, the European Commission and no fewer than 10 member states argued that the ECJ had no jurisdiction to answer the first question as it concerned an amendment to the Treaty and, hence, the validity of a provision of primary law. The ECJ held that, u der Art 7 TFEU, it had jurisdictio to give preliminary rulings 70 concerning . . . the validity . . . of acts of the institutions. With this reasoning the ECJ distinguished Decision 2011/199—which would amend the Treaty—from the future Art 136(3) that would result from this amendment and would have the status of primary law. Furthermore, the ECJ held that its task of ensuring that, in the interpretation and application of the Treaties, the law is upheld required it to ensure compliance with the 71 conditions of the SRP laid down in Art 48(6) TEU. The ECJ explained that decisions to amend the TFEU under the SRP must comply with the stipulated procedural requirements, could amend only the provisions of Part Three of the TFEU and may not affect any other 72 provisions of the Treaties, and may not increase the powers conferred on the Union. Ireland’s challenge to the admissibility of the first question, on the grounds that it ought to have been brought by way of direct action, was dismissed. The ECJ reiterated its settled 73 case-law , which holds that a preliminary reference concerning the validity of an act is only barred when the party challenging that validity had the right to bring a direct action 70 See id. at para. 31. 71 See id. at para. 35. 72 See id. at para. 36. 73 Case C-188/92 TWD Textilwerke Deggendorf,1994 E.C.R. 833, paras. 18 and 23, Case C-550/09 E and F, 2010 E.C.R. 6213, paras. 46 and 48, Case C-494/09 Bolton Alimentari, 2011 E.C.R. 647, paras. 22 and 23. German Law Journal 150 [Vol. 14 No. 01 74 under Art 263 TFEU. Because it was doubtful whether the applicant had standing under 75 that provision, the first question was deemed admissible. 2. Validity of the Decision The ECJ first analyzed whether the amendment only concerned Part Three of the TFEU. In its analysis, the ECJ went beyond a formal assessment of the articles amended by the Decision in its effort to determine whether other provisions of the Treaty were substantively affected, thereby encroaching upon the Union’s competences concerning 76 monetary and economic policy. First, the ECJ held that Decision 2011/199 did not affect the Union’s exclusive competence 77 in matters of monetary policy, which is laid down in Art 3(1)(c) TFEU. Given that the Treaty does not define monetary policy, the Court’s reasoning was based upon the 78 objective of the Union’s monetary competences, namely price stability. In the ECJ’s view, the ESM’s objective of safeguarding the stability of the euro area must be distinguished 79 from the objective of maintaining price stability. Financial assistance also does not fall 80 within the scope of monetary policy. The ECJ further stressed the relationship between 81 the Six Pack and the ESMT, which was as envisaged in the Decision. The Court concluded, on the basis of these factors, that the establishment of the ESM falls within the scope of 82 economic rather than monetary policy. The fact that the European Council voluntarily requested the ECB to issue an opinion on the Decision, which is a procedural requirement 83 for institutional change in the monetary area, could not alter that conclusion. Second, the ECJ held that the Decision did not encroach upon the Union’s competences in 84 matters concerning economic policy. Neither Art 122(2) nor Art 143(2) TFEU constituted 74 See id. at para. 41. 75 See id. at para. 42. 76 See id. at paras. 46–47. 77 See id. at para. 63. 78 See id. at paras. 53–54. 79 See id. at para. 56. 80 See id. at para. 57. 81 See id. at para. 58. 82 See id. at para. 60. 83 See id. at para. 61. 84 See id. at para. 68. 2013] Pringle: A Paradigm Shift 151 85 an appropriate legal basis for the establishment of the ESM. The ECJ did not exclude the possibility of doing so on the basis of Art 352 TFEU, but the Union was not under an 86 obligation to do so. The ECJ concluded that, because the Decision did not affect the Union’s competences, the Member States were free in principle to conclude the ESMT but could not disregard their duties under Union law when doing so. The Court observed that compliance with Union law was ensured because Art 136(3) made the grant of financial assistance through the 87 ESM dependent upon the observance of strict conditionality. Then, the ECJ examined whether the Decision to amend the TFEU could increase the competences conferred upon the Union. The Court held that that was not the case 88 because Art 136(3) was not the legal basis for the establishment of the ESM. (Given that no specific competence had been conferred upon the Union, the Member States had 89 retained their competence to establish the ESM. ) Thus, the amendment was merely designed to confirm that the Member States were entitled to conclude the ESMT and to 90 ensure compliance with Union law when doing so. The ECJ, therefore, found that the conditions for the validity of the Decision had been fulfilled. With its third reference the Irish Supreme Court wished to be informed whether the ESMT could validly be concluded and ratified prior to the entry into force of the amendment to the TFEU. In its reply, the ECJ reiterated that the amendment merely confirmed the power of the Member States to conclude the ESMT and that the conclusion and ratification of the 91 ESMT did not depend on the entry into force of the amendment. II. Compatibility of the ESMT with the EU Treaties With its second reference the Irish Supreme Court asked the ECJ to interpret a number of provisions of the EU Treaties in order to ensure that they allowed for the conclusion and ratification of the ESMT. The Court had jurisdiction to answer that question because it concerned the interpretation of the EU Treaties and not, as Spain argued, the 85 See id. at paras. 65–66. 86 See id. at para. 67. 87 See id. at paras. 68–69. 88 See id. at para. 73. 89 See id. at para. 168. 90 See id. at para. 72. 91 See id. at paras. 184–85. 152 German Law Journal [Vol. 14 No. 01 92 interpretation of the ESMT. But the ECJ deemed the second question inadmissible in so far as it concerned the interpretation of Arts 2 and 3 TEU and the principle of legal certainty. The Court observed that the Irish Supreme Court had provided insufficient information to allow the Member States and other interested parties to provide their 93 observations to the ECJ. 1. Exclusive Competence The ECJ’s analysis as to the exclusive competences of the Union concerned both monetary policy (Art 3(1)(c) TFEU and Art 127 TFEU) and the conclusion of international agreements that may affect common rules or alter their scope (Art 3(2) TFEU). As regards the former, the Court reiterated that the ESM did not concern monetary policy, as its purpose of safeguarding the financial stability of the eurozone had to be distinguished from the 94 objective of safeguarding price stability. The ECJ further held that the ESMT did not affect common rules of the Treaty nor did it alter their scope. As the EFSF was not established within the Union framework, the ESM’s 95 relation with the EFSF could not affect or alter such rules. The ESM did not alter the Union’s power to establish a mechanism for ad hoc financial assistance such as the EFSM, 96 as that provision did not confer a power to establish a permanent rescue mechanism. 2. Economic Policy In the first place, the Irish Court was seeking to ascertain whether the ESM Treaty encroached upon the competences of the Union concerning the coordination of economic 97 policy. The ECJ held that the strict conditionality imposed on beneficiary states are not instruments for the coordination of economic policy, although consistency with such 98 coordination measures is ensured. Next, the Irish Court wanted to know whether the ESMT encroached upon the competence conferred to the Union in Art 122 TFEU. That was not the case, as Art 122(1) TFEU is not concerned with the possibility of severe financing 92 See id. at para. 79. 93 See id. at paras. 85–87. 94 See id. at paras. 95–96. 95 See id. at para. 102. 96 See id. at para. 105. 97 The CoJ did not rule on the doctrinal debate whether economic policy is a shared competence or not. Advocate General Kokott took the view that was not necessary in order to reply to the first question (View, para. 93). 98 See Pringle, supra note 8, at paras. 110–12. 2013] Pringle: A Paradigm Shift 153 problems and Art 122(2) is limited to granting financial aid by the Union itself, rather than its member states. The Irish Supreme Court also asked whether the ESM was intended to circumvent the prohibition on monetary financing of the Member States that is laid down in Art 123 TFEU. The ECJ held that that was not the case because that prohibition is addressed to the ECB and the central banks of the member states, rather than the member states themselves or 99 the ESM. The Court also oted that there was o asis for the iew that the fu ds provided by the ESM . . . might be derived from financial instruments prohibited by Article 100 TFEU. The compatibility of the ESMT with the so-called o ailout clause of Art TFEU seemed the most daunting obstacle for the ESMT. The EC held that the scope of the o ailout clause was li ited to the liability for, or assumption of, the commitments of other Member States. The Court concluded that the clause did not prohibit other forms of financial assistance. That view was supported by a systematic interpretation of the Treaty, as the wording used in Art 123 TFEU was stricter than that in Art 125 TFEU and as it was not apparent from Art 122 that that article constituted an exception to a general 101 prohibition on bailouts. A teleological reading of Art 125 TFEU then allowed the ECJ to 102 determine which forms of financial assistance were compatible with the Treaty. Drawing upon preparatory works to the Maastricht Treaty, the ECJ concluded that the Treaty merely prohibited financial aid that reduces the incentive of a Member State to 103 conduct sound budgetary policy. The financial assistance provided by the ESM was deemed not to reduce that incentive and was, therefore, declared compatible with the Treaty because all stability support provided by the ESM is subject to strict conditionality and because such support will only be granted when indispensable to safeguard the 104 stability of the euro area as a whole. Granting a loan to or buying bonds of a beneficiary state on the primary markets does not mean that the ESM assumes the debt of a Member State. The Court justified this conclusion with the reasoning that these actions, although resolving debt problems for the beneficiary state, have the effect of creating new debt for 105 that state. Similarly, the Court concluded that buying a Member State’s bonds on the secondary bond market would not make the ESM responsible for the debt of a Member 99 See id. at para. 125–26. 100 Id. at para. 127. 101 See id. at paras. 131–32. 102 See id. at para. 133. 103 See id. at paras. 136–37. 104 See id. at paras. 142–43. 105 See id. at para. 139–40. 154 German Law Journal [Vol. 14 No. 01 106 State with respect to a specific creditor. Finally, the Court explained that, when ESM Members are called upon to pay additional capital as a result of the failure of an ESM Member to meet its obligation, these increased responsibilities do not constitute the assumption of the debt of another Member State because the defaulting Member State 107 remains responsible to pay its own capital. On the basis of this reasoning, the ECJ ruled that the provisions of the ESMT were not in breach of EU law. 3. Principle of Sincere Co-operation The ECJ held that the ESMT also did not run afoul of the principle of sincere co-operation laid down in Art 4(3) TEU and that such concerns did not preclude the conclusion or ratification of the ESMT. The Court noted that the ESMT ensured compliance with Union 108 law. 4. Conferral of Tasks upon Union Institutions The Irish Supreme Court also inquired whether the role the ESMT conferred upon the ECB, the European Commission, and the Court of Justice of the European Union was compatible with the Treaties. First, the ECJ analyzed the tasks allocated to the ECB and the Commission. It held that the Member States were entitled, in areas not falling within the exclusive competence of the Union, to confer tasks on the institutions, provided that the new competences did not alter the essential character of their powers under the EU Treaties. In reaching this conclusion the Court relied on settled case-law going back to 109 Bangladesh. The Court found that the powers conferred upon the ECB and the Commission by the ESMT were in line with the authority already conferred upon them by 110 the EU Treaties. The fact that the Bangladesh case-law predated the rules on enhanced co-operation introduced by the Treaty of Amsterdam, the Court explained, did not imply that the Member States had to resort to that mechanism if they wanted to make use of Union institutions in the framework of the ESMT. The rules on enhanced co-operation could only apply where the Union would have the powers to act in that domain, which is 111 not the case for the establishment of a permanent stability mechanism such as the ESM. 106 See id. at para. 141. 107 See id. at para. 145. 108 See id. at para. 151. 109 See id. at para. 158 (referring to Joined Cases C-181/91 and C-248/91, Parliament v. Council & Comm’n, 1993 E.C.R. 3685; Case C-316/91, Parliament v. Council, 1994 E.C.R. 0625; Opinion 1/92, 1992 E.C.R. 2821; Opinion 1/00, 2002 E.C.R. 3493; Opinion 1/09, 2011 E.C.R. ____. 110 See Pringle, supra note 8, at para. 159. 111 See id. at para. 168. 2013] Pringle: A Paradigm Shift 155 Finally, the ECJ held that its authority under Art 37(3) ESMT to resolve disputes between the ESM and Member States (as well as between Member States) in matters concerning the interpretation or application of the ESMT was compatible with Art 273 TFEU. The Court carefully scrutinized Art 37(3) ESMT to determine whether the conditions Art 273 TFEU established for its jurisdiction had been satisfied, including: that disputes be submitted pursuant to a special agreement; that disputes be related to the subject-matter of the Treaties; and that the dispute be between the Member States. First, the ECJ found there to be no objection to the fact that agreement to refer the dispute to the CoJ is 112 concluded prior to the emergence of a dispute. Second, the ECJ held that such a dispute would relate to the subject-matter of the Treaties even though Art 37 ESMT only refers to disputes arising under the ESMT. This was so, explained the Court, because such a dispute 113 would also e likely to co cer the i terpretatio of EU law. Finally, the ECJ found that such a dispute would be a dispute between the Member States. Art 37 ESMT refers to disputes between the ESM and an ESM Member, or between ESM Members, but the Court found that the condition of Art 273 TFEU was nevertheless fulfilled given that all ESM Members are Member States of the EU. Therefore, the tasks conferred by the ESMT to Union institutions were deemed compatible with Union law. 5. Effective Judicial Protection Finally, the Irish Court sought the ECJ’s opinion on whether the ESMT constituted a violation of the right to effective judicial protection under the Charter of Fundamental Rights (CFR). This was a concern because the establishment of the ESM outside the EU legal order might be seen as placing the ESM beyond the duties imposed by the CFR. As the Union did not have a specific competence to establish the ESM, the ECJ held the ESM Members were not implementing Union law when they established the ESM and that they 114 were, therefore, acting outside of the scope of the CFR. Hence, the principle of effective judicial protection could not preclude the Member States from concluding and ratifying the ESMT. As a result, none of the grounds examined by the ECJ could prevent the Member States from establishing a mechanism such as the ESM. 112 See id. at para. 172. 113 See id. at para. 174. 114 See id. at paras. 179–80. 156 German Law Journal [Vol. 14 No. 01 D. Comments The Pringle case raises a number of issues of EU constitutional law. First, a number of issues regarding constitutional law in the strict sense of the term are analyzed. Then, the implications of the judgment on the constitution of the Union in a wider sense will be examined. I. Constitutional Implications in the Strict Sense 1. The Role of the Court of Justice in the Simplified Revision Procedure In Pringle the ECJ laid down the criteria according to which Treaty amendments under the SRP are to be reviewed. It was the first time the Court heard arguments as to the validity of a Decision taken by the European Council and, a fortiori, a Decision to amend the Treaties pursuant to the SRP authority granted the Council by the Treaty of Lisbon. The criteria are both procedural and substantive. The procedural requirements of Art 48(6) require: (1) that a proposal for revision must be submitted to the European Council by the Government of a Member State, the European Commission, or the European Parliament; (2) that the Decision of the European Council be adopted unanimously; (3) that the Decision does not enter into force prior to approval by the Member States in accordance with their constitutional requirements; and (4) that consultation with the European Parliament and the European Commission is always mandatory, but consultation with the ECB is only required when the amendments concerns changes in the monetary area. The Court noted two substantive requirements for implementation of the SRP. First, the amendments may not increase the powers conferred on the Union. Second, the amendments may implicate only the provisions of Part Three of the TFEU. The ECJ’s test under the second of these criteria goes beyond a formal assessment but extends to an assessment of whether the amendment affects the substance of provisions outside Part 115 Three of the TFEU. The Court explained that, in the case of Decision 2011/199, its broader assessment under the second of these criteria would not be cut short merely because the European Council voluntarily consulted with the ECB. This courtesy was all the more pronounced by the fact that the Council did not believe that the amendment concerned changes in the monetary area. Still, the Court resolved to pursue its broader 116 assessment of the substantive effects of the amendment beyond Part Three of the TFEU. This was the first time the ECJ had reviewed the validity of Treaty amendments. Prior to the introduction of the SRP, it was settled case-law that the Court did not have the power 115 See id. at paras. 47–67. 116 See id. at para. 61. 2013] Pringle: A Paradigm Shift 157 117 to review revision Treaties. That reasoning was based upon the ECJ’s lack of competence to review Treaties under Art 267 TFEU. The Court’s ratio decidendi on this point appears sound given that, under the SRP, an amendment results from an act of an institution of the Union (which the ECJ has the power to review under Art 267 TFEU) and not from an amending treaty. Furthermore, the Court’s ruling appears to be in line with its consistent policing of (what is now) Art 48 TEU since Defrenne. Those efforts sought to ensure that the Member States do not circumvent their obligation under EU law to use the 118 amendment procedure laid down in that article. 2. Side-stepping the EU Legal Framework through International Agreements The ESMT raises the question of the relationship between EU law and international agreements concluded outside of the EU law legal framework. The ECJ made it clear that 119 no power was conferred upon the Union to establish a mechanism such as the ESM. The Court confirmed its settled case-law holding that, although the Member States had retai ed the residuary co pete ce to co clude the E“MT, those Me er “tates ay ot disregard their duty to comply with European Union law when exercising their 120 co pete ces i that area. In Hohfeldian terms, the Member States’ duties to comply with Union law do not depend on the existence of a correlative power conferred upon the 121 Union. When exercising such competences, the Member States remain bound by their 122 duty of sincere co-operation and by existing primary and secondary law. The Court thereby confirms existing case law concerning residual competences on matters such as 123 124 taxation, national legislation governing a person’s name, as well as the conclusion of 125 international treaties. Whether EU law will also offer individuals protection appears far 117 See Case C-253/94, Roujansky v. Council, 1995 E.C.R. 0007, para. 11; see also Bruno de Witte, International Law as a Tool, 5 EUR. CONST. L. REV. 265, 270 (2009). 118 See Case 43/75, Defrenne v. Société anonyme bege de vaigation aérienne Sabena, 1976 E.C.R. 455, para. 58, Opinion 2/94, Accession by the Community to the European Convention for the Protection of Human Rights and Fundamental Freedoms, 1996 E.C.R. 1759, para. 35. 119 See Pringle, supra note 8, at para. 168. 120 Id. at para. 69; see also id. at paras. 72, 151. 121 Alan Dashwood, The Limits of European Community Powers, 21 EUR. L. REV. 113, 114 (1996). 122 See de Witte, supra note 117, at 275; see also KOEN LENAERTS & PIET VAN NUFFEL, EUROPEAN UNION LAW 929 (Robert Bray & Nathen Cambien eds., 3rd ed. 2011) (noting that to the extent such agreements are concluded, they u dou tedly gi e shape to the U io legal order i a roader se se . 123 See Case C-513/04, Kerckhaert v. Belg., 2006 E.C.R. 967, para. 15. 124 See Case C-148/02, Avello v. Belg., 2003 E.C.R. 11613, para. 25. 125 See Case C-55/00, Gottardo v. INPS, 2002 E.C.R. 413, para. 32; Case C-307/97, Compagnie de Saint Gobain v. Finanzamt Aachen-Innenstadt, 1999 E.C.R. 6161, para. 57–58. 158 German Law Journal [Vol. 14 No. 01 less clear. It is questionable whether an individual’s right to effective judicial protection will be safeguarded, given the Court’s holding that the act of establishing the ESM falls 126 outside the scope of the Charter. The status of decisions taken by the ESM, such as the MoUs which could affect individuals’ rights under the Charter, is thereby rendered uncertain. The ambiguity of the relationship between the ESMT and EU law also came to the fore in the ECJ’s analysis of the amendment to Art 136 TFEU. On the one hand, the Court repeatedly affirmed that the future Art 136(3) TFEU is not the legal basis for the Member States’ authority to conclude the ESMT but merely confirms that concluding the treaty fell 127 in their residual competence. On these terms Art 136 appears superfluous. That is surprising given that the Treaty was amended partly out of fear that, if left unchanged, it 128 precluded the Member States from concluding an agreement such as the ESM. On the other hand, the Court implied that the amendment is significant to the extent that it e sure[s] that that echa is will operate i a way that will co ply with Europea U io 129 law. The position of the ESMT with regard to Union law is left ambivalent. Although Member States are required to comply with Union law when establishing a mechanism such as the ESM, individuals might not be able to invoke Union law against measures designed by EU institutions and adopted by the Member States in their capacity as ESM Members. On the one hand, the implementation of MoUs by states that are recipients of ESM stability support seems to fall outside the scope of Union law as the MoU itself is negotiated by the ESM, which is not an institution of the Union. This reasoning is problematic given the central involvement of the ECB and the Commission in the drafting of these documents. On the other hand, the Court assimilated the ESM with the Member States of the Union for 130 the purpose of the interpretation of Art 273 TFEU. In addition, MoU’s have to be 131 consistent with measures of economic policy coordination, which do fall within the scope of Union law. A pending request for a preliminary ruling on Portuguese national law implementing the MoU concluded with Portugal, as a condition on Portugal’s receipt of 126 See Pringle, supra note 8, at para. 180. 127 See id. at paras. 68, 72, 109, 184. 128 See Bruno de Witte, The European Treaty Amendment for the Creation of a Financial Stability Mechanism, SIEPS—SWEDISH INSTITUTE FOR EUROPEAN POLICY STUDIES 6 (2011), available at http://www.sieps.se/sites/default/files/2011_6epa.pdf. 129 Pringle, supra note 8, at para. 69; see also id. at paras. 72, 111, 143. 130 See id. at para. 175. 131 See ESM Treaty, supra note 5, at art. 13(3). 2013] Pringle: A Paradigm Shift 159 132 financial assistance from the EFSM and EFSF, will hopefully settle that question. If the Court were to refuse to assess the compatibility of these measures with the Charter, that 133 would appear problematic in the light of the Court’s commitment to the rule of law. 3. Implications for Monetary Policy The Pringle judgment also interprets the exact meaning of monetary policy and the prohibition of debt monetization contained in Art 123 TFEU. In its answer to the first question, the ECJ refrained from defining monetary policy and based its reasoning on the 134 objectives set forth in the Treaty. The EC u a iguously co fir ed the supre acy of 135 price sta ility as the predo i a t o jecti e of the U io ’s monetary policy. The Court’s judgment in Pringle will be closely scrutinized for its implications on measures to counter the sovereign debt crisis involving the ECB. The ECJ was not asked to rule on any of these measures, leaving the legal community to speculate on their legality. Nevertheless, the Court’s interpretation of Art 123 TFEU might give some clues. The Court’s interpretation does not give any decisive answer concerning the legality of the ECB’s OMT programme, as its reasoning does not consider the distinction between primary and secondary bond markets. A complaint concerning the legality of that practice is 136 currently pending before the German Constitutional Court. The ECJ’s interpretation of Art 123 TFEU also leaves the legality of a possible future issuance of a banking license to the ESM uncertain. A banking license would allow the ESM to obtain funds directly from the ECB. On the one hand, the Court suggested that the ESMT merely concerns financing 137 by one or more ESM Members to another Member, even though the ESM was designed 138 to be able to borrow on financial markets. That line of reasoning could indicate that there is no legal objection to the grant of a banking license to the ESM. On the other hand, the ECJ stressed that there is currently no reason to believe that the funds provided to the 132 See Case C-264/12, Sindicato Nacional dos Profissionais de Seguros e Afins v. Fidelidade Mundial, 2012 E.C.R. I____, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2012:209:0005:03:EN:HTML. 133 See Case 294/83, Les Verts v. Eur. Parliament, 1986 E.C.R. 1339, para. 23; Case C-402/05 P & C-415/05 P, Kadi & Al Barakaat Int’l Found. v. Council & Comm’n, 2008 E.C.R. 6351, para. 281. 134 See Pringle, supra note 8, at para. 53–54. 135 See Matthias J. Herdegen, Price Stability and Budgetary Restraints in the Economic and Monetary Union: The Law as Guardian of Economic Wisdom, 35 COMMON MKT. L. REV. 9, 15 (1998). 136 See Press Release, Bundesverfassungsgericht (German Federal Constitutional Court), Date for Sentencing in Ter s of E“M/ Fiscal Pact “epte er ‘e ai s “ept. 11, 2012), available at http://www.bundesverfassungsgericht.de/pressemitteilungen/bvg12-065a.html. 137 See Pringle, supra note 8, at paras. 125–26. 138 See ESM Treaty, supra note 5, at art. 21. 160 German Law Journal [Vol. 14 No. 01 139 ESM are obtained in circumvention of Art 123 TFEU. The latter observation suggests a more pragmatic test, pursuant to which the Court would look at the source of the funds obtained by the ESM. On the whole, the Court’s obiter dicta do not allow inferring a conclusion on the legality of the issuance of a banking license to the ESM under Art 123 140 TFEU either. 4. No Bailout: What’s in a Name? The ruling in the Pringle judgment is decisive in resolving the ambiguities surrounding the o ailout clause co tai ed i Art TFEU. Multiple interpretations of that clause were possible. An expansive interpretation of that clause might look at the outcome of the grant of financial aid, that is, in the absence of the financial aid, the recipient country would not have been able to repay its outstanding debt. A narrower reading of that provision could look at incentives instead, namely, does the receipt of financial aid decrease the recipient country’s incentive to pursue sound monetary policy? In Pringle, the Court opted for the latter interpretation. That decision indicates a shift in Europe’s economic and monetary constitution. The origi s of the o ailout clause ca e traced ack to the Delors Report on Economic 141 and Monetary Union of 1989. That report identified the need for macro-economic policy coordination in order to ensure that monetary union would be viable. If the ECB was to be able to conduct monetary policy at a European level, then that presupposed the conduct of sound fiscal policies by the member states of the monetary union. The udgetary co strai ts i posed y the fi a cial arkets were co sidered to e either too 142 slow a d weak or too sudde a d disrupti e. Hence, the monetary union would have to legally require sound fiscal policy from the member states. Furthermore, the interdependence between members of a monetary union implied that one member’s sovereign debt crisis would have spill-over effects on the economies of other members of the union that, in turn, would create a perverse incentive for the members of the monetary union to take the risk of conducting unsustainable fiscal policies. This is what is known as the moral hazard problem. 139 See Pringle, supra note 8, at para. 127. 140 In its Opinion on Decision 2011/199, the ECB indicated it did not believe such a bank license to be compatible with Art 123 TFEU or Art 18 of the ECB Statute. See Opinion of the European Central Bank on a Draft European Council Decision Amending Article 136 of the Treaty on the Functioning of the European Union with Regard to a Stability Mechanism for Member States Whose Currency is the Euro, 2011 O.J. (C 140) 8, recital 9. 141 See COMM. FOR THE STUDY OF ECONOMIC AND MONETARY UNION, REPORT ON ECONOMIC AND MONETARY UNION IN THE EUROPEAN COMMUNITY 20 (1989), available at http://aei.pitt.edu/1007/1/monetary_delors.pdf. 142 Id. 2013] Pringle: A Paradigm Shift 161 The monetary constitution concluded by the Member States at the time of the Maastricht Treaty focused unilaterally on the prevention of such a crisis. Through the o ailout clause the Member States were thought to have irrevocably committed themselves to not helping other members of the monetary union, thereby reinforcing the fiscal discipline of all of its members. That prohibition was at the core of the design of the monetary 143 constitution implemented in the Maastricht Treaty. It was further complemented by the supervision of the fiscal policies of the member states of the monetary union through the 144 145 excessive deficit procedure and later, the Stability and Growth Pact. But the supposed rigidity of the fiscal constraints imposed by the EU Treaties progressively 146 eroded. By 2003 Germany and France had exceeded the imposed 3% deficit limit. On an initiative of the Commission, the Council issued recommendations calling on both states 147 to lower their deficits. When that objective was not met, the Council merely adopted a 148 decisio to hold the E cessi e Deficit Procedure i a eya ce for the ti e ei g. This 149 ea t the ear death of the “ta ility a d Growth Pact. With the sovereign debt crisis of , it was the o ailout” clause itself that came under threat. The European monetary constitution has gone through an existential crisis. “hould the o ailout” rule be strictly observed leading to the likely implosion of the euro and the resulting dire economic consequences - dura lex, sed lex? Or, in light of the exceptional circumstances, should the bailout prohibion of Art 125 TFEU be disregarded in order to save the EU’s most prestigious symbol, the euro - a Schmittian Ausnahmezustand? Economists had long predicted this dilemma, arguing that a strict prohibition of bailouts was not credible and 150 would in all likelihood be set aside in times of crisis. 143 Kenneth Dyson, Maastricht Plus: Managing the Logic of Inherent Imperfections, 34 J. EUR. INTEGRATION 791, 803 (2012). 144 See TFEU, supra note 3, at art. 126. 145 The Stability and Growth Pact consists of Resolution of the European Council on the Stability and Growth Pact, 1997 O.J. (C 236) 1 and Council Regulation No. 1466/97, 1997 O.J. (L 209) 1 (as amended by Council Regulation No. 1055/2005, 2005 O.J. (L 174) 1) and Council Regulation (EC) No. 1467/97, 1997 O.J. (L 209) 6 (as amended by Council Regulation No. 1056/2005, 2005 O.J. (L 174) 5). 146 See Council Decision 2003/89/EC, 2003 O.J. (L 34) 16; Council Decision 2003/487/EC, 2003 O.J. (L 165) 29. 147 See Case C-27/04, Comm’n v. Council, 2004 E.C.R. 6649, paras. 7–8. 148 Press Release, European Council, Minutes of the November 25th 2003 Meeting, available at http://europa.eu/rapid/press-release_PRES-03-320_en.pdf. 149 Alberto Alesina & Roberto Perotti, The European Union: A Politically Incorrect View, 18 J. ECON. PERSP. 27, 43 (2004). 150 See Timothy Lane, Market Discipline 3, 19 (IMF http://papers.ssrn.com/sol3/papers.cfm?abstract_id=884774. Working Paper 92/42), available at 162 German Law Journal [Vol. 14 No. 01 The conclusion of the ESMT entails the shift from a monetary constitution focusing solely on the prevention of fiscal crises to a monetary constitution that provides for both crisis prevention and crisis management. Economic reality forced political leaders to complement the Maastricht Treaty’s one-sided focus on crisis prevention (secured through the o ailout rule a d the e cessi e deficit procedure with a per a e t echa is for crisis management. A political solution was found in the balance between the granting of financial assistance to member states on the verge of bankruptcy and the reinforcement of 151 control over the fiscal policies of the member states. Whereas the former became possible with the ESMT, the latter was assured through the Fiscal Compact, which further specifies the limits within which national budgetary policy will be possible and which is to 152 be implemented in (preferably constitutional rules of) national law. The ECJ was able to accommodate this shift in the monetary constitution through the se a tic a iguity of the o ailout clause. Though the clause is universally known under that name, its literal wording merely prohibits the Union or Members States from eco i g lia le for or to assu i g the co it e ts of other Me er “tates. Based upon a teleological reading of that article the Court concluded that the provision only prohi its ailouts that di i ish the i ce ti e of the recipie t Me er “tate to conduct a 153 sou d udgetary policy. He ce, the o ailout clause—do not let the name fool you—allows bailouts when implemented in conjunction with strict conditionality. The 154 Court made numerous references to that concept, considering it the condition for the 155 compatibility of the ESMT with Union law. In Pringle the Court elegantly interpreted the o ailout clause to allow a shift fro crisis pre e tio to crisis a age e t i the EU monetary constitution. In doing so, it constitutionalized the requirement that bailouts be accompanied by strict conditionality. 5. Use of Union Institutions The Pringle ruling also lays down the criteria under which Member States may entrust tasks to the Union institutions when operating outside the Union framework. The issues concerned the status of the Bangladesh case law after the introduction of Enhanced Cooperation in the Treaty of Amsterdam and the interpretation of Art 273 TFEU. 151 See Dyson, supra note 143, at 797; see also ESM Treaty, supra note 5, at recital 5. 152 See Fiscal Compact, supra note 24, at art. 3. 153 Case Pringle, supra note 8, at para. 136. 154 See id. at paras. 69, 72, 111, 142. 155 See id. at para. 69. 2013] Pringle: A Paradigm Shift 163 The Court based its reasoning on Bangladesh and subsequent cases, confirming that they remain good law post-Amsterdam. The Member States were, therefore, entitled to e trust tasks to the Co issio a d the ECB o the co ditio that these tasks do ot alter the essential character of the powers conferred on those institutions by the EU and 156 FEU Treaties. But the possibility of relying on Bangladesh in an area where the Union itself would be competent to act appears uncertain. Indeed, the ECJ rejected the argument that the conferral of powers on the institutions in the ESMT is unlawful because the Member States had to make use of the enhanced cooperation procedure laid down in Art 20 TEU on the ground that the Member States could not have done so, as the Union 157 did not have the power to establish a mechanism such as the ESM. The Court did not give any guidance as to whether Art 20 TEU precluded the Member States from conferring powers on the institutions outside the framework of enhanced cooperation where the Union itself did have the power to act. For the first time, the Court interpreted its powers to adjudicate disputes relating to the subject matter of the Treaties on the basis of a special agreement between the Member States under Art 273 TFEU. The ECJ gave that power an expansive interpretation. The special agreement between the Member States, the Court explained, can be concluded 158 prior to the emergence of an actual dispute. The fact that the dispute arising between the Me er “tates was likely to e related to the i terpretatio of EU law ecause all measures taken under the ESMT have to be consistent with Union law satisfied the 159 requirement that the subject matter of the dispute be related to the Treaties. The link between a possible future dispute and the subject matter of the Treaties can, therefore, be examined ex ante and in general. Finally, the ECJ ruled that the requirement that the dispute e etwee Me er “tates does ot preclude a i ter atio al orga izatio — whose members are solely Member States, such as the ESM—from appearing as a party. The fact that membership of the ESM is open solely to European Union Member States 160 was significant in that regard. II. Constitutional Implications in the Wider Sense The Pringle judgment endorses a shift in the EU’s monetary constitution from crisis prevention to crisis management, when bailout funds are only granted in conjunction with the imposition of strict conditionality on beneficiary states. By making the imposition of 156 See id. at para. 158. 157 See id. at paras. 158, 167–69. 158 See id. at para. 172. 159 See id. at para. 174. 160 See ESM Treaty, supra note 5, at art. 2(1). 164 German Law Journal [Vol. 14 No. 01 strict conditionality a constitutional requirement, the Court has imported a concept with 161 controversial reputation into EU law. This constitutional shift in the narrow sense also has constitutional implications in a broader sense; the imposition of strict conditionality is sure to change the constraints within which the political bargaining of the beneficiary states take place. EU law unambiguously endorses these implications of the ESMT, which ca e co sidered to u dou tedly gi e shape to the U io legal order i a roader 162 se se. The involvement of the ESM in the symbolic project of saving the euro might thereby call into question the legitimacy of the European project itself. Below, I argue these changed political constraints might aggravate the EU’s democratic and social deficit. In addition, it might give rise to a political deficit for the Member States of the eurozone as well as the EU itself. 1. Democratic Deficit The shift of Europe’s monetary constitution is likely to have an impact on the democratic 163 deficit, which has long plagued the European project. The establishment of the ESM outside the framework of EU law places the decision-making processes of that institution 164 beyond the influence of the European Parliament. Worse still, the ESMT implies a loss of fiscal sovereignty of all ESM Members. The mere contribution of funds to the ESM makes the budget constraint within which political bargaining can take place considerably more stringent. This was stressed by the German Constitutional Court’s ruling on the 165 preliminary injunction against the ratification of the ESM. Germany’s total liability to the ESM’s authorized capital stock represe ts so e € 9 illio , ore tha % of its a ual budget. These commitments can be called-in by the ESM at any time. The German Constitutional Court found that the budgetary responsibility of the Bundestag required that that liability could not be expanded without the consent of the German Parliament. Arguably, the loss of fiscal sovereignty—and the accompanying democratic deficit—is even more dramatic for the beneficiary states. Beyond their contribution to the ESM, those states are required to meet stringent budgetary goals as a result of negotiations of doubtful democratic legitimacy with the troika. Their budgetary autonomy is thereby reduced to an attempt to achieve externally imposed goals. In addition, the specific conditions attached to financial assistance often specify which means are to be used to 161 See JOSPEH STIGLITZ, GLOBALIZATION AND ITS DISCONTENTS (2002). 162 See Lenaerts, supra note 122, at 929 (concluding conventions among Member States post-Lisbon). 163 See Joseph Weiler, The Transformation of Europe, 100 YALE L.J. 2403, 2430 (1991) (discussing the changes in Europe based on integration). 164 See European Parliament Resolution (2012/C 247 E/08), 2012 O.J. (C 247) E/22, para. 8. 165 See Bundesverfassungsgericht [BverfG - Federal Constitutional Court], Case No. 2 BvR 1390/12, Sept. 12, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 3145 (Ger.). 2013] Pringle: A Paradigm Shift 165 166 achieve those goals. Finally, the General Court jurisdiction of the ECJ has not granted requests for access to documents containing the economic expertise upon which these 167 policy prescriptions are based. Public debate on the wisdom of specific policy prescriptions is, thereby, further hampered. These factors contribute to the impression that the representatives of the IMF, the ECB, and the Commission (gathered in the troika) and not the democratically elected representatives of the people have the decisive say on the crucial policy decisions of the beneficiary states. In turn, such an impression can call 168 into question the input legitimacy of economic policy in beneficiary states, largely imposed by EU institutions. It appears that greater output legitimacy will not be able to compensate for this lack of 169 input legitimacy. The crisis-hit countries of the eurozone are still headed for recession, perhaps even depression. At least so far, the conditionality attached to bailout funds have not created the impression of resolving the crisis while at the same time creating perspectives for growth. Nobel-prize winning economist J. Stiglitz has argued that Europe’s austerity recipe will lead to e or ous sufferi g, which he ualified as 170 cri i al. Meanwhile, European leaders have not been able to put in place effective stimulus measures that can encourage growth throughout the eurozone. Although European leaders agreed on a Compact for Growth and Jobs, that agreement has not 171 fundamentally produced the economic outlook for the better. 2. Social Deficit The economic aspects of the euro crisis are indistinguishable from their social aspects. For millions of European citizens, especially in the economically troubled Member States, recession is a synonym for real wage cuts, high unemployment (especially for the young generation just entering the labor market) and rising social inequality. Yet the ESMT 166 See Kaarlo Tuori, The European Financial Crisis: Constitutional Aspects and Implications 39, 45 (European Univ. Inst., Working Paper Law 2012/28), available at http://www.eui.eu/Events/download.jsp?FILE_ID=3544. 167 See Case T-590/10, Thesing v. ECB, 2012 E.C.R. ____; Press Release, General Court of the European Union, Judgment in Case T-590/10 (Nov. 29, 2012), available at http://curia.europa.eu/jcms/upload/docs/application/pdf/2012-11/cp120156en.pdf. See Fritz W. Scharpf, Monetary Union, Fiscal Crisis and the Preemption of Democracy 36 –37 (MPIfG Discussion Paper 11/11), available at http://www.mpifg.de/pu/mpifg_dp/dp11-11.pdf. 168 169 See id. at 37. 170 See Joseph Stiglitz, After Austerity, PROJECT SYNDICATE (May 7, 2012), http://www.projectsyndicate.org/commentary/after-austerity (discussing the impact of the recent European economic policy decisions). 171 See EUROPEAN COMMISSION, IMPLEMENTATION OF THE COMPACT FOR GROWTH AND JOBS 1 (2012), available at http://ec.europa.eu/europe2020/pdf/growth_report_en.pdf. 166 German Law Journal [Vol. 14 No. 01 appears oblivious to the social aspects of the crisis, relegating them to a secondary status. The rhetoric of the Court’s ruling in Pringle does not help because it reflects a legal order concerned with its economic and monetary constitution rather than social policy. Worse still, the ECJ might refuse to enforce social rights against measures implementing ESM172 based conditionality, on the ground that they fall outside the scope of Union law. This disjunction between economic and social concerns has its reasons. For years political scientists have observed a separation between economic integration and redistributive 173 policies in the EU. Whereas economic integration was a matter for the EU, redistributive policies were left to the Member States. It was argued that economic integration would bring greater welfare to the EU as a whole. Besides, it was thought that the divergence in preferences on matters of social policy did not allow harmonization at the European level. This separation appeared legitimate as long as the project of economic integration proved to be complementary with implementation of social welfare policies at the national level. The balance between economic and social policy now appears fundamentally subverted through the imposition of strict conditionality on beneficiary states. These strict conditions attached to financial aid prevent Member States from implementing social policies in accordance with their national preferences. Instead, they are required to progressively 174 dismantle their social welfare systems, a prime target for austerity cuts. Nor is a correlative harmonization of social policies is taking place at the European level. Rather, the logic of economic integration now appears to require that beneficiaries of financial assistance dismantle of the social welfare state. The future of social Europe i the eurozo e’s economically fragile states therefore appears precarious. In the past, accession to the euro brought hope of convergence with Europe’s most prosperous economies, allowing ample margin for the extension of social welfare policies. Today the European recipe of austerity appears more likely to preclude growth, reducing the likelihood that Europe’s existing social model will be viable in the foreseeable future. Simultaneously, Europe has trouble fostering solidarity among its Member States. Instead, the ESM seems to breed resentment due to its intergovernmental nature, as it reallocates the funds of its Member States rather than 175 drawing upon genuinely European money. 172 See supra Part D.I.2. 173 See Fritz W. Scharpf, The European Social Model: Coping with the Challenges of Diversity, 40 J. COMMON MKT. STUDS. 645 (2002); see also Floris de Witte & Mark Dawson, Constitutional Balance in the European Union After the Euro-Crisis, MOD. L. REV. (forthcoming). 174 175 See Tuori, supra note 166, at 40, 46. See MATTIAS KUMM, EUROPEAN PARLIAMENT, DEMOCRATIC CHALLENGES ARISING FROM THE EUROCRISIS: WHAT KIND OF A CONSTITUTIONAL CRISIS IS EUROPE IN AND WHAT SHOULD BE DONE ABOUT IT 6–8 (2010), available at http://www.eui.eu/Events/download.jsp?FILE_ID=3543. 2013] Pringle: A Paradigm Shift 167 3. Political Deficit Europe’s response to the eurozone crisis takes place against the wider background of a power struggle between politics and the markets. Should politics regulate markets or should markets regulate politics? The interconnected nature of global financial markets has created regulatory competition between nation states, undermining their ability to regulate markets effectively. This tendency can be counteracted by the ability of Member States to join forces and regulate markets at a European level, creating a source of legitimacy for the EU. The speculative attacks of financial markets against several 176 eurozone Member States has once again brought this tension to the fore. The eurozone crisis management framework can be thought of as the lopsided European resolution of this tension. Most European states voluntarily subscribed to a policy of stringent austerity, reducing their ability to manage their economies, in the hope of avoiding problems with financial markets altogether. In beneficiary states, the troika is called upon at once to appease the markets and to ensure that—even in their absence— 177 market discipline reigns. Through this self-dise powere e t of politics in its relation with the markets, Europe is farther than ever from realizing the ideal of politics as collective self-determination. E. Conclusion The ECJ’s Pringle judgment held that the ESM, the eurozone’s crisis management mechanism, was compatible with the requirements of EU law. In its ruling, the Court asserted its power to review the validity of Decisions to amend the TFEU under the SRP. The ECJ held that the Member States had not conferred any powers to the Union to establish a mechanism such as the ESM, and hence retained the power to do so themselves. The Court endorsed the conferral of several crucial tasks by the ESMT to EU institutions, including the Court itself. Crucially, it found no incompatibility between the ESMT and EU law. It co cluded that the i fa ous o ailout clause co tai ed i Art TFEU does not preclude the promulgation of the ESMT because the ESM only grants financial assistance subject to strict conditionality and only when assistance is indispensable to the stability of the eurozone as a whole. The Pringle judgment signals that the EU’s monetary constitution, originally designed to focus solely on crisis prevention, also allows the establishment of a crisis management framework. The Court accommodated this shift in the EU’s monetary constitution by i terpreti g the o ailout clause to allow for bailouts when they do not reduce 176 See JÜRGEN HABERMAS, ZUR VERFASSUNG EUROPAS-EIN ESSAY 42 (2011). 177 See Jürgen Habermas, Heraus aus dem Teufelskreis, SÜDDEUTSCHE ZEITUNG, Sept. 22, 2012. 168 German Law Journal [Vol. 14 No. 01 incentives for sound budgetary policy. The ECJ thereby constitutionalized the requirement of strict conditionality. This focus on conditionality as a basis for the ESM’s compliance with EU law alters the rules of the game of political bargaining in beneficiary states. With these conditions comes a democratic deficit because outsiders, rather than domestic democratic, effective assume policy-making. It also implicates a social deficit because beneficiary states are forced to progressively dismantle their social welfare systems in order to meet stringent budgetary requirements. Finally, conditionality entails a political deficit because European policy-makers are collectively focusing on appeasing markets, rather than considering whether and how the requirements of the market economy can be made compatible with the ideal of democratic politics. Given the symbolic nature of a common European currency and the project of saving it, these predicaments might jointly endanger the legitimacy of the euro project. The Court’s Pringle judgment should be applauded for its flexible yet sound interpretation of the EU’s monetary constitution, empowering the Member States to save the euro currency. Simultaneously, the judgment’s focus on the constitutionalization of the ESMT’s required conditionality is in line with European politics’ partial focus on austerity and its lack of attention to other dimensions of this crisis. That might endanger the legitimacy of the euro project, especially in economically troubled eurozone countries. While Pringle will no doubt be remembered as a landmark judgment of the ECJ, it reflects Europe’s deeply troubled attempt at overcoming the eurozone crisis. Special Section The ESM Before the Courts Contradiction, Circumvention and Conceptual Gymnastics: The Impact of the Adoption of the ESM Treaty on the State of European Democracy By Jonathan Tomkin* A. Introduction This paper makes the claim that the legal framework governing the European Stability Mechanism (ESM) is contradictory, conceptually incoherent and may be characterized as a circumvention of Union law. It is further claimed that such circumvention, and the resulting establishment of a significant permanent institution outside and beyond the scope of the Union legal order, represents a challenge to European democracy and to the principle of respect for the rule of law. The paper will first provide a brief overview of the background and legal framework 1 governing the Treaty establishing the European Stability Mechanism (ESMT). It will then address recent litigation challenging the compatibility of that legal framework with obligations under Union law. Finally, it will assess how the process by which the European Stability Mechanism was established is liable to impact upon the quality of European Democracy and the integrity of the Union legal order. * Barrister-at-Law, former Director of the Irish Centre for European Law, Trinity College Dublin and Référendaire, Court of Justice of the European Union. The present paper is based on a contribution delivered at the EUDO dissemination conference on the Euro Crisis and the State of European Democracy at the European University Institute, Florence in November 2012. A member of Mr. Pri gle’s legal tea i litigatio co cer i g the E“M, the present paper though referring to and summarizing the judgment of the Court of Justice, is focused on broader constitutional and democratic implications of the legal framework governing the ESM. I wish to thank Dr Floris de Witte for his insightful comments on an earlier draft. 1 Treaty Establishing the European Stability Mechanism Between the Kingdom of Belgium, the Federal Republic of Germany, the Republic of Estonia, Ireland, the Hellenic Republic, the Kingdom of Spain, the French Republic, the Italian Republic, the Republic of Cyprus, the Grand Duchy of Luxembourg, Malta, the Kingdom of the Netherlands, the Republic of Austria, the Portuguese Republic, the Republic of Slovenia, the Slovak Republic and the Republic of Finland, 2 Feb. 2012, EUR. COMM’N DOC/12/3 [hereinafter ESMT], http://www.europeancouncil.europa.eu/media/582311/05-tesm2.en12.pdf. 170 German Law Journal [Vol. 14 No. 01 B. Background and Legal Framework The ESMT was conceived in the context of an ongoing financial crisis in Europe which is claimed to threate the ery sur i al of the U io ’s si gle curre cy, the euro. The ESM, developed as a response to this threat, is intended to safeguard the financial stability of 2 the euro area as a whole and of its Member States. The ESMT creates a mechanism by which the eurozone Member States pool their resources to ensure that individual Member States in financial difficulty possess sufficient liquidity to be able to meet their debts. The ESM has an initial authorized capital stock of €700 billion, which may be used as a security 3 against further borrowing. The initial maximum lending capacity of the ESM fund (combined with the capacity of the European Financial Stability Facility (the EFSF), an 4 existing bail-out fund) was set at €500 billion. The Euro Member States have since agreed to i crease that li it to €7 billion and to accelerate the contribution of paid-in 5 capital to the fund. The ESM can be seen as a signal to the financial markets that significant resources stand behind the debts of individual eurozone Member States. The establishment of a debt-crisis mechanism was initially proposed by a Task Force on Economic Governance set up by the European Council of 25 and 26 March 2010. In its report, dated 21 October 2010, the Task Force recommended esta lishi g a credi le crisis resolution framework for the euro area capable of addressing financial distress and 6 avoiding contagion. Agreement on the need to establish a permanent crisis mechanism 7 was announced at a European Council Meeting on 28 and 29 October 2010. In setting up such a mechanism, Member States were confronted with the challenge of identifying or creating a legal framework within which such a crisis mechanism could operate. The Union had previously operated bailout funds through a European Financial Stabilisation Mechanism (the EFSM) and a European Financial Stability Facility. The former 8 was established by Council Regulation 407/2010 on the basis of Article 122 TFEU. The 2 ESMT, supra note 1, at art. 3. 3 ESMT, supra note 1, at art. 8. 4 ESMT, supra note 1, at recital 6 & art. 39. 5 Statement of the Eurogroup (30 http://eurozone.europa.eu/media/678952/eurogroup_statement_30_march_12.pdf. Article 39 of the ESM Treaty. Mar. 2012), This alters the terms of 6 Strengthening Economic Governance in the EU: Report of the Task Force to the European Council (21 Oct. 2010), http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/117236.pdf. 7 Conclusions of the European Council (EC), 28–29 Oct. 2010 (EUCO 25/1/10 REV 1), available at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/117496.pdf. 8 Council Regulation 407/2010, Establishing a European Financial Stabilization Mechanism, 2010 O.J. (L 118) 1. 2013] Adoption of the ESM Treaty and European Democracy 171 9 latter was framed as a public limited company governed by the laws of Luxembourg. Yet, even if Article 122(2) TFEU was considered to be capable of serving as a legal basis for the EFSM, it was not clear that the provision could serve as the basis for the proposed permanent stability mechanism. Article 122(2) TFEU is expressed in restrictive terms. Its wording suggests that financial assistance may be granted only in exceptional force majeure type circumstances, such as natural disasters or comparable events the occurrence of which are beyond the control of Member States. It is not evident that Article 122(2) TFEU was intended to authorize the permanent bailout of Member States 10 facing challenges of an economic nature. This restrictive interpretation is reinforced when Article 122 TFEU is read in combination with other provisions contained in Part Three, Title VIII of the TFEU. In particular, Article 123 TFEU prohibits the European Central Bank from extending credit facilities in favor of central governments and public bodies of Member States or from the purchase of their debt instruments. Article 125 TFEU, often referred to as the o ailout clause, expressly prohibits the Union or Member States from becoming liable or assuming commitments of other Member States. Appreciating that a bailout mechanism might ot sit co forta ly i a o ailout eco o ic a d o etary U io , the Europea Cou cil i ited co sultatio o the treaty 11 change required to esta lish a per a e t sta ility echa is . Following this consultation the European Council, meeting on 16 and 17 December 2010, agreed that the TFEU should be amended and decided to effect such amendment using the simplified 12 revision procedure (SRP) provided for in Article 48(6) TEU. The SRP permits modification of Part Three of the TFEU by the adoption of a European Council Decision that must be approved by the Member States in accordance with their domestic procedures. The proposed Treaty amendment would add a new third paragraph to Article 136 TFEU authorizing euro Member States to establish a permanent stability mechanism that would operate subject to strict conditionality. European Council Decision 2011/199/EU amending 13 Article 136 of the TFEU was adopted on 25 March 2011. Pursuant to its Article 2, the 9 Registered as a Société anonyme, having a registered office 43, Avenue John F. Kennedy, L-1855 Luxembourg, ‘.C.“. Lu e ou rg B ⁰ .4 4. 10 This interpretation was confirmed by the Court of Justice in Case C-370/12, Pringle v. Ireland, ¶ 65 (27 Nov. 2012), http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62012CJ0370:EN:HTML. 11 Conclusions of the European Council, supra note 7. See also Decision 2011/199/EU, of the European Council of 25 March 2011 Amending Article 136 of the Treaty on the Functioning of the European Union with Regard To a Stability Mechanism for Member States Whose Currency Is the Euro, 2011 O.J. (L 91) 1, recital 2. 12 Conclusions of the European Council (EC), 16–17 Dec. 2010 (EUCO 30/1/10 REV 1), available at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/118578.pdf. 13 Council Decision 2011/199/EU, supra note 11. 172 German Law Journal [Vol. 14 No. 01 Decision was to enter into force once approved by all Member States and, in any event, 14 not earlier than 1 January 2013. The ESMT was negotiated at the same time as an inter-governmental agreement and a first 15 version signed on 11 July 2011. However, following its signature, the Member States considered further amendments to be necessary, and a revised draft of the ESMT was 16 concluded on 2 February 2012. At first, the ESM was to become operational in July 2013. However, it was subsequently agreed that the entry into force of the ESMT should be accelerated so that the ESM would become operational in July 2012—that is, at least half a year prior to the entry into force of the European Council Decision authorizing Member 17 States to establish a permanent stability mechanism. A number of legal challenges to the ESM were filed with the German Federal Constitutional Court, and the July 2012 date was postponed. On 12 September 2012 the German Federal Constitutional Court delivered a 18 preliminary judgment permitting Germany to proceed with ratification of the ESM Treaty. The ESMT entered into force on 27 September 2012. C. The Legal Framework Governing the ESM Treaty and Its compatibility with Union Law In addition to the challenges to the ESMT brought before the German Federal Constitutional Court, proceedings questioning the compatibility of the ESMT with national constitutional law or Union law were also instituted before the Courts in Estonia and 19 Ireland. The challenge in Ireland was instituted by Thomas Pringle, an independent 14 It is of note that it is the Decision as opposed to merely the amendment contained in the Decision that is to enter into force at the relevant date. 15 See Factsheet: Treaty Establishing the European Stability Mechanism (2 Feb. 2012), http://ec.europa.eu/economy_finance/economic_governance/documents/127788.pdf, published by the European Commission setting out the background and chronology to the adoption of the ESM Treaty. 16 Press Release, Eur. Union, European Stability Mechanism (ESM) Is Inaugurated (8 Oct. 2012), http://www.esm.europa.eu/press/releases/20121008_esm-is-inaugurated.htm. The July 2013 date is also mentioned on the website of the European Commission at: Treaty Establishing European Stability Mechanism (ESM) Signed (11 Jul. 2011), http://ec.europa.eu/economy_finance/articles/financial_operations/2011-07-11esm-treaty_en.htm. 17 Factsheet, supra note 15. 18 Bundesverfassungsgericht [BVerfG] [Federal Constitutional Court] Case Nos. 2 BVR 1390/12, 2 BVR 1421/12, 2 BVR 1438/12, 2 BVR 1439/12, 2 BVR 1440/12 & 2 BVE 6/12, 12 Sept. 2013 (Ger.), available at http://www.bundesverfassungsgericht.de/pressemitteilungen/bvg12-067en.html. For further details, see contributions in this special edition from Susanne K. Schmidt and Karsten Schneider. 19 Riigikohus [Supreme Court], Judgment No. 3-4-1-6-12, 12 July 2012 (Estonia), available at http://www.riigikohus.ee/?id=1347; Pringle v. Ireland, [2012] I.E.S.C. 47, Case No. 339/2012 (Ir.), available at http://www.supremecourt.ie/Judgments.nsf/frmSCJudgmentsByYear?OpenForm&l=en (pending before the Supreme Court of Ireland). Certain aspects of the case have already been subject to rulings by the Supreme Court. 2013] Adoption of the ESM Treaty and European Democracy 173 Member of Parliament and resulted in a reference for a preliminary ruling by the Irish 20 Supreme Court. That Court sought clarification on three points: (1) The validity of the European Council Decision of 25 March 2011; (2) whether the provisions of the ESMT were compatible with Me er “tates’ o ligatio s u der the U io Treaties; a d whether the entry into force of the ESMT was subject to the prior entry into force of the European Council Decision authorizing Member States to establish a permanent stability mechanism. It is clear that, in establishing a permanent stability mechanism, the European Council and the Member States were confronted with a significant legal obstacle. How could the Union or the Member States establish a bailout fund when it appeared that bailouts were expressly prohibited by the Union Treaties? It is worth recalling that the prohibition on bailouts, originally agreed as part of the 1992 Maastricht Treaty, may not easily be dismissed as the product of some kind of oversight. On the contrary, it is apparent from records of the negotiations that Member States intentionally agreed that the particular 21 for of Eco o ic a d Mo etary U io esta lished would e a o ailout EMU. This approach had been agreed and ratified by democratically mandated Governments of the Member States. In his challenge to the compatibility of the ESM Treaty, Pringle argued that an institution established to carry out economic and monetary activities with the objective of saving the 22 U io ’s si gle curre cy ust e esta lished within the Union. He observed that both the European Parliament and the European Central Bank favored establishing the ESM within 23 the Union. In its Opinion on the European Council Decision, the European Parliament warned that establishing a permanent stability mechanism outside the EU institutional 20 Pringle v. Ireland, supra note 19, Ruling of the Supreme Court of Ireland, Chief Justice Denham, 31 July 2012, available at http://www.courts.ie/__80256F2B00356A6B.nsf/0/E7504392B159245080257A4C00517D6A?Open&Highlight=0,P ringle,~language_en~. The Reference is available at: http://www.courts.ie/__80256F2B00356A6B.nsf/0/E44922F2B6DBED2F80257A4C00570284?Open&Highlight=0,P ringle,~language_en~. 21 See e.g., Euro. Parl., EP Analytical Summary of the Debates on EMU for the ICG (11 June 1991), available at http://ec.europa.eu/economy_finance/emu_history/documentation/chapter13/19910611fr14analyticalsummar y.pdf (Available only in French; these are the records of the proceedings of the Inter-Institutional Conference on Economic and Monetary Union accompanying the Intergovernmental Conferences, held on Tuesday 11 June 1991). See also the records of the Monetary Committee, working on the preparation of the Maastricht Treaty. 22 Observations of Pringle, at page 7, in Case C-370/12, Pringle v. Ireland, 2012 EUR-Lex CELEX LEXIS 0000 (27 Nov. 2012). The Observations of Pringle are available at http://www.extempore.ie/wp-content/uploads/2012/10/C370.12-Observations-of-T.Pringle-as-filed-2.pdf. This position rests on arguments concerning competence of Union in economic and monetary policy set out in pages 20 to 28 of the submissions. 23 Observations of Pringle, supra note 22, at 7. 174 [Vol. 14 No. 01 German Law Journal 24 framework posed a risk to the integrity of the Treaty-based system. The European Parliament further expressed regret that the European Council had not explored all the possibilities contained in the Treaties for establishing a permanent stability mechanism 25 within the Union legal order. The ECB similarly expressed support for recourse to the 26 U io ethod. Nevertheless, the Heads of State or Government of the eurozone opted to establish the ESM by means of an intergovernmental treaty outside the framework of the Union legal order. In his submissions Pringle argued that this approach was adopted as a means of o erco i g the TFEU’s prohi itio o ailouts. This view was corroborated by observations lodged by Member States before the Court of Justice. A number of interveners sought to rely on the international status of the ESM to argue that it would not 27 be subject to Union law or the prohibition on bailouts in particular. Pringle argued that 24 European Parliament Resolution of 23 March 2011 on the Draft European Council Decision Amending Article 136 of the Treaty of the Functioning of the European Union with Regard to a Stability Mechanism for Member States Whose Curr ency Is the Euro, E U R . P A R L . D O C . P7_TA(2011)0103, available at http://www.europarl.europa.eu/sides/getDoc.do?pubRef=//EP//NONSGML+TA+P7-TA-2011-0103+0+DOC+PDF+V0//EN. At paragraph 7 the Europea Parlia e t Warns that the intention to establish the permanent stability mechanism outside the EU institutional framework poses a risk to the integrity of the Treaty-based system . . . . 25 Resolution of the European Parliament of 23 March 2011, supra note 24. Paragraph 9 states the European Parliament: Regrets that the European Council has not explored all the possibilities contained in the Treaties for establishing a permanent stability mechanism; considers in particular that, in the framework of the present Union competences with regard to economic and monetary union (Article 3(4) TEU) and monetary policy for Member States whose currency is the euro (Article 3(1)(c) TFEU), it would have been appropriate to make use of the powers conferred on the Council in Article 136 TFEU, or in the alternative to have recourse to Article 352 TFEU in conjunction with Articles 133 and 136 TFEU . . . . 26 Opinion of the European Central Bank of 17 March 2011 on a Draft European Council Decision Amending Article 136 of the Treaty on the Functioning of the European Union with Regar d to a Stability Mechanism for Member States Whose Currency Is the Euro , at para. 8, 2011 O.J. (C 140) 8, 9. Paragraph 8 observes: A key element of the draft decision is that it provides for an intergovernmental mechanism instead of a Union mechanism. The ECB supports recourse to the Union method and would welcome that, with the benefit of the experience gained, the ESM would become a Union mechanism at an appropriate point in time. 27 Observations of Cyprus, Ireland & Austria in Pringle v. Ireland, supra note 22 (on file with author). Cyprus states: [T]he prohibition in Article 125 TFEU relates to the Union and the Member States, not to a third party such as the ESM, which has a legal personality distinct from Member States . . . . The Government of Ireland submitted at paragraph 72 of its observations that The Article TFEU prohi itio applies to [a] Me er “tate , while the E“M will e a i ter atio al fi a cial i stitutio . The ESM will have legal personality, which will be separate and distinct from the ESM Members . . . . Austria su itted that Article 122 TFEU expressly relates 2013] Adoption of the ESM Treaty and European Democracy 175 the notion that Member States may collectively step outside of the Union in order to carry out—on a permanent basis—activities that otherwise would be prohibited inside of the Union is difficult to reconcile with Union law or indeed with a Union founded on the rule of law. The Union legal order rests on a number of principles that are constitutional in nature and that have been developed by the European Court of Justice (ECJ) in case-law spanning six decades. Such principles may be regarded as the conceptual backbone of Union law. They provide a consistent framework through which the extremely diverse legal and factual contexts that arise in the Union legal order may be approached and examined. These co stitutio al pri ciples i clude: The doctrine of supremacy and the direct effect of Union law; respect for general principles of Union law, including the principles of legal certainty and non-retroactivity; the principle of effective judicial protection; and rules on the division of competences within the Union legal order as well as the principle of sincere cooperation. In his action, Pringle maintained that the establishment of the ESM outside the Union legal order was inconsistent with a number of these constitutional principles. First, he argued that it followed from the principle of supremacy and loyal cooperation that, if the Union Treaties prohibit Member States from engaging in a particular activity, then that prohibition applies to Member States regardless of the legal framework in which they operate, and in particular, regardless of whether they are acting inside or outside the 28 Union. Pringle observed that the ECJ has consistently held that the principle of loyalty precludes a Member State from entering into international agreements that would be 29 incompatible with its obligations under the Union Treaties. Pringle argued that if the Treaties prohibit bailouts inside the Union, then such bailouts are also prohibited outside the Union. Second, Pringle submitted that, according to settled case-law, Member States were not merely prohibited from breaching Union law directly, but from tolerating breaches through 30 the intermediary of organizations set up or recognized by them. He noted that the ECJ only to the Union. An international organisation such as the ESM is therefore not covered by that provision, especially since, furthermore, the Union is not a contracting party . . . . 28 Observations of Pringle, supra note 22, at 37–40. Express reference was made to Case 22/70, Co Council, 1971 E.C.R. 263. ’ . 29 Observations of Pringle, supra note 22, at 38, para. 3.97. Reference was made to Case C-307/97, Compagnie de Saint-Gobain v. Finanzamt Aachen-Innenstadt, 1999 E.C.R. I-6161, paras. 33 & 34; Case C-55/00, Gottardo v. Istituto nazionale della previdenza sociale, 2002 E.C.R. I-413, paras. 33 & 34; and Case C-376/03, D. v. Inspecteur van de Belastingdienst/Particulieren/Ondernemingen buitenland te Heerlen, 2005 E.C.R. I-5821, para. 52. 30 Observations of Pringle, supra note 22, at 34–38, paras. 3.85 & 3.91. Reference was made to Case 50/76 Amsterdam Bulb v. Produktschap voor Siergewassen, 1977 E.C.R. 137, para. 35. 176 German Law Journal [Vol. 14 No. 01 has consistently held that breaches of Union law by entities under the decisive control of 31 Member States may be attributed to the relevant Member States. Third, Pringle argued that the legal framework establishing the ESM was incompatible with the principle of the division of competences delimiting the boundaries between the Union 32 legal order and that of its Member States. He submitted that it was well established that the U io a d the Me er “tates are re uired to respect each other’s co pete ces a d that, i this co te t, Me er “tates are su ject to special duties of action and 33 abstention to e sure that they do ot e croach upo U io co pete ces. The Union is 34 conferred with exclusive competence in the field of monetary policy and shared 35 competence in the field of economic policy. Pringle argued that the Union has been conferred with and exercises a substantial degree of economic coordinating competence in 36 relation to measures that concern the single currency. Moreover, it was recalled that the TFEU expressly requires that the coordination of economic policy take place within the 31 Case 249/81, Co ’ v. Ireland, 1982 E.C.R. 4005; Joined Cases 67, 68 & 70/85, Van der Kooy BV v. Co ’ , 1988 E.C.R. 219; Case C-188/89, Foster v. British Gas, 1990 E.C.R. I-3313; Case C-306/97, Connemara Machine Turf Co. v. Coillte Teoranta, 1998 E.C.R. I-8761; and Case C-325/00, Co ’ v. Germany, 2002 E.C.R. I-9977. See also, by analogy, Case C-196/04, Cadbury Schweppes . Co ’rs of I la d ‘e e ue, 2006 E.C.R. I-7995, concerning creation of legal structures designed to avoid tax. The decisi e co trol test was advocated by Advocate General Van Gerven in his Opinion in Foster v. British Gas, 1990 E.C.R. at I-3313 32 Observations of Pringle, supra note 22, at 20–28, 50, para. 3.146. 33 Observations of Pringle, supra note 22, at 52, para. 4.3. Case C-266/03, Co ’ v. Luxembourg, 2005 E.C.R. I4805. See also Case C-433/03, Co ’ v. Germany, 2005 E.C.R. I-6985, paras. 57 & 59; and Case 22/70, Co ’ . Council (European Agreement on Road Transport) [AETR], 1971 E.C.R. 263. 34 Consolidated Version of the Treaty on the Functioning of the European Union art. 3(1)(c), 5 Sept. 2008, 2008 O.J. (C 115) 47 [hereinafter TFEU]. 35 TFEU art. 2(3). Koen Lenaerts, P i e t Van Nuffel, R o b e r t B r a y & N a t h a n C a m b i e n , European Union Law ¶ 7 - 0 2 3 ( 3 d e d . 2 0 1 1 ) ( Since all competences outside the areas referred to in Arts 3 and 6 are shared by the Union with the Member States (see TFEU art.4(1)) [the coordination of the economic and employment policies of the Member States] can only be classified as falling within the general category of shared competences. ). 36 See, e.g., Council Regulation (EC) No 1466/97 of 7 July 1997 on the Strengthening of the Surveillance of Budgetary Positions and the Surveillance and Coordination of Economic Policies, 1997 O.J. (L 209) 1, as amended by Regulation (EU) No 1175/2011 of the European Parliament and of the Council of 16 November 2011, 2011 O.J. (L 306) 12; Regulation (EU) No 1173/2011 of the European Parliament and of the Council of 16 November 2011 on the Effective Enforcement of Budgetary Surveillance in the Euro Area, 2011 O.J. (L 306) 1; Regulation (EU) No 1174/2011 of the European Parliament and of the Council of 16 November 2011 on Enforcement Measures To Correct Excessive Macroeconomic Imbalances in the Euro Area, 2011 O.J. (L 306) 8; Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the Prevention and Correction of Macroeconomic Imbalances, 2011 O.J. (L 306) 25. See also Council Regulation (EC) No 1467/97 of 7 July 1997 on Speeding up and Clarifying the Implementation of the Excessive Deficit Procedure, 1997 O.J. (L 209) 6, as amended by Council Regulation No 1177/2011 of 8 November 2011, 2011 O.J. (L 306) 33. 2013] Adoption of the ESM Treaty and European Democracy 177 37 Union. Pringle submitted the nature of monetary and economic competences conferred on the Union was consistent with the fact that the euro constitutes a core element of EMU and an intrinsic and fundamental part of the Union Treaties. Pringle concluded that having regard to the principle of the division of competences, and the specific competences of the Union in economic and monetary policy, it is anathema that an entity entrusted with stabilizing the euro currency could be established outside the Union legal order and would be able to dictate conditions that will be imposed on Member States in matters so fundamental and integral to the Union as its economic policy and its 38 currency. Moreover, he argued that creating the ESM by means of an international treaty largely removed the institution from the legislative, judicial and democratic safeguards that formed an integral part of the Union legal order. Fourth, Pringle submitted that the legal framework governing the ESM Treaty was inconsistent with the principle of legal certainty and non-retroactivity. He claimed that it was clear from the wording of the European Council Decision and of the October 2010 European Council Conclusions that the Member States and the European Council considered that the establishment of an institution such as the E“M re uired Treaty change. Moreover, he noted that even the ESM appeared to attribute its foundation to 39 the authorization contained in the Treaty amendment. Yet the Institutions and Member States nevertheless considered it was permissible to launch the ESMT even prior to the approval of the TFEU amendment by all Member States and prior to that amendment 40 entering into force. Finally, Pringle argued that amendment of the Treaties to permit bailouts ought to have 41 been carried out using the ordinary revision procedure. He asserted that the SRP 37 TFEU art. 5(1). 38 Expressed in Oral observations on behalf of Pringle at the hearing of 23 Oct. 2012 (on file with author). 39 On its own website, the ESM expressly referred to the amendment to the TFEU as its legal basis. See European Stability Mechanism, Frequently Asked Questions About the European Stability Mechanism (ESM), EUR. STABILITY MECHANISM (8 Oct. 2012), http://www.esm.europa.eu/pdf/FAQ%20ESM%2008102012.pdf. In reply to the uestio What is the legal asis of the E“M a d how was it esta lished? it is stated that the European Council agreed that the Treaty on the Functioning of the European Union (TFEU) should be amended in order for a permanent mechanism—the European Stability Mechanism—to be established by the Member States whose currency is the euro to safeguard the financial stability of the euro area as a whole. The amendment (in Article of the Treaty was adopted y the Europea Cou cil o March . Although, this assertion was subsequently withdrawn and references to the European Council Decision removed. This revised explanation of the legal basis is available at European Stability Mechanism, Frequently Asked Questions About the European Stability Mechanism (ESM), EUR. STABILITY MECHANISM (12 Nov. 2012), http://www.esm.europa.eu/pdf/FAQ%20ESM%2012112012.pdf. 40 Observations of Pringle, supra note 22, at 18–19, paras. 3.6–3.10. 41 Observations of Pringle, supra note 22, at 54, para. 5.4. 178 German Law Journal [Vol. 14 No. 01 represents an exception to the general rules governing Treaty amendment and that its scope should be interpreted restrictively. He further argued that the substance of the 42 amendment did not respect substantive limits imposed on the SRP by Article 48(6) TEU. In their turn, the intervening Institutions and Member States essentially argued that the European Stability Mechanism is a funding facility that is a matter of economic policy and 43 not monetary policy. As a consequence, it was to be qualified as an activity in respect of which competence is shared between the Member States and the Union. The intervening Institutions and Member States further submitted that Member States retained competence over the provision of financial assistance to safeguard the euro and therefore were free to establish a stability mechanism outside the framework of the Union legal 44 order. The intervening Institutions and Member States also argued that the granting of financial assistance under the ESM was subject to strict conditions, including a repayment obligation and did not amount to the assumption of liability that would be prohibited by 45 Article 125 TFEU. Moreover, it was argued that provisions of EMU that are concerned with the overall objective of establishing and promoting a single currency should not be 46 interpreted in a manner that would threaten its survival. The intervening Institutions and Member States also considered that it was permissible to amend Article 136(3) TFEU by means of the SRP because the relevant European Council Decision did not increase the 47 competences of the Union. The intervening Institutions and Member States also defended the entitlement to launch the ESM in advance of the entry into force of the amendment to the TFEU. They claimed that the proposed amendment was not in fact necessary and did not constitute a legal 42 Observations of Pringle, supra note 22, at 55, paras. 5.6, 5.7. 43 Observations of Ireland, para. 78, in Pringle v. Ireland, supra note 22 (on file with author). See also, Observations of Greece, para. 24, in Pringle v. Ireland, supra note 22 (on file with author); Observations of France, para. 67, in Pringle v. Ireland, supra note 22 (on file with author); Observations of Cyprus, para. 52, in Pringle v. Ireland, supra note 22 (on file with author); and Observations of the Netherlands, paras. 46–56, in Pringle v. Ireland, supra note 22 (on file with author). 44 See Observations of Austria, para. 24, in Pringle v. Ireland, supra note 22 (on file with author), and Observations of the European Commission, para. 78, in Pringle v. Ireland, supra note 22 (on file with author). 45 See Observations of Austria, supra note 44, para. 27, and Observations of the European Commission, supra note 44, paras. 69–72. 46 See Observations of Germany, in Pringle v. Ireland, supra note 22 (on file with author), and Observations of the Netherlands, supra note 43, paras. 60–66. 47 See, e.g., Observations of Germany, supra note 46, para. 77, and Observations of the European Commission, supra note 44, para. 97. 2013] Adoption of the ESM Treaty and European Democracy 179 basis for the establishment of the ESM. They argued that it merely served to clarify and 48 co fir Me er “tates’ e isti g co pete ce to esta lish the E“M. In its judgment, the ECJ upheld the entitlement of Member States to participate in the ESMT as well as the validity of the European Council Decision amending Article 136 49 TFEU. First, approachi g the o ailout clause e shri ed i Article TFEU fro a teleological perspective, the Court concluded that it did not prohibit the granting of 50 financial assistance by the ESM. The Court observed that the prohibition on bailouts sought to ensure that Member States remain subject to the logic of the market when they 51 enter into debt so as to ensure that budgetary discipline is maintained. In this regard, the Court noted that financial assistance granted by the ESM was subject to conditions, 52 and the recipient Member State remained liable for its own debts. Article 125 TFEU was therefore considered not to preclude financial assistance to Member States under the ESM, as such assistance did not diminish the incentive of the recipient Member State to 53 conduct a sound budgetary policy. Moreover, the Court clarified that financial assistance could only be granted when indispensible to safeguard the stability of the Euro 54 area as a whole. The ECJ agreed with the intervening Member States and Institutions that the ESM was not 55 an instrument of monetary policy. The Court noted that the defining feature of monetary policy was the maintenance of price stability. Although acknowledging that the 56 activities of the ESM could affect price stability, the Court held this was not its purpose. 57 The Court observed that the ESM falls within the area of economic policy, which is not an area in which the Union has exclusive competence. Considering that the Union Treaties did not confer any specific power on the Union to establish a stability mechanism such as the ESM Treaty, the Court concluded that it was permissible for the Member 48 See, e.g., Observations of Germany, supra note 46, para. 77, and Observations of the European Commission, supra note 44, para. 97. 49 Pringle v. Ireland, supra note 22. 50 Id. at paras. 129–47. 51 Id. at para. 136. 52 Id. at paras. 137–38, 41, 43 & 45. 53 Id. at paras. 136–38. 54 Id. at para. 142. 55 Id. at paras. 53–57. 56 Id. at para. 56. 57 Id. at para. 60. 180 German Law Journal [Vol. 14 No. 01 58 States to create such a mechanism outside the Union. Even if it may be argued that the Union could have created such a mechanism within the Union pursuant to general powers provided for in Article 352 TFEU, the Court observed that the Union had not exercised 59 such powers and was not obliged to have done so. Finally, the Court noted that since the Treaties did not at present preclude Member States participating in the ESM, Member States could ratify the Treaty without it being necessary to await the entry into force of the European Council Decision amending Article 136 60 TFEU. D. The Impact of the ESM Treaty on European Democracy It is suggested that even if the legal framework governing the ESM has been held to be compatible with obligations enshrined in the EU Treaties, the process by which the Member States and the European Council established the European stability mechanism may be characterized as a circumvention of Union law which is liable to have an adverse effect on the integrity of the Union legal order and to the quality of European Democracy. This claim rests on three principal arguments. First, it is normatively incoherent to use intergovernmental treaties to side-step restrictions and obligations contained in the Union Treaties. Second, it is conceptually incoherent to regulate matters of fundamental and intrinsic concern to the EU Treaties outside the Union legal order. Third, the establishment and operation of an important institution outside the constitutional framework of the Union and beyond the reach of its citizens (and the rights they are guaranteed under the Charter) is inconsistent with the principle of democratic governance. Each of these arguments will be considered in turn. I. Normative Incoherence in Establishing the ESM Outside the Union Legal Order The establishment and operation of the ESM outside the Union legal order represents a challenge to the scope and authority of binding EU Treaty norms. Article 123 TFEU expressly prohibits the European Central Bank or the central banks of other Member States from granting overdraft facilities or any other type of credit facility to public authorities and bodies of the Union and of Member States from purchasing directly 61 from them their debt instruments. Yet the Member States have established, outside the 58 Id. at paras. 64–68. 59 Id. at para. 67. 60 Id. at paras. 183–85. 61 Id. at para. 123. 2013] Adoption of the ESM Treaty and European Democracy 181 framework of the Union Treaties, a new autonomous institution, the essential function of which is to provide loans to Member States and to purchase their debt instruments on the primary and secondary markets. The ECJ confirmed that as Article 123 TFEU is addressed specifically to the ECB and to the central banks of the Member States, it does not prohibit 62 such assistance by a group of Member States. Nevertheless, even if not prohibited, it is difficult to escape the conclusion that the establishment of a financial institution outside the Union that operates in liaison with and parallel to the ECB and is entrusted with carrying out precisely the activities that the ECB is prohibited from carrying out, constitutes a circumvention of the spirit of the prohibition contained in Article 123 TFEU. Equally, the so-called o ailout clause enshrined in Article 125 TFEU has now been i terpreted to per it a €7 illio ailout fu d i circu sta ces where prohi itio o bailouts was found not in secondary legislation, but enshrined in a provision of primary Treaty law. It is clear that the i clusio of the o ailout clause i the Maastricht Treaty was i te ded to pro ide a clear sig al to the fi a cial arkets that neither the Community 63 nor the other Me ber “tates stand behind a Me ber “tate’s debts. But this is precisely what the ESM will do. In its judgment in Pringle the EC held that the Me er “tates’ o ligatio u der the E“M to grant financial assistance or to cover Member States failure to make contributions into 64 the ESM Fund does not constitute a guarantee or even an assumption of commitments prohibited by Article 125 TFEU essentially because the primary debtor remains liable for its 65 debts and that financial assistance was subject to conditions. However, such a position implies the premise that a defining characteristic of a guarantee is that it absolves a primary debtor of its debtor status. However, the creation of a guarantee does not 66 necessarily or even ordinarily affect the primary liability of a debtor. The defining feature of a guarantee is that it provides creditors with an alternative source of redress in the e e t of a de tor’s default. A guarantor is under an obligation to assume the financial co it e ts of a de tor’s de t regardless of the fact that the i itial a d pri ary duty of 62 Id. at paras. 123–28. 63 See records of the Monetary Committee, working on the preparation of the Maastricht Treaty, cited by the Commission. 64 Pringle v. Ireland, supra note 22, paras. 144–45, referring to obligations under ESMT, supra note 1, at art. 25(2). 65 Pringle v. Ireland, supra note 22, paras. 138, 45. 66 See, e.g., GERALDINE MARY ANDREWS & RICHARD MILLETT, LAW OF GUARANTEES (6th ed. 2012). At paragraph 1-005, the authors o ser e that The esse tial disti guishi g feature of a co tract of guara tee is that the lia ility of the guarantor is always ancillary, or secondary, to that of the principal, who remains pri arily lia le to the creditor. At paragraph 1, the authors defi e suretyship as [T]he generic term given to contracts by which one person (the surety) agrees to answer for some existing or future liability of another (the principal) to a third person (the creditor , a d y which the surety’s lia ility is in addition to, and not in substitution for, that of the pri cipal. (emphasis added). 182 German Law Journal [Vol. 14 No. 01 payment remains with the debtor. In other words, the fact that a primary debtor is legally liable for a debt does not mean that the guarantor called upon to pay that debt is not assu i g the de tor’s fi a cial urde . Moreover, in practice, the provision of financial assistance on the scale envisaged by the ESMT will always be subject to conditions. It is practically and politically inconceivable that Member States would directly and fully assume such financial burden without imposing any conditions on the recipient Member State. To suggest that Article 125 TFEU was only intended to prohibit unconditional indemnities that fully absolve a debtor Member State of its liability for debts would significantly restrict its scope of application. Perhaps it was for this reason that the Court was careful to limit the permissibility of providing financial assistance to circumstances in which it is indispensable for the safeguarding of the financial 67 stability of the euro as a whole. Yet, even this limitation finds no basis in the text of Article 125 TFEU. That provision does not in any way qualify the prohibition on granting financial assistance depending on the particular purpose of such financial assistance. In the context of the Pringle case, a number of interveners argued that the Union Treaty provisions and prohibitions on financial assistance laid down in Articles 122 and 125 TFEU referred to the Union and the Member States alone and not to independent entities they 68 might choose to create. Therefore, even if Article 125 TFEU prohibited the granting of financial assistance for the purposes of safeguarding the euro, such prohibition would not in any event extend to the ESM, which, as an international organization, possessed distinct 69 legal personality and was not subject to Union law. Ultimately, the ECJ did not have to address this particular argument because it found that Article 125 TFEU did not prohibit the kind of financial assistance envisaged by the permanent stability mechanism. Nevertheless, the nature and tenor of such arguments lend support to the view that the establishment of the ESM outside the Union legal order was considered to facilitate the circumvention of the prohibition of bailouts in the Union legal order. This interpretation of Union law would be inconsistent with the principle of 70 supremacy of Union law and incompatible with the authority of the EU legal order. Indeed, the ECJ emphasized that, in operating outside the Union, the Member States were not performing functions that were prohibited inside the Union. The Court noted that, 67 Pringle v. Ireland, supra note 22, para. 136. 68 Observations of Cyprus, Ireland & Austria, supra note 27. 69 Id. 70 See, for example, the approach of the Court of Justice of the European Union (ECJ) in Amsterdam Bulb v. Produktschap voor Siergewassen, supra note 30, at para. 35; Case 106/77, Amministrazione delle Finanze dello Stato v. Simmenthal, 1978 E.C.R. I-629, para. 14; and Case C-135/08, Rottman v. Freistaat Bayern, 2010 E.C.R. I-1449, para. 41. 2013] Adoption of the ESM Treaty and European Democracy 183 even when acting in areas of reserved competence, Member States must ensure that these 71 competences are exercised in conformity with Union law. Finally, proceeding outside the framework of the Union Treaties facilitated the circumvention of the requirement to amend the TFEU using the ordinary revision procedure, which would have entailed the establishment of a Convention and the participation of representatives of national parliaments. Article 48(6) TEU restricts the use of the SRP to amendments that do not increase the competence of the Union. An amendment authorizing the Union to provide bailouts would, however, have entailed an increase in the competences of the Union, since no such entitlement presently exists in the 72 Union Treaties, and consequently the SRP could not have been used. It is submitted that the decision to establish the ESM outside the EU legal order was intended to permit Member States to circumvent provisions prohibiting or restricting the granting of financial assistance by Member States or by the ECB. In addition, it facilitated Member States to side-step the requirement to amend the Union Treaties using the ordinary revision procedure. Taken cumulatively, the use of international agreements to bypass or circumvent provisions of Union law may be regarded as challenging the normative coherence of the Union legal order. II. Conceptual Incoherence in Establishing the ESM Outside the Union Legal Order The U io ’s si gle curre cy is at the core of EU eco omic and monetary Union and forms a fundamental and intrinsic part of the Union legal order. Article 3(4) TEU expressly entrusts the Union with establishing an economic and monetary union with the euro as its currency. To this end, the Treaty confers the Union with exclusive competence in monetary policy for 73 eurozone Member States. While economic policy is a field of shared competence, Member States are required to exercise their residual competence with a view to achieving 74 the objectives of the Union, which include EMU. Article 5(1) TFEU expressly requires that Me er “tates coordi ate their eco o ic policies withi the U io . It is clear from Articles 119 TFEU that the activities of both the Union and Member States include the adoption of an economic policy that is ased o the close coordi atio of Me er “tates’ economic policies, as well as on the internal market and on defined common objectives. 71 Pringle v. Ireland, supra note 22, paras. 69, 124, 126. 72 It is noteworthy that this point was also identified by the ECJ at the hearing of the Pringle case on 23 October 2012. The Court inquired whether the establishment of the ESM outside the Union legal order could not reasonably be regarded as a circumvention of the requirement to amend the Treaties using an ordinary revision procedure. 73 Treaty on European Union, 7 Feb. 1992, 1992 O.J. (C 191) 1, art. 3(1)(c) [hereinafter TEU]. 74 TFEU art. 120, read in combination with TEU art. 3(4). 184 German Law Journal [Vol. 14 No. 01 Article 119(2) TFEU clarifies that these activities also include the single currency and the definition and conduct of a single monetary policy and exchange-rate policy. Article 136(1) TFEU confers upon the Union the competence to adopt measures specific to the Member States the currency of which is the euro in order to ensure the proper functioning of economic and monetary Union. The Union has made extensive use of the competence afforded to it in adopting a series of measures designed to strengthen economic 75 governance of the Union. It is clear from these provisions that economic and monetary Union and the effective functioning of the eurozone is a matter falling within the scope of Union law. It is equally clear that, while the ESM may provide financial assistance to specific Member States, it is essentially concerned with preserving the stability of the U io ’s si gle curre cy a d the 76 euro area as whole. Given the fundamental and intrinsic place of economic and monetary union within the EU treaties, it is conceptually incoherent for a mechanism that is intimately concerned with the preservation and functioning of that union to be established and to operate outside the Union legal order. In Pringle the ECJ observed that the Union Treaties do not confer any specific power on the Union to establish a funding mechanism as envisaged by the European Council Decision. Indeed, the absence of such an express power is to be expected in circumstances where the provision of financial assistance had been expressly prohibited by Article 125 TFEU. However, the mere fact that a specific legal basis for establishing a funding facility does not exist in Union law, does not mean that it is appropriate for such a mechanism to be established outside the EU legal order once the mechanism relates to a matter that is of intimate concern to the Union Treaties and where that mechanism could have been established using more general powers conferred on the Union. It will be recalled that the European Parliament expressed regret that the European Council had not explored all the possibilities contained in the Treaties for establishing a permanent stability 77 mechanism within the Union legal order. Having regard to the present Union 78 competences concerning economic and monetary union and monetary policy for 79 eurozone Member States, the Parliament considered it would have been appropriate to make use of the powers conferred on the Council in Article 136 TFEU, or, in the 75 See, e.g., Council Regulation (EC) No 1466/97, supra note 36, as amended by Regulation (EU) No 1175/2011, supra note 36; Regulation (EU) No 1173/2011, supra note 36; Regulation (EU) No 1174/2011, supra note 36; a n d Regulation (EU) No 1176/2011, supra note 36. See also Council Regulation (EC) No 1467/97, supra note 36, as amended by Council Regulation No 1177/2011, supra note 36. 76 Pringle v. Ireland, supra note 22, para. 136; ESMT, supra note 1, at art. 3. 77 See Resolution of the European Parliament of 23 March 2011, supra note 24. 78 TEU art. 3(4). 79 TFEU art. 3(1)(c). 2013] Adoption of the ESM Treaty and European Democracy 185 alternative, to have recourse to Article 352 TFEU in conjunction with Articles 133 and 136 TFEU. I its Opi io the ECB e ually supported recourse to the U io ethod. The approach advocated by the European Parliament would have been more consistent with the competences of the Union in the field of economic and monetary policy. It is well established that in areas of shared competence, Member States may only exercise their 80 competence to the extent that the Union has not exercised its competences. Given that Member States conferred competence upon the Union to ensure the proper functioning of economic and monetary Union, and that such competence has been exercised, the Union framework could have and ought to have been used to safeguard the stability of the eurozone area. Such an approach would moreover have ensured the incorporation of legislative, judicial and democratic safeguards that form part of the Union legal order. III. Implications of Establishing the ESM Outside the Union Legal Order on Democracy and the Rule of Law The Union is a highly complex political entity that mediates and balances numerous and varying interests of different Institutions, of the Member States as well of different civil and political groupings within the Member States. Dawson and De Witte have argued that the U io ’s respo se to the euro-crisis has significantly altered the Constitutional balance 81 upo which the U io ’s sta ility is premised. These commentators note that, in the context of the Union legal order, the doctrine of institutional balance ensures that the generation of legal norms takes account of three distinct sets of interest: Individual EU citizens (represented by the European Parliament); sovereign States (represented by the Council); and the supra-national interests (represented by the Commission). They further o ser e that the legislati e process offers ultiple foru s through which the citize ’s interests can be articulated ensuring that citizens have authorship over the norms that bind them. Dawson and De Witte conclude that the balance between the different Union i stitutio s’ decisio s a d their differe t prerogati es withi the decisio -making process ultimately ensures the legitimacy of the law-making process and serves to stabilize the 82 U io ’s role as a supra-national setting for the generation of binding norms. The establishment of the ESM by way of an intergovernmental treaty outside the framework of the Union Treaties means, however, that the activities of the ESM are no longer subject to the legislative and democratic safeguards that are inherent in the Union legal order. 80 TFEU art. 2(2). 81 Mark Dawson & Floris de Witte, Constitutional Balance in the EU After the Euro-crisis, 76 MOD. L. REV. (forthcoming 2013). 82 Id. at 10–11. German Law Journal 186 [Vol. 14 No. 01 First, as mentioned above, the creation of the ESM institution as an intergovernmental treaty has side-stepped the requirement for Member States to amend the Union Treaties using the ordinary revision procedure. Instead, it was possible for the European Council to introduce an amendment through the adoption of a Decision in accordance with the simplified revision procedure provided for under Article 48(6) TEU. It may be perfectly comprehensible for Member States in times of crisis to use as simple and swift a Treaty amendment procedure as possible. However, the SRP is also a less democratic procedure. It removes the requirement for a Convention and, in particular, for the participation of representatives of national parliaments. In relation to the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, Craig has noted that: [w]hatever one believes about its desirability or not, this new treaty does raise an issue of principle, which you can call a rule-of-law issue of principle, that is concerned with whether we should bear with equanimity the idea [of decision making rules] being circumvented by a treaty outside the fabric of the Lisbon Treaty in circumstances where the rules as to how change should be undertaken within the Lisbon Treaty are not capable of being met, particularly given that the SCG [Stability, Co-ordination and Governance] Treaty can only work through the participation of the EU institutions in the way that is written into that 83 treaty. Arguably similar considerations arise in connection with the use of an inter-governmental treaty that circumvents the requirement for an ordinary amendment of the Union Treaties. Second, the form of stability mechanism that has been established by the Member States operates beyond the Union legal order and is largely unaccountable to its citizens. Pursua t to Article of the E“MT, the E“M e joys immunity from every form of 84 judicial process e cept to the e te t that the E“M e pressly wai es its i u ity. Moreover, as the ESM is not a Union body, it is not subject to the EU Treaties, the Charter of Fundamental Rights, or General principles of Union law. As the ECJ has confirmed, the 83 7 Feb. 2012, PARL. DEB., H.C. (2012) 1817-i (U.K.), available at http://www.publications.parliament.uk/pa/cm201012/cmselect/cmeuleg/uc1817-i/uc181701.htm (Oral Evidence of Professor Paul Craig before the European Scrutiny Committee of the House of Commons; see Answer to Question 12). 84 ESMT, supra note 1, at art. 32(3). 2013] Adoption of the ESM Treaty and European Democracy 187 85 Charter only applies in the field of Union law and is not binding on the ESM Institution. At the same time, the activities of the ESM and, in particular, the strict co ditio s attaching to its grants of financial assistance, may well impact upon economic and social rights protected by the Charter. For example, Title IV of the Charter enumerates rights concerning fair and just working conditions, the entitlement to social security and social assistance, and access to health care. Economic co ditio s attachi g to the E“M’s fi a cial 86 assistance have the potential to directly and personally impact on citize s’ social rights. However, the ESM, in the performance of its functions, will not be subject to review against the provisions of the Charter. The ESM is set to operate outside the reach of the democratic and constitutional limitations that form part of the Union legal order. Third, the accumulation of contradictions with and circumventions of the Union legal order gives the impression that, taken as a whole, the legal framework governing the ESM avoids a number of prohibitions and obligations set out in law. The extent of the circumvention becomes clear when one analyzes the arguments raised in support of the legal framework governing the ESMT in the context of the challenge in Pringle. Defenders of the ESMT ai tai ed that Article TFEU, referred to as the o ailout clause, did not prohibit 87 88 bailouts; that the E“M ailout fu d ought ot to e regarded as a ail-out fu d. It was suggested that the ESM is immune from EU law prohibitions as it operates under 89 international law and is an independent entity, even though it is entirely controlled by the Member States. It was simultaneously argued that the ESM is not an independent entity so that disputes with the ESM should be regarded as disputes between Member 85 Pringle v. Ireland, supra note 22, paras. 178–82. 86 For example, see cases giving rise to a preliminary reference in Case C-434/11, Corpul Naţio al al Poliţiştilor . Mi isterul Ad i istraţiei şi I ter elor MAI (14 Dec. 2011 Order), http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62011CO0434:EN:NOT, and Case C-134/12, MAI v. Corpul Naţio al al Poliţiştilor—Biroul Executiv Central (14 May 2012 Order), http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62012CO0134:EN:NOT. See cases giving rise to a reference in Case C-128/12, Sindicato dos Bancários do Norte v. BPN—Banco Português de Negócios, http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62012CN0128:EN:NOT (pending before the ECJ), and C a s e C-264/12, Sindicato Nacional dos Profissionais de Seguros e Afins v. Fidelidade Mundial—Companhia de Seguros, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62012CN0264:EN:NOT (pending before this Court). 87 Observations of Germany, supra note 46, and Observations of the Netherlands, supra note 43. These Member States argued that the prohibition of Article 125 TFEU should be read teleologically in the context of the ongoing financial crisis. Germany argued that the prohibition on bailouts should e read restricti ely in certain exceptional cases which were not foreseeable when the provision was adopted. 88 Observations of Ireland, supra note 43, and Observations of France, supra note 43. France argued that ESM is ot a ail-out fu d precluded y Article TFEU ecause fi a cial assista ce is su ject to repay e t a d conditionality. It was submitted on behalf of Mr. Pringle that a conditional bailout remains a bailout. 89 Observations of Cyprus, Ireland & Austria, supra note 27. 188 [Vol. 14 No. 01 German Law Journal 90 States relating to the subject matter of the Union Treaties, affording the ECJ jurisdiction to rule on disputes under Article 273 TFEU. It was argued that the ESM is not concerned 91 with monetary policy—although its task is to save the euro; that the ESM falls outside the economic competence reserved to the Union—even though it is directly concerned with 92 coordi ati g fi a cial assista ce to support the U io ’s si gle curre cy; that the 93 establishment of a bailout fund requires a Treaty amendment —yet the ESM may operate before the amendment takes effect. Arguably the accumulation of such contradictions and the circumvention of prohibitions contained in the Union Treaties represent a challenge to the U io ’s fu da e tal co it e t to respect for the rule of law as e shri ed i Article 2 TEU. E. Conclusion When attention is devoted to avoiding one particular hazard, it can be all too easy to fall into another. In seeking to avoid restrictions on the provision of financial assistance or the requirement to amend the Treaties using the ordinary revision procedure, the Member States and Institutions proceeded to adopt measures that may be considered to impact adversely on the quality of European democracy. The adoption of measures that are inconsistent with or circumvent prohibitions or obligations laid down in the Union Treaties gives the impression that legal principles and provisions, which are negotiated and adopted by democratically mandated representatives of the Member States, may be subordinated and ancillary to considerations of a political nature. This writer subscribes to the view that selective or inconsistent application of Union law risks undermining the integrity of the legal reasoning within the Union legal 94 order. The establishment of a body that is fundamentally and intrinsically concerned with the U io ’s si gle curre cy outside the Union Treaties is not easily reconcilable with the 90 Observations of the Netherlands, supra note 43. That government states: Disputes concerning the interpretation and application of the ESM Treaty are evidently disputes which relate to the subject matter of the Treaties. 91 Observations of Belgium, in Pringle v. Ireland, supra note 22 (on file with author); Observations of Germany, supra note 46; Observations of the Netherlands, supra note 43; Observations of Ireland, supra note 43; Observations of Greece, supra note 43; Observations of France, supra note 43; Observations of Cyprus, supra note 43; and Observations of Austria, supra note 44. 92 Observations of Germany, supra note 46; and Observations of the European Commission, supra note 44. 93 See Decision 2011/199/EU, supra note 11, at recital 2. 94 Paul Craig, The Stability, Coordination and Governance Treaty: Principle, Politics and Pragmatism, (2012) 37 EUR. L. REV. 231 (2012). 2013] Adoption of the ESM Treaty and European Democracy 189 central place of economic and monetary union within the Union legal order. The creation of a permanent stability mechanism that is liable to have a direct impact on the lives of Union citizens and yet lies outside and beyond the reach of the Union legal order, and is subject neither to general principles nor the rights enshrined in the Charter of fundamental rights, may be regarded as undermining of the principle of effective judicial protection and democratic accountability. It has been argued that the Union is not so much defined by a common people or demos as 95 by a shared commitment to common values, particularly democracy and the rule of law. Even in exceptional circumstances, the adoption of permanent measures that are inconsistent with such values risks undermining the integrity of the Union legal order as a whole. 95 See for example the characterization of the Union legal order by Professor Walter Van Gerven in WALTER VAN GERVEN, THE EUROPEAN UNION: A POLITY OF STATES AND PEOPLES (2005). 190 German Law Journal [Vol. 14 No. 01 Articles Differentiated Integration—Farewell to the EU-27? By Matej Avbelj* A. Introduction In light of the persisting economic crisis, momentum has been building in the European Union to embark, once again, on a path towards a more differentiated integration. The calls in favor of the so-called two-speed Europe have sounded increasingly loud and have come from diverse, but highly influential corners of European socio-political life. Against this backdrop, and with an eye to the historical experience with differentiated integration in the EU, this article examines the following: Just how plausible the emergence of a more differentiated Union actually is at this time; if plausible, what form such differentiated Union could take; and whether this development is normatively attractive or not. During the last few extremely turbulent months for the European Union, several ideas and proposals have been advanced to combat the current economic crisis and to chart a way out of it. The most prominent among these, calls for a (more) differentiated integration. Notably, this is proposed by influential figures in European socio-political life. The former French president Nicolas Sarkozy thus openly spoke in favor of creating a two-speed Europe, composed of an avant-garde, represented by those countries currently participating in the euro zone, and then all other states would be drawn into a loose 1 confederation attached to the core. He was soon joined by Joschka Fischer, the former German Minister of Foreign Affairs, who is still an influential European voice. Fischer bluntly proclaimed that the present EU-27 should simply be forgotten, and called for its 2 complete reconstruction. He too believes that the EU should be transformed into an avant-garde of seventeen states, while the conditions and depth of involvement of the other states would be based on their interest and capacity to integrate, to be spelled out in 3 separate and distinct treaties. These ideas were taken up and fleshed out further, in more * PhD European University Institute, Florence; LL.M. NYU School of Law; Assistant Professor of European Law, Graduate School of Government and European Studies, Kranj, Slovenia. 1 See The Future of the EU: Two-speed Europe, or Two Europes?, THE ECONOMIST, Nov. 10, 2011, available at http://www.economist.com/blogs/charlemagne/2011/11/future-eu (quoting a speech delivered by Nicolas Sarkozy on November 8, 2011). 2 See Tina Hildebrandt & Heinrich Wefing, Vergesst Diese EU, ZEIT ONLINE, Nov. http://www.zeit.de/2011/46/Interview-Fischer (quoting an interview with Joschka Fischer). 3 Id. 11, 2011, 192 German Law Journal [Vol. 14 No. 01 4 academic terms, by a long-standing institutional insider, Jean-Claude Piris. Finally, as a result of the political and intellectual summits, the idea of differentiated integration has spilled over into the European media as well. The media reaction has not been unanimous 5 on the appeal of the present developments, but they have equally recognized that a two6 7 speed Europe is in the making, some are even arguing that it has already arrived. What is one to make of these resounding speeches and catchy media headlines? For starters, they certainly indicate that a momentum is building in favor of a more differentiated European Union. But is that really the direction in which we are heading? Are we really going to witness the emergence of a two, perhaps even multi-speed, Europe? 8 Will there finally be deeds, or just words—as the history of a non-project of differentiation in the EU attests? If the answer is indeed affirmative, what kind of European Union can we be expected to see come out of this development? And finally, is the evolution towards more differentiation normatively attractive? Or, conversely, does it signify the defeat of the European Union, marking the demise of the original European idea(l)? In what follows we shall attempt to find answers to these troubling questions. B. The Elusive Meaning(s) of Differentiation The subject of differentiation in the European Union has been surrounded by a great degree of conceptual ambiguity, even confusion, and as a result we first need to clarify our understanding of it. Differentiation has not carried a single name, nor has it meant the 9 same thing even to those who agree on the same terminology. Like many other elements of European integration, differentiation has lacked coherence and, as argued by one 10 commentator, it has been guided by contingency, ambiguity, and disagreement. Several different labels have been used to describe it. It has been described as a two or multi4 JEAN-CLAUDE PIRIS, THE FUTURE OF EUROPE: TOWARDS A TWO-SPEED EU? (2012). 5 See Débat: Une Europe à Deux Vitesses?, LE MONDE, Nov. 4, 2011, available http://www.lemonde.fr/idees/ensemble/2011/11/04/vers-une-europe-a-deux-vitesses_1598213_3232.html (containing different perspectives presented in a special debate section of the Le Monde). at 6 Fear of a Two-Speed Europe: Britain Vetoes Changes to EU Treaties, DER SPIEGEL ONLINE, Dec. 9, 2011, http://www.spiegel.de/international/europe/0,1518,802674,00.html. 7 Jonathan Freedland, The Two-Speed Europe Is Here, with UK Alone in the Slow Lane, THE GUARDIAN, December 9, 2011), http://www.guardian.co.uk/world/2011/dec/09/jonathan-freedland-two-speed-europe. 8 Neil Walker, Sovereignty and Differentiated Integration in the European Union, 4 EUR. L.J. 355, 374 (Dec. 1998). 9 See HELEN WALLACE & WILLIAM WALLACE, FLYING TOGETHER IN A LARGER AND MORE DIVERSE EUROPEAN UNION 27 (1995) (providing a comprehensive view of denominations of this phenomenon). 10 See Walker, supra note 8, at 374; Sandra Marco Colino, Towards Greater Flexibility or Deadlock? The Progress of European Integration Since the Introduction of Enhanced Cooperation, The Federal Trust for Education and Research, Online Paper 24/04, at 7 (Sept. 1, 2004). 2013] Differentiated Integration—Farewell to the EU-27? 193 speed, a differentiated, a variegated, or a graduated Europe, as well as a Europe of 11 concentric circles or variable geometry. Add to the à la carte model of integration, the models of enhanced or closer cooperation, and the rich list of typologies remains yet to be 12 exhausted. The fact that the process of differentiation has been characterized by an inflation of equivocal terms, and many identically named models have been understood very differently, makes the already complex picture even worse. To get around this confusion, it is suggested that these denominations and models of differentiation nevertheless share a minimum common denominator. That is the situation in which, within the scope of EU competences, not all Member States are subject to the 13 same or uniform EU rules. The models of differentiation, as we have argued elsewhere, are therefore best theorized as a continuum of three orders of differentiation, stretching 14 from the least to the most differentiated legal arrangement. Within the first order, differentiation stands for the range of both formal and semi-formal legislative, executive, and judicial techniques of regulation, whose regulatory outcomes (intentionally) fall short of requiring and establishing uniformity. They are normally 15 explicitly authorized on the level of primary EU law— though they can be authorized 16 implicitly—and are usually executed in the form of secondary EU law, sometimes 17 following specific legislative techniques known as minimum or partial harmonization. In 11 See Alexander C-G. Stubb, A Categorization of Differentiated Integration, 34 J. COMMON MKT. STUDS. 283, 283 (1996) (providing an overview of a variety of conceptions of differentiated integration). 12 Id. at 285; see also Wallace & Wallace, supra note 9, at 27. 13 Matej Avbelj, Revisiting Flexible Integration in Times of Post-Enlargement and the Lustration of EU Constitutionalism, 4 CROAT. Y.B. EUR. L. & POL’Y 132, 132 (2008). 14 Id. 15 Those explicitly authorized by the primary EU law comprise, first, legislative acts of different regulatory intensity, regulations and directives, whose purpose is either unification or merely harmonization of national laws. 16 Consolidated Version of The Treaty on the Functioning of the European Union Art. 288, Mar. 30, 2010, 2010 O.J. (C 83) 171 [hereinafter TFEU]. 17 See Ellen Vos, Differentiation, Harmonisation and Governance, in THE MANY FACES OF DIFFERENTIATION IN EU LAW 145, 147–49 (Bruno De Witte, Dominik Hanf & Ellen Vos eds., 2001) (providing an overview); Francesco de Cecco, Room to Move? Minimum Harmonization and Fundamental Rights, 43 COMMON MKT. L. REV. 9, 9 n.1 (2006). Minimum harmonization is provided for in the EC Treaty art. 137(5) (as in effect 2002) (now TFEU art. 153) (pertaining to social policy); EC Treaty art. 153(3) (as in effect 2002) (now TFEU art. 169) (pertaining to consumer protection); EC Treaty art. 174–176 (as in effect 2002) (now TFEU art. 191–193) (pertaining to environmental protection); and in—a rather different—EC Treaty art. 95(4)–(9) (as in effect 2002) (now TFEU art. 114(4)–(9)) (pertaining to Internal Market). Minimum harmonization may also be based on a Community secondary legislation, either expressly or by implication. See Case C- /9 , The Quee . “ec’y of “tate for Health, e parte Gallaher Ltd. et al., 1993 E.C.R. I-3545 (discussing the latter possibility). 194 German Law Journal [Vol. 14 No. 01 18 secondary EU law, there have also been other means of differentiation, such as options, 19 derogation clauses, and different transitional periods of implementation for different 20 member states, always within the limits and hence under implicit authorization of primary EU law. These formal regulatory techniques of differentiation also include both legislative and judicial interpretative solutions, whereby a construction of a particular term 21 in EU legislation is left to the Member States. Finally, the so-called soft law could also 22 be quoted as an example of first order differentiation. Second order differentiation encompasses more pronounced differentiated legal arrangements which occur on the level of primary EU law in the form of derogations from it. It comprises the so-called safeguard clauses, instances of various opt-outs with potential opt-ins, and other, usually protocol-based, derogations in favor of a selected 23 24 member state. Drawi g o Tuytschae er’s categorizatio of differe tiatio , instances of second order differentiation can be defined as specific in the subjective sense (ratione personae) and the objective sense (ratione materiae), and are usually permanent. As an exception to the uniformity rule, they are normally established in favor of not more than one Member State, in a single and narrowly specified policy field, for an unlimited period of time. Finally, second order differentiation always arises out of intergovernmental negotiations as the Treaties do not contain any legal basis for its creation. 18 See Stephen Weatherill, Pre-emption and Competence in a Wider and Deeper Union, in LAW AND INTEGRATION IN THE EUROPEAN UNION 135, 161 (1995) (discussing product-liability directive 85/374 as an example of a directive with an option, where the member states are allowed to recognize, or not, the "development-risk defense" in addition to directive 94/33 on the protection of young people at work); Vos, supra note 17, at 148 (noting, as well, directive 94/33 on the protection of young people at work as another example of such a directive). 19 See Vos, supra note 17, at 149 (referring to Council Directive 92/81/EEC as an example). 20 Id. at 150. 21 Directive 95/46, of the European Parliament and of the Council of 24 Oct. 1995 on the Protection of Individuals With Regard to the Processing of Personal Data and on the Free Movement of Such Data, 1995 O.J. (L 281) 31 can be quoted as an example of this form of differentiation. See Stephen A. Oxman, Exemptions to the European Union Personal Data Privacy Directive: Will They Swallow the Directive?, 24 B.C. INT’L & COMP. L. REV. 191, 191 (2000), available at http://www.bc.edu/dam/files/schools/law/lawreviews/journals/bciclr/24_1/07_FMS.htm (noting a concern that the aforementioned directive might be already too flexible: allowing for too many exemptions); Gráinne de Búrca, Legal Principles as an Instrument of Differentiation? The Principles of Proportionality and Subsidiarity, in THE MANY FACES OF DIFFERENTIATION IN EU LAW 131, 142 (Bruno De Witte, Dominik Hanf & Ellen Vos eds., 2001). 22 LINDA SENDEN, SOFT LAW IN EUROPEAN COMMUNITY LAW (2004); Linda Senden & Sacha Prechal, Differentiation in and Through Community Soft Law, in THE MANY FACES OF DIFFERENTIATION IN EU LAW 181, 181 (Bruno De Witte, Dominik Hanf & Ellen Vos eds., 2001). 23 It is important to note that these are present not only in the existing EU Treaties, but also in the Accession Treaties. For example, they are in Council Directive 00/36, 2000 O.J. (L. 197) 19—the Maltese derogation—and the Polish declaration relating to abortion. See Chris Hilson, The Unpatriotism of the Economic Constitution? Rights to Free Movement and Their Impact on National and European Identity, 14 EUR. L.J. 186, 193 (2008). 24 FILIP TUYTSCHAEVER, THE CHANGING CONCEPTION OF DIFFERENTIATION IN EUROPEAN UNION LAW (1998). 2013] Differentiated Integration—Farewell to the EU-27? 195 Lastly, third order differentiation encompasses the most differentiated legal solutions for the European Union. These have been developed into several models: the à la carte 25 26 27 model, the multi-speed Europe, the Europe of concentric circles, and the model of 28 enhanced cooperation, which is currently institutionalized in the Treaty of Lisbon. These models integrate the means of differentiation that are more general in the subjective and the objective sense, as they are envisaged for more Member States, in broader policy sectors. In contrast to second order differentiation, which is always considered exceptional, third order differentiation is not so. The enhanced cooperation is perceived as an opportunity to achieve more integration with those Member States that are willing and ready. It is for this reason that it has been laid down in the Treaties and is therefore endowed with a juris-generative capacity, rather than being purely dependent on the outcome of the intergovernmental bargaining processes. However, the models constituting a third order differentiation are fairly heterogeneous and differ at least to the following three criteria: the scope of differentiation—narrow or wide; the content of differentiation—state-based or sector based; and the duration of differentiation—permanent or temporary. The à la carte model is known for subjecting the Member States to a very limited number of uniform legal regulations and leaving them a lot of room to pursue other policies independently. Conversely, the other models insist on a much broader scope of uniform rules. The multi-speed and concentric circles models differentiate between the states, whereas the enhanced cooperation model differs by policy sector. Finally, regarding the duration of a differentiated regime the concentric circles model is set up as permanent, whereas the multi-speed and the enhanced cooperation models are in principle envisaged as temporary solutions, with the latter being more lasting than the former. C. Differentiation in the History of European Integration These orders of differentiation did not emerge all at once, rather, they have been developing incrementally as integration has been deepening and widening. Differentiation is therefore not a recent phenomenon. While it has indeed grown more prominent in the last decade or two, its presence has been constant throughout the process of integration, although often overshadowed by the prevailing focus on achieving an ever closer union 25 See Stubb, supra note 11, at 285. 26 Id. 27 Id. 28 Consolidated Version of the Treaty on European Union, title IV, May 9, 2008, 2008 O.J. (C 115) 13, 27 [hereinafter Treaty on EU]. German Law Journal 196 [Vol. 14 No. 01 29 and hence uniformity. In fact, the Treaty of Rome contained several safeguard clauses 30 and at least six of the ten protocols annexed to it dealt with derogations. These were, 31 admittedly, limited to very specific national trade-based peculiarities, leaving differentiated integration without much importance. This is understandable though in light of the fact that the majority of policy sectors were still in the hands of the states. The EU was therefore highly differentiated, not because of a formal means of differentiation, but due to the initial rudimentary phase of integration. However, at the beginning of the 1970s the initiatives for more differentiation within the Union were already in full swing. The Union was enlarged for the first time, which increased the number of divergent political and economic interests and consequently made the then still, by and large, unanimous decision-making more arduous. As a result, political stalemates and protracted negotiations became increasingly more common. It was in 1974, during one of the particularly fierce standoffs caused by staunch British 32 opposition to the harmonization of banking legislation and company law, that the first open political call for the strongest means of differentiated integration was launched by the then German Chancellor, Willy Brandt. He introduced the idea of a multi-speed Europe: The Union would divide into two groups, those more advanced and those less advanced, in order to enable the former to achieve their common objectives more quickly 33 and easily, while the latter would follow when ready or willing to do so. A year later, the proposal was taken up by Leo Tindemans, the then Prime Minister of Belgium, who, being i dful of differe tiatio ’s pote tial co te tious ess, poi ted to the growi g social a d economic differences between the Member States and cautioned against their mindlessly consequent insistence on a synchronized pace of integration, lest the overall process of 34 integration be put into peril. Neither of these two political appeals for differentiation had any immediate practical effect. The idea of differentiation was thus set aside until its resurgence in the 1980s. In the middle of that decade, only some of the Member States ratified an international agreement whose purpose was to abandon controls on internal frontiers and to increase 29 See Avbelj, supra note 13, at 134–38 (providing the following historical overview). 30 Dominik Hanf, Flexibility Clauses in the Founding Treaties, from Rome to Nice, in THE MANY FACES OF DIFFERENTIATION IN EU LAW 3, 7 (Bruno De Witte, Dominik Hanf & Ellen Vos eds., 2001). 31 Id. at 8. These, for example, included the Protocol on German Internal Trade, which absolved what was then Western Germany from instituting a required EU customs regime with Eastern Germany; Banana Protocol, Protocol on Luxembourg, etc. Id. 32 CLAUS-DIETER EHLERMANN, DIFFERENTIATION, FLEXIBILITY, CLOSER COOPERATION: THE NEW PROVISIONS OF THE AMSTERDAM TREATY (1998); Colino, supra note 10, at 4. 33 See Walker, supra note 8, at 364; Colino, supra note 10, at 8 n.8 (referring to Nomden 1998). 34 Colino, supra note 10, at 4. 2013] Differentiated Integration—Farewell to the EU-27? 197 the surveillance on the external borders. The Schengen Agreement, as it has since been known, institutionalized an important degree of differentiation between the EU countries inside the Schengen regime and those outside the regime. But because the Schengen Agreement came into being under international rather than EU law, strictly speaking, this was not an instance of EU differentiation. Nevertheless, first order differentiation saw an 35 important boost with the adoption of the Single European Act, which preceded another 36 wave of enlargement. Several new differentiating legislative techniques were included in 37 38 the Treaty, most importantly Articles 100a(4) and 130t TEC, which allowed for the 39 Me er “tates’ separate regulatory sta dards, e e i the already har o ized fields. However, no matter how modest this development of differentiation may have been originally, it soon turned out to be a harbinger of what followed in the 1990s. With the 40 adoption of the Treaty of Maastricht (ToM) in 1993, the EU integration witnessed differentiation on an unprecedented scale. First, the pillar structure was introduced, giving 41 rise to the so-called structural variability, whereby different policy sectors are governed by different decision-making rules. Although this did not lead to differentiation between the Member States, it created differentiation within the overall political structure, differentiating between the Community supranational regime and the intergovernmental regime(s) of the Union. Secondly, the ToM added new instances of second order 42 differentiation and, thirdly, it even laid grounds for third order differentiation. The creation of the European Monetary Union (EMU), which some Member States chose not to participate in, coupled with the design of increasingly important EU social policies without 43 the inclusion of Britain, began the foundation for separate regulatory regimes in larger policy fields with appropriately adjusted institutional solutions. 35 Single European Act, Feb. 17, 1986, 1987 O.J. (L 169) 1 [hereinafter SEA]. The SEA came into force in July 1987. Id. 36 Countries, EUROPEAN UNION, http://europa.eu/about-eu/countries/index_en.htm (last visited Jan. 4, 2013) (noting that Greece joined the European Union in 1981, whereas Spain and Portugal followed five years later in 1986). 37 See Hanf, supra note 30, at 10–11. 38 EC Treaty art. 130t (as in effect 2002) (now TFEU art. 150). 39 See Hanf, supra note 30, at 10. 40 The Maastricht Treaty, Feb. 7, 1992, 1992 O.J. (C 191) 1 [hereinafter ToM]. 41 Robert Harmsen, A European Union of Variable Geometry: Problems and Perspectives, 45 N. IR. LEGAL Q. 109, 110 (1994). 42 See Hanf, supra note 30, at 16–18. The most notorious were the protocols on the acquisition of second homes in Denmark and the Irish abortion protocol. Id. 43 ToM, Protocol on Social Policy, 1992 O.J. (C 191) 1, 90 (stating, for example, that the United Kingdom is not participating). 198 German Law Journal [Vol. 14 No. 01 This ignited a fresh political debate on differentiation, which the present debate largely parallels. Several political visions of third order differentiation were laid on the table. The Lamers-Schäuble initiative took the lead by proposing the concentric circles model: Some Member States would form the core, the avant-garde of integration, which could 44 presumably be closed to those delegated to the periphery. The French Prime Minister reacted by arguing in favor of the concentric circles model, but unlike the German initiative, the French imagined it much more open and formed around policy sectors rather 45 than states. While these two proposals had much in common, especially their presumption of a substantive common core of uniform EU policies, the British proposal was ery differe t. I Britai ’s Europe à la carte, all of the Member States would be involved in only a small number of EU policies, beyond which they would be free to opt in 46 to other policy fields in which they wished to participate. The outcome of these debates was a joint Franco-German proposal to incorporate a general clause into the new Treaty of Amsterdam (ToA) opening the possibility for 47 differentiation in some policy fields. The proposal was met with approval and a new title on closer cooperation was introduced into the ToA, thereby institutionalizing a model of third order differentiation for the first time. This led some to announce that differentiation 48 had eco e a i tri sic part of Europe’s co stitutio al structure. This conclusion was reinforced by the fact that the Schengen regime, which was now incorporated into EU law, preserved its original differentiated structure. In the lead up to the Treaty of Nice, and with enlargement looming on the horizon, the debate on the need for differentiation flared up again. The Dehaene Report commissioned by the Prodi Commission suggested easing the conditions for closer cooperation in the Treaty and, in turn, permitting more 49 50 differentiation. oschka Fischer’s call for differe tiatio provoked reactions by both 44 Wolfgang Schäuble & Karl Lamers, Reflections on European Policy, in BUILDING EUROPEAN UNION: A DOCUMENTARY HISTORY AND ANALYSIS 255 (Trevor Salmon & Sir William Nicolle eds., 1997). Compare Ehlermann, supra note 32 (noting that academics differ as to whether their proposal was an example of variable geometry); with Walker, supra note 8 (noting that their proposal was an example of concentric circles). 45 Paul Gillespie, The Promise and Practice of Flexibility, in AMSTERDAM: WHAT THE TREATY MEANS ch. 3 (Ben Tonra ed., 1997). 46 SIR STEPHEN WALL ET AL., FLEXIBILITY AND THE FUTURE OF THE EUROPEAN UNION, A FEDERAL TRUST REPORT ON FLEXIBLE INTEGRATION IN THE EUROPEAN UNION 9 (Oct. 2005), available at http://mayapur.securesites.net/fedtrust/filepool/FedT_Flexibility_report.pdf. 47 EHLERMANN, supra note 32, at 250. 48 Hanf, supra note 30, at n.88. 49 RICHARD VON WEIZSÄCKER, JEAN-LUC DEHAENE & DAVID SIMON, THE INSTITUTIONAL IMPLICATIONS OF ENLARGEMENT, REPORT TO THE EUROPEAN COMMISSION (Oct. 18, 1999), available at http://www.esi2.us.es/~mbilbao/pdffiles/repigc99.pdf. The previously referenced report is also known as the Wise Men or Dehaene report. European Union: Wise Men Recommend that Commission Table Draft Treaty, EUROPOLITICS, Oct. 20, 1999, available at 2013] Differentiated Integration—Farewell to the EU-27? 199 Jacques Chirac, speaking approvingly of creating a pioneer group with a flexible 51 coordination mechanism, and Tony Blair, voicing his principled supported for enhanced cooperation under stringent conditions, to prevent the emergence of the core or an 52 exclusionary multi-tiered Europe. However, the actual changes introduced into the Treaty of Nice were minor, only slightly relaxing the conditions to launch enhanced cooperation, although the latter was also extended in the field of the common foreign and 53 security policy. Lastly, the Treaty of Lisbon, which replaced the aborted Constitutional Treaty, has both diminished and increased differentiation. It has dispensed with the structural variability by merging the pillar structure and the previously separate Community and Union into the single legal and institutional framework of the European Union. At the same time it has reinforced a second order differentiation, introducing it into the spheres where exceptions to one-size-fits-all solutions would have previously been hard to imagine, most notably in 54 the Charter of Fundamental Rights. This, and other exceptions in favor of Britain, 55 provoked fears that a critical mass of opt-outs has perhaps already been (over)reached. At the same time, however, no major changes have been introduced into the clauses on third order differentiation, which continued to exist as a dead letter in the Treaty. http://www.europolitics.info/european-union-wise-men-recommend-that-commission-table-draft-treatyartr150332-32.html. 50 Joschka Fischer, Vice Chancellor and Foreign Minister, Germany, Quo vadis Europa?, Address at Humboldt University (May 12, 2000). 51 Jacques Chirac, President, France, Our Europe, Address Before the German Bundestag (June 27, 2000). 52 Tony Blair, Prime Minister, Great Britain and Northern Ireland, Europe’s Political Future, Address to the Polish Stock Exchange, Warsaw (Oct. 6, 2000). 53 Treaty of Nice Amending the Treaty on European Union, The Treaties Establishing the European Communities and Certain Related Acts, Mar. 10, 2001, arts. 11 & 11(a), 2001 O.J. (C 80) 1, 13–14, 36–37 [hereinafter the Treaty of Nice]. 54 Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the European Communities, Dec. 13, 2007, Protocol on the Application of the Charter of Fundamental Rights of the European Union to Poland and to the United Kingdom, 2007 O.J. (C 306) 1, 156 [hereinafter Treaty of Lisbon]; see also Julio Baquero Cruz, What’s Left of the Charter? ‘eflections on La and Political Mythology, 15 MAASTRICHT J. EUR. & COMP. L. 65 (2008). 55 Honor Mahony, EU Treaty Negotiations Proceed Slowly, EUOBSERVER.COM, Sept. 19, 2007, http://euobserver.com/institutional/24783; Michael Dougan, The Treaty of Lisbon 2007: Winning Minds, Not Hearts, 45 COMMON MKT. L. REV. 617, 680–87 (2008) (noting that the UK, in the Area of Freedom Security and Justice, in particular police and judicial cooperation in criminal matters, but also in the Schengen acquis, reserved itself the right to opt-out of rules already binding on it). 200 [Vol. 14 No. 01 German Law Journal Indeed, having been laid down more than a decade ago, these provisions on enhanced 56 cooperation remained unused until July 2010 when the Council approved the use of 57 enhanced cooperation in the area of law applicable to divorce and legal separation. The 58 procedure was used for the second time regarding the EU patent in March 2011. The overall enthusiasm about third order differentiation notwithstanding, use of enhanced cooperation has been fairly limited and, before 2010, basically non-existent. This obvious disconnect between ambitions to create a more differentiated Union and the actual practices calls for an explanation. Why it has been so hard to differentiate, in particular on the level of a third order differentiation? D. The Aversion to Differentiation Explained Positive EU law may be the most obvious place to find answers. The conditions laid down in the Treaty in order to launch the enhanced cooperation are (too) hard to meet. The procedure of enhanced cooperation is subject to demanding substantive conditions, both positive—stating what it ought to achieve—and negative—proscribing certain consequences that it might entail. Pursuant to the positive conditions, every enhanced cooperation must further the objectives of the Union, protect its interests, and reinforce 59 the process of integration. It must respect the competences, rights and obligations of 60 non-participating Member States, and they are not to impede its implementation. On the other hand, the negative conditions exclude enhanced cooperation from the field of exclusive EU competences. They proscribe any encroachment on the common market, 61 economic, social, or territorial cohesion of the Union, as well as imposing any barrier to 62 or discrimination in trade, or distortion of competition between the Member States. While these substantive conditions are obviously anything but negligible, the greatest 56 There were two ultimately unsuccessful attempts to implement the enhanced cooperation: One in 1999 at the Cologne European Council aimed at overcoming Spain's opposition to the European Company Statute, and another in 2001 targeting the Italian reluctance to support the framework decision on the European Arrest Warrant. See José M. de Areilza, The Reform of Enhanced Co-operation Rules: Towards Less Flexibility?, in THE MANY FACES OF DIFFERENTIATION IN EU LAW 27, 33 (Bruno De Witte, Dominik Hanf & Ellen Vos eds., 2001); Daniel Thym, United in Diversity”—The Integration of Enhanced Cooperation into the European Constitutional Order, 6 GERMAN L.J. 1731, 1737 (2005). 57 Council Decision 210/405, 2010 O.J. (L 189) 12 (EU), lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:189:0012:0013:EN:PDF. available at http://eur- 58 Commission Proposal for a Council Regulation Implementing Enhanced Cooperation in the Area of the Creation of Unitary Patent Protection with Regard to the Applicable Translation Arrangements, COM (2011) 216 final (Apr. 13, 2011). 59 Treaty on European Union art. 20.1, July 29, 1992, 1992 O.J. (C 191) 1, 83 [hereinafter TEU]. 60 TFEU art. 327. 61 TFEU art. 326. 62 TFEU art. 326. 2013] Differentiated Integration—Farewell to the EU-27? 201 obstacles are procedural hurdles: Initiating enhanced cooperation requires approval by two institutions, the Commission and the European Parliament. Both institutions have always had a very strong supranational orientation, which has tilted them against any sort of differentiated solutions, perceiving them as a digression from the communitarian uniformity pursuing path. Although the positivist answer is the most obvious one, it actually reveals fairly little about aversion. In particular, it fails to explain the deeper reasons that led the Member States to formulate those conditions so strictly in the first place. The explanation for this behavior must be traced back to the context in which the decision for starting up the enhanced cooperation is first made. This is always a contentious situation, in which the ordinary decision-making process is blocked because of the insurmountable disagreement between Member States and the necessity of proceeding in a differentiated manner is consequently revealed. Finding an agreement against a backdrop of a deep disagreement is a challenge in itself, and this is only exacerbated further by the uncertainty provoked by differentiation. This uncertainty eliminates the stable, albeit inefficient, status quo and trades it for a differentiated regime where some countries are moving forward and others are staying behind, without any idea how this new regime will actually benefit or disadvantage Member States. Another possible reason for aversion is that differentiation can cause institutional dilemmas. Should the newly created differentiated regime be executed inside the existing institutional framework? If so, how does this affect the composition of the institutions, in particular the representation and participation of those Member States not involved in a differentiated scheme? These and similar practical queries have worked as a strong 63 disincentive for enhanced cooperation on a larger scale. They have also been joined by issues of a more theoretical character. One is the prevailing normative vision of European integration, which has been couched in constitutional polity terms. Constitutionalism—an 64 empire of uniformity, as described by one author —has, however, never worked in favor of differentiation. Rather it has been used to steer integration towards an ever closer union, where uniformity is the rule, and differentiation the exception. Finally, even if the process of integration had not been driven by the constitutional agenda, achieving differentiation would not have been any easier due to the prevailing bi-dimensional perspective on European integration and the corresponding theoretical incapacity to think 65 in multi-dimensional terms, a perquisite for a differentiated Union. 63 See PIRIS, supra note 4, at 121. 64 JAMES TULLY, STRANGE MULTIPLICITY: CONSTITUTIONALISM IN AN AGE OF DIVERSITY ch. 3 (1995). 65 See Walker, supra note 8, at 382. 202 German Law Journal [Vol. 14 No. 01 E. New Wave of Differentiation: What is Different Now? Because it has traditionally been so hard to put third order differentiation into practice, and considering that the above-defined reasons for such difficulty largely continue to exist, is there something different in the present wave of initiatives that might make them more successful than before? To answer this question we must first inquire into the reasons for which those instances of differentiation, which are currently instantiated in the EU, have come about. They have been triggered by three factors: the widening of integration; the deepening of integration; and the change in the decision-making process—from one 66 requiring unanimity, to a qualified majority voting. Widening has introduced more diversity into integration, burdening the decision-making process and causing a single-pace Union that is becoming increasingly inefficient. Deepening has augmented the scope of competencies of the Union, impinging on increasingly sensitive national policy issues, which has made uniform and synchronized development much harder. Finally, the loss of veto power has prompted some Member States to demand opt-outs on the level of primary law in order to avoid the risk of being outvoted in the ordinary decision-making process. All these triggers of differentiation were present to an unprecedented degree after the Big Bang enlargement. They received an additional boost though with the demise of the Constitutional Treaty, which marked the decline of EU constitutionalism and its accompanying dogma of uniformity. Nevertheless, and at odds with our expectations back 67 then, we have yet to see any breakthrough in differentiation. What about today? Is the present situation any different from what we saw previously? For one, the triggers have remained in place and some of them have even been accentuated. Qualified majority voting, in particular, has been extended further. It has replaced unanimous voting even in the value-sensitive Area of freedom, security, and justice, and has thus become a rule. The continuing presence of triggers of differentiation therefore speaks in favor of its proliferation, as does the current public discourse in the EU public sphere. This has never been as blunt as it is today. Never before have we been told 68 that the present Union of 27 should simply be forgotten, and that a viable European project can only be built around the Eurozone countries. This discourse, of course, has its roots in, and is a reaction to, the unprecedented crisis that the European Union has now been stuck in for a couple of years. Although, from the start, the project of European integration has been conceived of as a crisis management project, and has also always functioned as such, this particular crisis is unlike any other. It is different in several respects. First, both its scope and depth are unprecedented. The crisis started as a financial crisis but it has grown into an economic 66 See Avbelj, supra note 13, at 139–40. 67 See id. at 142. 68 See Hildebrandt & Wefing, supra note 2. 2013] Differentiated Integration—Farewell to the EU-27? 203 crisis, and it is now affecting the real sector. The states that are at the verge of bankruptcy and whose people are in the midst of growing poverty put up with increasingly strict austerity measures. Secondly, the actors of this crisis are different than before. While the source of the crisis lies within the EU countries themselves, the key to resolving it is, perhaps for the first time in history, not exclusively in the hands of the states, but also in the control of non-statist, non-governmental, private, and transnational actors. As a result, the states, and EU states in particular, have not, since the end of the WWII, appeared, and indeed been, so fragile. Thirdly, this crisis also presents an unprecedented blow to the Union symbolically. It has shattered the euro, which is not just an economic ea s of e cha ge, ut also a sy ol of the EU’s power a d u ity, at prese t, a d hopefully in the future as well. Finally, as the crisis has severely undermined the EU economic foundations on which all other social dimensions of the Union depend, the present status quo in the Union is clearly unsustainable and something must be done 69 about it fairly quickly. Among several proposals and political initiatives that were on the table to meet this end, it 70 was finally the Fiscal compact that came through. Its aim is to legally bind the Member States to keep their budgets in balance, thus preventing the continuing erosion of the common currency and the perpetuation of the present economic turmoil in the Union. However, the Fiscal compact was originally conceived as an amendment to the Treaty of Lisbon, but, together, the strong British objection and the pragmatic Czech euro-skepticism killed the plan to make it an integral part of EU primary law. In the absence of a consensus, the twenty-five willing Member States were in turn forced to conclude the Fiscal agreement as an international law treaty, outside the EU legal framework. The Union has thus split between the Euro-17 states, the pioneers of the new fiscal regime, who are joined by 8 non-eurozone Member States, whereas the aforementioned two have opted out. Laying the grounds for the creation of a fiscal union primarily among the seventeen Euro Group countries, without the UK, has inflamed the calls for the differentiation referred to in the introduction, and has prompted many observers to declare a two-speed Europe as a fait accompli. However, this conclusion might be premature. The history of European integration demonstrates that a lack of unanimity among the Member States, which in turn leads to the establishment of an agreement outside EU law, between only some Member States, is anything but unknown to the Union. Yet, previous experiences also 69 See José Manuel Durão Barroso, President of the European Commission, State of the Union 2012 Address, Address to the Plenary Session of the European Parliament (Sept. 12, 2012), available at http://europa.eu/rapid/press-release_SPEECH-12-596_en.htm (stating, in a somewhat dramatic way: To e, it is this reality that is not realistic. This reality cannot go on. . 70 Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, Jan. 1, 2013, available at http://www.european-council.europa.eu/media/639235/st00tscg26_en12.pdf [hereinafter the Fiscal Compact]. German Law Journal 204 [Vol. 14 No. 01 prove that these extra-EU differentiated agreements almost always eventually end up 71 integrated into uniform EU law. The Fiscal compact is expected to follow the same 72 path. This, however, is doubtful given the severity of both the subjective and the objective obstacles it must face. On the subjective side, the UK has made it more than clear that its interest in preserving the global financial competitive edge of its City concretely, and its more abstract, but no less important, reservation to the federalization of Europe, which the fiscal union is allegedly a function of, speak strongly against it joining the Fiscal compact and allowing it to be a part of the EU legal and institutional framework. Even if the strength of this objection wanes in the future with change in the British and probably the Czech governments, the so-called objective obstacles in the sense of economic incapacity of meeting the requirements laid down in the Fiscal compact, will remain. Some of the Member States, unable to meet the economic benchmarks, will be forced to remain outside of the new fiscal union, their opposing wishes notwithstanding; while those staying inside will predominantly be the states whose currency is euro. The latter will thus gradually emerge as a formal core of the new Union. Its shapes have already been drawn. Since the outbreak of the economic crisis, the center 73 of gravity of EU reform initiatives has been in the increasingly formalized Euro Group, 74 relegating the other Member States to a secondary status beyond the core. The Fiscal 71 See Thierry Balzacq et al., Security and the Two-Level Game: The Treaty of Prüm, the EU and the Management of Threats 1 (Ctr. for Eur. Policy Studies, Working Document No. 234, 2006) (noting that on 27 May 2005, seven EU Member States— Belgiu , Ger a y, “pai , Fra ce, Lu e ourg, the Netherla ds a d Austria —signed the Treaty of Prü to esta lish the highest possi le sta dard of cooperatio . . . [for] combating terrorism, crossborder crime and illegal migratio as well as several informal groups to combat terrorism, organized crime, and drug abuse such as the TREVI and Pompidou group). 72 See the Fiscal Compact art. 16: Within five years, at most, of the date of entry into force of this Treaty, on the basis of an assessment of the experience with its implementation, the necessary steps shall be taken, in accordance with the Treaty on the European Union and the Treaty on the Functioning of the European Union, with the aim of incorporating the substance of this Treaty into the legal framework of the European Union. Id. 73 See About the Eurogroup, The Eurogroup, EUROZONE PORTAL, http://eurozone.europa.eu/eurogroup/about-theeurogroup?lang=en Eurogroup eeti gs are atte ded y the Eurogroup Preside t, the Fi a ce Minister of each Member State of the euro area, the Commissioner for economic and monetary affairs, and the President of the Europea Ce tral Ba k. . Additio ally [t]he Chair a of the Eco o ic a d Fi a cial Co ittee's Eurogroup Working Group also atte ds, to prese t the preparatory work do e i that Group. Id. 74 See European Council Conclusions, Brussels European Council 13 (Apr. 20, 2011), available at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/120296.pdf (including The Euro Plus 2013] Differentiated Integration—Farewell to the EU-27? 205 compact goes another step forward. Officially speaking, it does not introduce more differentiation into the Union, as it creates a special regime outside EU law. Nevertheless, this special regime will be composed of the core EU policies: the monetary and fiscal union. The regime will integrate the leading Member States, and it will be permitted to rely upon the EU institutions. In that way, the core will actually be located outside the Union-27, and this will, by means of international law (first de facto, but then perhaps also de jure), become of secondary importance. The Fiscal compact therefore introduces differentiation in disguise: By moving the core from the Union to international law, thereby creating a new EU-17, this could replace the increasingly weak original EU-27, leaving it behind as an empty shell. The present push for differentiation can thus be distinguished from those prior in at least two important respects. First, under pressure from objective economic circumstances exerted by the non-statist transnational actors, there is much less room, if any at all, for political discretion regarding whether to differentiate. The present status quo is thus unsustainable and requires immediate action. Secondly, differentiation is taking place at the heart of the Union—the euro. The latter is already subject to differentiation, as not all Member States participate in the monetary union. However, the monetary union is nevertheless part of the Union framework, an element of the accession acquis, with an inbuilt commitment that all Member States will accede in a foreseeable future. But this is increasingly unlikely, precisely due to the objective economic reasons referred above; the heart might be transplanted into a new, less populated and therefore more homogeneous organism, leaving the old body to a slow, but definite decay. F. After Differentiation—A Better Union or Not? Provided that a scenario envisaged by the proponents of differentiation translated into practice by way of the Fiscal compact, what kind of Union would we get then? With some speculation, it appears that the end result would be a much leaner, less numerous federal Union. It would preferably be composed of only the Euro Group countries, with the other countries outside the federal core, spread into several concentric circles based on their preferences and capacities for integration in specific policy fields. The federal core would stand for a complete economic (i.e., fiscal and monetary), political, security and defense union. Those countries not willing to participate in all of these policy fields would be located in the corresponding external concentric circles. Those willing to integrate more would be located in the policy circles closer to the core, the others further away. This conception of a federal union with loose confederate alliances would also allow room for the EEA countries and Switzerland; for the countries of the Western Balkans and Turkey, if and when they do accede; as well as for other regional alliances currently occupying the EU Pact which applies to the euro area Heads of “tate or go er Poland, Romania . . . . . e t a d . . . Bulgaria, Denmark, Latvia, Lithuania, German Law Journal 206 neighborhood policy. the Union. 75 [Vol. 14 No. 01 The latter would be located at the outermost concentric circle of How exactly this federal-confederal conglomerate would function in practice, of course, remains an open question. It is particularly hard to imagine a concrete institutional set up tailored to it, especially if it is to remain single and therefore shared by all the concentric circles. Alternatively, if more institutional frameworks are to emerge, with different institutions for different concentric circles, then it is equally hard to see how, or even why, the co glo erate’s u ity is to e e sured. Why ot, gi e its pro a ility, si ply agree to have the present Union broken down into various independent entities? Although doing so would certainly signal the end of European integration as originally conceptualized. Either way, even if our political imagination and institutional ingenuity work to the best of their abilities, what is going to emerge out of this process is a Union that is very different from the current one. Whether this development in the Union would be for better or for worse is something that only time will tell. The developing normative attitude to the emerging differentiation, whether it is more or less favorable of it, depends on the perspective one harbors of the European Union today. It goes without saying that these perspectives are manifold. We should pause briefly to elucidate the perspectives of the Member States, the EU institutions—in particular, the Commission—and the EU scholarly perspective. Taki g up the Me er “tates’ perspecti e first, two ai di isio s ha e e ol ed etwee them. The first is between the Euro Group countries and the rest, the so-called periphery. The second is between the countries that have acted as a driving force behind the Euro Group: the Franco-German couple on the one hand, and the United Kingdom on the other. Differentiation obviously enjoys support by the Euro Group countries, with France and Germany as its frontrunners, but it breeds reluctance and even hostility in the other countries, particularly in the UK. These countries are most afraid of losing their influence as a result of exclusion from the process of forming more integrated policies, that they have either declined or are unable to participate in, but which might, through a perhaps inevitable spill-over effect, impact those policies pursued by all. This was especially visible in British do estic politics, which were weary of the pri e i ister’s decisio ot to take part in the fiscal compact for fear that by excluding itself from this compact, Britain may also forfeit other means of influencing the development and functioning of the single 76 market, which is at the heart of the British EU economic interest. Other countries, particularly Poland, have also been anxious about their exclusion from the Euro Group, and 75 76 Most notably, the Mediterranean Union. See Cameron Comes Under Fire for 'Phantom Veto', EURACTIV.COM, Feb. 1, 2012, http://www.euractiv.com/ukeurope/cameron-comes-fire-phantom-veto-news-510498; In Quotes: Timeline of Reaction to UK's EU Treaty veto, BBC NEWS, Dec. 13, 2011, http://www.bbc.co.uk/news/uk-politics-16137256. 2013] Differentiated Integration—Farewell to the EU-27? 207 feel that they should be involved in, or at least informed about, the conclusions of the European Council meeting in the formation of the heads of states whose currency is 77 euro. Behind the obvious and understandable insider-outsider divide, there also lurks a deeper clash of the EU paradigms. France and Germany tend to subscribe to the vision of a strong federal Union, integrated in a growing number of policy fields and thus composed of relatively homogeneous countries, which would, as a whole, function in the image of a 78 Franco-Ger a couple, acti g as the U io ’s e gi e. The UK has always been opposed to this: Concerned primarily with reaping the benefits of the single market, it has tried to halt the integration processes from going beyond the single market by favoring enlargement of the Union, including to Turkey, in order to increase heterogeneity inside the Union and thereby make federalization less likely. Thus, differentiation inside the Union appears to be economically beneficial for the countries with the euro, and also politically advantageous in particular for Germany and France, which could regain their influence, having been diluted by a wider, more diverse Union. This scenario has never been supported by Britain and such a scenario is not in favor of non-euro countries in general. It is worth nothing that these countries, unlike the UK, might, when ready or willing, join the more integrated club, and thus leave the UK relatively isolated. In that way, the division between the core and the periphery would remain, but the core would grow at the expense of the periphery. As far as the EU institutions are concerned, the process of differentiation has never really been viewed favorably by them. This is particularly true and understandable in case of the European Commission and the European Parliament, which are charged with representing the supranational interests of the Union and EU citizens respectively. These two institutions have had to work from the perspective of and with concern for the whole. They have therefore been occupied with cultivating centripetal forces and preventing the centrifugal ones. Recently, however, the trend has been changing. We have seen two successful uses of the enhanced cooperation procedure, which could not have taken place without the Parlia e t’s a d the Co issio ’s co se t. Furthermore, the latter has not objected to the adoption of the Fiscal compact, despite the fact that it will be binding for only 25 states, and that it has been concluded as an international law instrument outside the EU legal framework. An explanation for this probably lies in the fact that, despite its 77 See Andrew Rettman, Poland Renews Attack on Eurozone-only Summits, EUOBSERVER.COM (Jan. 19, 2012), http://euobserver.com/19/114945. “ee Paris, Berlin Hasten Plans for t o-speed Europe’, EURACTIV.COM (Nov. 28, 2011), http://www.euractiv.com/euro-finance/paris-berlin-hasten-plans-speed-europe-news-509243; The Future of the EU: Two-speed Europe, or Two Europes?, THE ECONOMIST (Nov. 10, 2011), available at http://www.economist.com/blogs/charlemagne/2011/11/future-eu; Quentin Peel, Germany and Europe: A very Federal Formula, FINANCIAL TIMES (Feb. 9, 2012), available at: http://www.ft.com/intl/cms/s/0/31519b4a-530711e1-950d-00144feabdc0.html#axzz1uM74FfD8. 78 208 German Law Journal [Vol. 14 No. 01 extra-EU law status, the Commission has managed to preserve its influence and plays an active role in monitoring compliance with the emerging fiscal regime. This indicates that at least the Commission, and probably the European Parliament as well, is ready to adopt a pragmatic stance even with differentiation, and to be supportive, or at least tolerant of it, so long as its institutional standing and powers are not affected. Among scholars of EU law, the idea of differentiation has also struck different chords. In general, they have not been very supportive of it. The degree of aversion to differentiation, however, is varied among scholars according to their theoretical visions of the Union. Supporters of the intergovernmental Union have found the pressure for differentiation self-explanatory in light of Member States craving for power and the desire 79 to enhance their positions. The advocates of the supranational Union have, conversely, perceived it as an expression of national selfishness, which presents a regression in the 80 process of integration. By breaking the chain of virtuous spill-over effects differentiation is also anything but compatible with the neo-functionalist understanding of the Union. At the same time, it does not fit well with the ordo-liberal perspective either, because of its 81 potential to erect new obstacles to trade where there should not be any. Finally, differentiation understandably may not appeal to EU constitutional scholars, who view it as 82 colliding with not only the very telos of integration, but also with the essential character 83 of constitutionalism as a unity-furthering discourse. Against this backdrop one would not expect that the present move towards differentiation would win much scholarly approval from academics other than those inter-governmentally oriented. Yet, this might not necessarily be so. If the present proposals for differentiation could be understood as being motivated by creating a core of more homogeneous states, 79 Angelos Sepos, Differentiated Integration in the EU: The Position of Small Member States 2 (Eur. Univ. Inst. Robert Schuman Ctr. for Advanced Stud., Working Paper No. 2005/17, 2005), available at http://www.eui.eu/RSCAS/WP-Texts/05_17.pdf. 80 Pierre Pescatore, International law and Community law—a Comparative Analysis, 7 COMMON MKT. L. REV. 167, 181 (1970); José M. de Areilza, Enhanced Cooperation in the Treaty of Amsterdam: Some Critical Remarks 2 (Harvard Jean Monnet Working Paper No. 13/98, 1998) (characterizing flexibility as a statal grab for power). 81 See ERNST B. HAAS, THE OBSOLESCENCE OF REGIONAL INTEGRATION THEORY (1975) (Univ. of California, Berkeley Inst. of I t’l “tudies Ser. No. 25, 1975). 82 Allegedly defined as an ever closer union between the peoples of Europe, whose nature it is that it should proceed only one way. See Deirdre Curtin, The Constitutional Structure of the Union: A Europe of Bits and Pieces, 30 COMMON MKT. L. REV. 17 (1993). For an even more radical view, see Pierre Pescatore, Aspects Judiciaires de l'Acquis Communautaire, 17 REV. TRIMESTRIELLE DE DROIT EUR. 617, 623 (1981) (arguing that the European Community is inherently bound to progress, presumably to more integration, and that the way back is inconceivable). 83 Miguel Poiares Maduro, How Constitutional Can the European Union Be? The Tension Between Intergovernamentalism and Constitutionalism in the European Union (Jean Monnet Working Paper No. 5/04, 2004), available at centers.law.nyu.edu/jeanmonnet/archive/papers/04/040501-18.rtf. 2013] Differentiated Integration—Farewell to the EU-27? 209 this would be welcomed by the proponents of the constitutional as well as proponents of federal accounts of the European Union. The constitutional and federal visions of the Union, which turned out to be impossible in the Union of 27, could possibly be revived in an environment of the EU-17. In other words, an ever closer, federal and constitutional Union could be achieved not by means of further integration, but by differentiation. Nevertheless, conceptually this runs contrary to ideal differentiation. We have always understood differentiation as a reaction to the growing number of legitimate differences between the Member States that are worth preserving. In this way, differentiation has been envisaged as a means of managing diversity between the Member States. As such, it could engender several positive effects for the Union. By recognizing diversity between the Member States as something worth saving, differentiation could strengthen legitimacy in identity terms. Differentiation, which would permit the Member States to decide which policy sectors to participate in, would also enhance democracy. It would remove the need for the national majority, fearful of being outvoted as a European minority by the European majority, to block the latter. Differentiation would thus facilitate the decision-making process in the Union by reducing the need to use the veto power, and the need to resort to untidy compromises, made behind the scenes, after protracted negotiations, which result in quid pro quo, 84 incompletely theorized agreements. In that way, the output legitimacy of the Union 85 would be enhanced and its transparency strengthened. By allowing differentiation inside the Union, there would be no need for the Member States to seek refuge in international law, as they now must with the Fiscal compact. Differentiation—as a vehicle of change— would also introduce the internal evolutionary dynamics that the EU is in desperate need 86 of. Finally, theoretically, differentiation would also force us to try harder to produce more imaginative solutions, and to switch from the present two-dimensional mode of thinking about integration, to a multidimensional one. In so doing, new concepts would be devised to escape the narrow confines of a conceptually undernourished apparatus as they currently exist, typically consisting of the binary alternatives that the Union has traditionally been couched in: federal and confederal, constitutional and international, unity and differentiation. And yet, none of these advantages associated with differentiation are likely to happen. What is at stake here are two different conceptions of differentiation. The one proposed by us is differentiation as a diversity management mechanism, while the one recurring in dominant discourse, furthered by stakeholders is differentiation as a means of achieving 84 See Avbelj, supra note 13, at 149. 85 Id. at 144–45. 86 Filip Tuytschaever, EMU and the Catch-22 of EU Constitution-Making, in CONSTITUTIONAL CHANGE IN THE EU: FROM UNIFORMITY TO FLEXIBILITY 173, 195 Gr i e De B rca oa e “cott eds., 2000). 210 German Law Journal [Vol. 14 No. 01 more uniformity. The former has the potential to bring something new into the process of integration, and to stir it up by introducing innovative integrative approaches, which are necessary when the conventional one-size-fits-all, ever-closer union has failed to deliver. On the other hand, differentiation in service of more uniformity perpetuates the old model of development, albeit with fewer Member States, where achieving desired goals would be more likely because of a greater degree of homogeneity among the states. But, not only has this not worked in the past, there is even less likelihood that it would function in the present situation. Achieving the desired homogeneity would require rolling integration back in time. Calls for an EU-17 and an outright abandonment of the EU-27 could be understood as a (hidden) desire to eradicate the consequences of enlargement, and to recreate the Union that previously existed. This is, of course, impossible in practice, because enlargement and thus a new and more heterogeneous Union are simply given facts. Moreover, even the mere desire to return to the status quo ante is a sign of defeat. This has many faces. First of all, it exhibits the EU’s i capacity to adapt to ew circu sta ces: A syste that ca ot adjust to the new and yearns for the old has fallen prey to decay. Trying to de facto reverse the enlargement also demonstrates that, in the eyes of those who set forth these proposals, this was not a success, but a failure. Given that enlargement was not merely an economic, political, and strategic project, but also a deeply symbolic event imbued with hope of liberation and reunification of the unjustly divided continent, this would not be just any failure. It would be a failure that would leave a deep cut in the very idea of Union. Furthermore, one might speculate about even more sinister motives behind the present differentiation proposals. One could say that the proposed core countries simply seized the opportunities of an economy of scale, of the markets found in the new Member States, but now, when the economy has contracted and when the economic benefits are either lacking or are exhausted, they are shutting the door in order to have the old club reestablished. And, of course, this smaller club would once again be much easier to control and to steer into the direction preferred by its two biggest members. Be that as it may, our aim here is not to argue that any such adverse motives are indeed lurking behind the present differentiation initiatives—that is unlikely. We believe that the proposals for differentiation are a genuine attempt to improve the functioning of the 87 European Union which is, indisputably, far from optimal. We are, however, also convinced that these solutions are not being looked for in the right place. A federal state, resembling a Union, of an EU-17 has already been turned down, at least implicitly, with the refusal of the Constitutional Treaty. That path, which is effectively a back way, is therefore closed. Even if it was open, there is no reason to believe that a federal Union of EU-17 would contribute anything to solving the economic meltdown that currently pesters the EU-27. This is because the economic crisis did not start here in a sui generis, proto-federal, 87 See PIRIS supra note 4, at 143–48. 2013] Differentiated Integration—Farewell to the EU-27? 211 semi-international EU, but, rather, in a proper federal state—the United States. This shows that if the key to unlocking the present crisis can be found anywhere, it certainly does not lie in a more statist-federal form. Amidst all this uncertainty, we are nevertheless convinced that if the EU wants to ensure its long- term viability, it must learn to live with and manage its differences. In that respect, differentiation, when conceived of as a diversity management mechanism, offers a helping hand. It demonstrates that a commitment to the common whole, to the EU-27, makes a whole variety of structural and institutional solutions available inside this common framework. So far, as the history of differentiation demonstrates, these have only been partly used. There is therefore still much scope for experimenting with differentiation, but only if done for valid reasons. And until now, this has not been the case. Differentiation has not been employed to recognize and institutionalize diversity inside the Union, but, rather, to achieve the opposite: More uniformity between more homogeneous states, to the exclusion of others that do not fit into this picture. But, differentiation as homogenization in the absence of commitment to the EU common whole is not the a swer. This would work to the EU’s disad a tage a d, thus, it should ot e carried out. What should therefore be forgotten is not the present EU-27, but any model of differentiation that proposes to further uniformity. 212 German Law Journal [Vol. 14 No. 01 Developments Ger a y’s Mi ed-Member Electoral System: A Victim of its Sophistication? By Christian Tomuschat* To shape a legitimate electoral system is a tremendous challenge for any parliamentary body. It cannot evade the responsibility of enacting the requisite statutory rules since no other State organ has the authority to make determinations which are substantially of a constitutional character. How, and under what conditions, citizens choose their representatives pertains to the key issues in a democratic system. But it is a truism to state that a parliament is not a homogeneous body; it is normally composed of different groups with highly divergent interests. Groups representing large political parties tend to favor a majoritarian electoral system, following with greater or slighter variations the British model of first past the post where the highest number of ballots in a given constituency determines the winner of the seat in issue, even though the candidate may 1 have obtained only a relative plurality. Smaller parties, on the other hand, put their preferences on proportional representation, which ensures them a share of the seats corresponding to their share of the vote. To their regret, parties supported only by a low fraction of the electorate cannot, which is self-evident, impose their preferred option, having to wait for pressure to build up in the general public to promote their concerns. Thus, parliaments are neither neutral nor objective when they make determinations in electoral matters. In countries where political traditions have been firmly established for decades or more, suggestions to change the electoral system are regarded with a high degree of suspicion. In some countries, constitutional rules exist that fix explicitly, in greater or lesser detail, the 2 system to be adopted by the legislature. Other countries, like Germany, have refrained from prescribing the system but lay down at least the basic principles that shall govern the balloting process. Thus, Article 38(1), first clause, of the Grundgesetz (hereinafter: Basic * Professor emeritus of Constitutional and International Law, Humboldt University Berlin, Faculty of Law. 1 Details given, also about historical background, by Paul Mitchell, The United Kingdom: Plurality Rule Under Siege, in THE POLITICS OF ELECTORAL SYSTEMS 157, 158–61 (Michael Gallagher & Paul Mitchell eds., 2005). 2 See, e.g., Arts. 56, 57 Costituzione [Cost.] (It.); C.E., B.O.E., Dec. 29, 1978 (Spain), Arts. 68, 69. Political scientists show little interest in these provisions. See Mario Caciagli, Italy, in ELECTIONS IN EUROPE: A DATA HANDBOOK 1027, 1034–42 (Dieter Nohlen & Philip Stöver eds., 2010); Joseph M. Vallès & Dieter Nohlen, Spain, in ELECTIONS IN EUROPE: A DATA HANDBOOK 1027, 1803, 1812–14 (Dieter Nohlen & Philip Stöver eds., 2010). 214 German Law Journal [Vol. 13 No. 05 Law or BL pro ides: Me ers of the Ger a Bundestag shall be elected by general, 3 direct, free, e ual a d secret suffrage. Most of these criteria have not given rise to any major difficulties. There is common ground in construing general, direct, free and secret according to the plain meaning of 4 these terms. Howe er, the co cept of e ual electio s has ee the cause of considerable differences of opinion. Two aspects of equality are generally distinguished. On the one hand, as far as the right of suffrage is concerned, every German citizen above 5 the age of 18 has an equal right to vote. No individual may be granted additional voting power. Modern Germany is still very much reminiscent of the Prussian three-class system, 6 which remained in force until 1918. Under that system, the population was divided into three classes according to the tax revenue produced by each class. Each of the three 7 classes was allocated the same number of seats in the State parliament. Ballot equality 8 (Zählwertgleichheit) is thus uncontested. By contrast, the question of whether there should also be outcome equality (Erfolgswertgleichheit) is highly controversial. In its early jurisprudence, the Bundesverfassungsgericht (hereinafter Federal Constitutional Court or FCC) ruled that under a system of majoritarian suffrage, outcome equality had to be 9 implemented through the (more or less) equal size of the different electoral districts. On the other hand, when proportional representation was chosen as the basis, outcome equality had to be realized by remaining faithful to that idea, and any departure required 3 GRUNDGESETZ FÜR DIE BUNDESREPUBLIK DEUTSCHLAND [GRUNDGESETZ] [GG] [BASIC LAW], May 23, 1949, BGBl. I (Ger.). 4 It is significant that WOLFGANG SCHREIBER, BWAHLG. KOMMENTAR ZUM BUNDESWAHLGESETZ 113–54 (8th ed. 2009), needs 41 pages to provide an interpretation of equality while confining himself to 21 pages (92–113) when commenting on the criteria general, direct and free. See Id. 5 Bundewahlgesetz [BGW] [Federal Electoral Act], May 7, 1956, BGBL. I at 2313, art. 12 [hereinafter Federal Electoral Act], as amended by 19th Amendment Act of 25 November 2011 (Ger.). Only in cases of conviction for grave crimes may a person be deprived of the right to vote. Id. at art. 13(1). 6 See THOMAS KÜHNE, DREIKLASSENWAHLRECHT UND WAHLKULTUR IN PREUßEN 1867–1914, at 21–26 (1994). 7 See ERNST RUDOLF HUBER, III DEUTSCHE VERFASSUNGSGESCHICHTE SEIT 1789, at 86 (2d. ed. 1982). 8 The relevant textbooks confine themselves to mentioning this proposition without any additional comment, see, for instance, Martin Morlok, Commentary on Article 38 BL, in II GRUNDGESETZ KOMMENTAR 989, margin n.97 (Horst Dreier ed., 2006); SCHREIBER, supra note 4, at 117, margin nn.45, 125, margin n.55; KLAUS STERN, I DAS STAATSRECHT DER BUNDESREPUBLIK DEUTSCHLAND 305 (2d. ed. 1984). 9 Bundesverfassungsgericht (BVerfG - Federal Constitutional Court), Case No. 2 BvR 322/61, Aug. 26, 1961, 13 BVERFGE 127, 128 (Ger.); Bundesverfassungsgericht (BVerfG - Federal Constitutional Court), Case No. 2 BvC 3/62, May 22, 1963, 16 BVERFGE 130, 140 (Ger.). This jurisprudence has been consistently confirmed. See Bundesverfassungsgericht (BVerfG - Federal Constitutional Court), Case No. 2 BvC 4/88, Nov. 24, 1988, 79 BVERFGE 169, 171 (Ger.); Bundesverfassungsgericht (BVerfG - Federal Constitutional Court), Case No. 2 BvF 1/95, Apr. 10, 1997, 95 BVERFGE 335, 353 (Ger.); Bundesverfassungsgericht (BVerfG - Federal Constitutional Court), Case No. 2 BvC 1, 7/07, July 3, 2008, 121 BVERFGE 266, 295 (Ger.); Bundesverfassungsgericht (BVerfG - Federal Constitutional Court), Case No. 2 BvC 2/06, Apr. 21, 2009, 124 BVERFGE 1, 18 (Ger.). 2012] Ger a y’s Mi ed-Member Electoral System 10 215 11 specific justification. This approach has been maintained through today. By pushing the principle of outcome equality to its extreme, both the federal legislature and the FCC have led Germany into disputes that culminated on 25 July 2012 when the FCC struck down the core provisions of the current Electoral Act regulating the allocation of seats (Article 6(1), first clause, and (5)). In other words, at the present time, although Germany still has an electoral law, this law has been crippled. It has been fragmented to such an extent that it could not serve its main purpose—to distribute seats after a national election. If, by any chance, the Bundestag were to be dissolved today, no replacement could be found. Fortunately, no impending threat of such an occurrence can be perceived. Since the next elections for the Bundestag are to take place in September or October of 2013, parliamentary consultations on how the system could be adjusted to the findings of 12 the FCC are under way. B. The Judgment of the Federal Constitutional Court of 25 July 2012 13 The judgment of the FCC of 25 July 2012 had to rule essentially on two main objections th raised against the current version of the Electoral Act as modified by the 19 Amendment 14 Act of 25 November 2011, a piece of poor legislative draftsmanship that set out the relevant provisions in such a convoluted manner that no ordinary citizen could understand 15 16 them. It is a text that nearly resists any attempt at translation. Not even the judgment 17 of the FCC was able to state its meaning in clear and straightforward terms. 10 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvH 1/52, Apr. 5, 1952, 1 BVERFGE 208, 248–56 (Ger.). This requirement has also been emphasized many times, see judgments of Bundesverfassungsgericht [BVerfG - Federal Constitutional Court)], Case No. 2 BvE 2/56, Jan. 23, 1957, 6 BVERFGE 84, 93 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 193, 197/79, May 22, 1979, 51 BVERFGE 222, 236 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 3/96, Apr. 10, 1997, 95 BVERFGE 408, 418 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 1, 7/07, July 3, 2008, 121 BVERFGE 266, 297 (Ger.); Bundesverfassungsgericht [BVerfG Federal Constitutional Court], Case No. 2 BvC 2/06, Apr. 21, 2009, 124 BVERFGE 1, 19 (Ger.). 11 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 3/11, July 25, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 2869 margin n.62 (Ger.). 12 In mid-October 2012, it was reported that the political parties represented in the Bundestag had agreed on a reform. See Bundestag könnte 2013 noch größer werden, SPIEGEL ONLINE, Oct. 17, 2012, http://www.spiegel.de/politik/deutschland/neues-wahlrecht-parteien-wollen-ueberhangmandate-ausgleichen-a861829.html. 13 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 3/11, July 25, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT NJW) 2869 margin n.62 (Ger.). 14 15 Federal Electoral Act, supra note 5, at 2313. The FCC itself called it hardly i telligi le’, judg e ts of Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 1, 7/07, July 3, 2008, 121 BVERFGE 266, 316 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], 2 BvC 4/04, Jan. 15, 2009, 122 BVERFGE 304, 311 (Ger.). 216 German Law Journal [Vol. 13 No. 05 Since its inception in 1949, the German Electoral Act had combined elements of 18 proportional representation and majoritarian suffrage. To this date, it has remained 19 controversial which one of the two components dominates. While the Electoral Act itself, in accordance with the jurisprudence of the FCC, characterizes the system as a regime of proportional representation (Article 1(1), second clause), where the choice of deputies is complemented by an element of personalization, other voices view the system 20 as made up of two components with fairly equal weight. No matter how this dispute is assessed, the fact is that the combination of the two windows has led to many difficulties. In its judgment on 25 July 2012, the FCC had to adjudicate mainly two controversial issues, the issue of the so-called egati e ote a d the issue of the constitutionality of overhang or surplus seats Überhangmandate . On the one hand, the amended Electoral Act had not been able to put an end to the phe o e o of the egati e ote which had eco e isi le particularly i y-elections but which was also a frequent feature of any regular balloting process. As a consequence 21 in particular of the recognition of Überhangmandate, it could turn out that additional 22 votes for a party list led to the loss of a seat. Under normal conditions, on election day, this could neither be anticipated nor measured but could be calculated afterwards in situations where the margins had been tight. By contrast, in the case of bye-elections, exact forecasts could be made beforehand, resulting in recommendations to the electorate not to cast their vote for the preferred political party. In fact, in one case in 2005 relating 16 But see the official translation published by the Federal Director of Elections (Bundeswahlleiter), http://www.bundeswahlleiter.de/en/bundestagswahlen/downloads/rechtsgrundlagen/bundeswahlgesetz_engl.p df. It was recently withdrawn, presumably as a response to the judgment of the FCC of 25 July 2012. 17 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 3/11, July 25, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 2869 margin nn. 23–26 (Ger.). 18 André Blais, Introduction, in TO KEEP OR TO CHANGE FIRST PAST THE POST? THE POLITICS OF ELECTORAL REFORM 1, 3 (André Blais ed., 2008) (observing that this was a atte pt to ha e the est of oth worlds ). 19 While, for instance, Franz Urban Pappi & Michael Herrmann, Überhangmandate ohne negatives Stimmgewicht: Machbarkeit, Wirkungen, Beurteilung, 41 ZEITSCHRIFT FÜR PARLAMENTSFRAGEN, 260, 270 (2010), see both elements as equivalent, HANS MEYER, DIE ZUKUNFT DES BUNDESWAHLRECHTS. ZWISCHEN UNVERSTAND, OBITER DICTA, INTERESSENKALKÜL UND VERFASSUNGSVERSTOß passim (2010), characterizes the German electoral system as essentially proportional. 20 This was controversial among the members of the Second Chamber of the FCC when their split vote prevented the Federal Electoral Act from being struck down. Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 1/95, Apr. 10, 1997, 95 BVERFGE 335, 356–81 (Ger.). But see id. at 379–80. 21 Because of its negati e co otatio , the ter e cess seats should be avoided. For an explanation of the regime of surplus seats see immediately below. Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 1, 7/07, July 3, 2008, 121 BVERFGE 266 (Ger.). 22 For an extensive discussion of the phenomenon of the negative vote see Bundesverfassungsgericht [BVerfG Federal Constitutional Court], Case No. 2 BvC 1, 7/07, July 3, 2008, 121 BVERFGE 266 (Ger.). 2012] Ger a y’s Mi ed-Member Electoral System 217 to an electoral district in Dresden, it was found out that casting a ballot for the Christian Democratic Union (CDU) would produce negative consequences for the party. Accordingly, the electorate was informed and, following the advice given to them, they cast significantly 23 fewer votes for the party than for its candidate in the district. In an ensuing dispute, the FCC did not hesitate to call this paradox a violation of basic principles of Article 38 of the Basic Law, inter alia because of the disorientation it was bound to cause among voters. A system under which a vote cast for a political party harms that party instead of benefiting it, as desired by the voter, does not meet the requirements of clarity and equity and was 24 also dee ed y the FCC to reach the pri ciple of direct electio s. Although the Amendment Act of 25 November 2011 had attempted to remedy that defect, the FCC found out that this attempt had failed. Accordingly, it declared the relevant provisions of the Electoral Act to be incompatible with the Basic Law. The second issue of contention concerned the surplus seats directly. It touched upon one of the core elements of the German electoral system. Under this system, as practiced since 1953, every elector has two votes with which to choose the 598 members of the 25 German Bundestag. The elector will be confronted with two lists. The first list contains the names of all the candidates nominated in one of the 299 districts Germany is divided into for electoral purposes. While half of the members of the Bundestag are chosen nominally by the electorate, the other 299 members are chosen based on lists established by the political parties in each one of the Laender of Germany. The number of seats to be allocated through the party lists is calculated according to the share of votes the party concerned has obtained at the federal level, all the Laender lists being deemed to be joined 26 for that purpose. The two systems do not operate independently of one another. Essentially, the number of seats won by the nominal vote is subtracted from the share resulting from the proportional computation. Where a party has strong regional roots, it may be able to win all of the district seats so that, after the subtraction operation, it holds a number of seats exceeding its share of the vote obtained at the Land level. The party 27 shall keep these surplus seats. Logically, the surplus seats will increase the number of 598 seats determined by the Electoral Act. The FCC voiced considerable distrust with regard to the surplus regime. However, it refrained from striking the relevant provisions down, confining itself to observing that the new Electoral Act, to be introduced for the 28 federal elections in 2013, must limit the number of surplus seats to 15. 23 Id. at 276–77. 24 Id. at 294–308. 25 Federal Electoral Act, supra note 5, at arts. 1–7(establishing the current regulation). 26 In English terminology, this 27 Federal Electoral Act, supra note 5, at art. 6(5). 28 ay properly e called a i ed- e er electoral syste . Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 3/11, July 25, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 2869 margin n.143 (Ger.). 218 German Law Journal [Vol. 13 No. 05 The FCC additionally had to pronounce on the distribution of seats according to the remainder vote, counted comprehensively at the federal level. The relevant provision of the Electoral Act was also struck down because only the losses suffered by a political party by rounding down the votes, but not its potential gains by rounding them up, had been 29 taken into account. This part of the judg e t, which focuses o the regulatio ’s lack of consistency, does not touch upon any of the guiding principles of the electoral regime. It raises essentially a technical problem. C. The Regime of Surplus Seats—Law and Practice I. Law The challengeable features of surplus seats are intimately linked to the general system of distribution of seats. As previously hinted, the shares of the competing political parties are calculated at the federal level. For a party to be taken into account for the allocation of 30 seats, it must have obtained at least 5% of the ballots cast. This clause of the Electoral Act was introduced to combat the pernicious impact of fragmentation of political parties, 31 one of the causes of the debacle that led to the fall of the Weimar Republic. In one of its early decisions, the FCC accepted that clause notwithstanding its insistence on outcome equality. It held that the aim of ensuring political stability was a legitimate reason to keep small parties not able to overcome the 5% hurdle away from the national parliament, in particular in view of the historical experiences Germany had gone through during the time 32 of its first democratic republic. 29 Id. at margin nn. 98–108. 30 Federal Electoral Act, supra note 5, at art. 6(5). 31 Ernst Friesenhahn, Zur Legitimation und zum Scheitern der Weimarer Reichsverfassung, in WEIMAR SELBSTPREISGABE EINER DEMOKRATIE, 81 (Karl Dietrich Erdmann & Hagen Schulze eds., 1981). For a statistical breakdown concerning the elections held during the time of the Weimar Republic from 1919 to 1933, see Jürgen W. Falter, Wahlen und Wählerverhalten unter besonderer Berücksichtigung des Aufstiegs der NSDP nach 1928, in DIE WEIMARER REPUBLIK 1918–1933, at 484, 486 (Karl-Dietrich Bracher, Manfred Funke & Hans-Adolf Jacobsen eds., 1987). 32 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvE 2/56, Jan. 23, 1957, 6 BVERFGE 84, 92–94. The FCC had already approved of similar clauses in the electoral laws of individual Laender. See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvH 1/52, Apr. 5, 1952, 1 BVERFGE 208 (Ger.). Without sufficient consideration, the 5% clause in the Law governing elections to the European Parliament was also approved, judgment of Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 193, 197/79, May 22, 1979, 51 BVERFGE 222, 236 (Ger.). However, overturning its former ruling, the Court set aside the 5% clause for European elections in a highly controversial judgment. See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 4, 6, 8/10, Nov. 9, 2011, 129 BVERFGE 300 (Ger.). 2012] Ger a y’s Mi ed-Member Electoral System 219 After eliminating the ballots cast for parties remaining under the 5% threshold, the next step is to establish the general breakdown of votes according to the relative strengths of the parties. This process involves a distribution of the available seats among the sixteen German Laender pursuant to their electoral weight, which can be measured either by the number of persons entitled to vote or by the number of voters having actively participated in the election, which was the curious method chosen by the 2011 Amendment Act (Electoral Law, Article 6(1)). Finally, at the Land level, the actual distribution of seats will take place (Electoral Law, Article 6(2)). It is at that level that the surplus regime produces its effect. If the subtraction of seats won by the nominal vote took place at the federal level, hardly any additional seats could emerge. No political party enjoys such general support among the electorate that it might fare better, across the entire German territory, through the 33 nominal lists than through the second lists, the party lists. In order to win surplus seats, a party has to rely on its regional strongholds, like the CDU in Baden-Württemberg, the Christlich-Soziale Union (CSU) in Bavaria or the Sozialdemokratische Partei (SPD) in North34 Rhine Westphalia. Thus, it is the electoral syste ’s relia ce o Ger a y’s federal structure that lies at the heart of the surplus regime. All of this will have to be reviewed in view of the new Electoral Act required for the forthcoming 2013 elections. II. Practice The regime of surplus seats operates without any consequences detrimental to proportional representation where one of the large political parties, more or less the only ones able to reap a nominal seat, obtains close to 50% of the vote. In that case, when at the same time it wins all or almost all district seats, its share of the seats allocated in the Land concerned – comprehensively twice the number of nominal seats – will correspond to its share of the general vote, few if any additional seats being available for distribution in accordance with the percentage points recorded on the second list after the prescribed deduction. Accordingly, larger parties may derive a large part of their seats in the Bundestag from the first lists. Of course, if a political party succeeds in crossing the imaginary 50% line, which results from the logic of the system, half of the seats being provided on each one of the two lists, it will then obtain additional list of seats in harmony with its share of the vote, beyond the number of district seats it won. 33 At the 2009 federal elections, the CDU/CSU together obtained 33.8 % of the vote while the SPD remained confined to 23.0%. Through an exceptionally strong showing, the FDP (Free Democratic Party) took 14.6% of the vote. See Alan Crawford, Merkel’s CDU/CSU Won 33.8% of Vote, Final Election Results Show, BLOOMBERG.COM (Oct. 14, 2009), http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1NtBSHNfNZk. 34 On the same occasion, in Baden-Württemberg, the CDU obtained 34.4% of the second vote, in Bavaria the CSU reached 42.5%, and in North Rhine Westphalia the SPD stood at 28.5%. See Christian Social Union of Bavaria, PRINCETON.EDU, http://www.princeton.edu/~achaney/tmve/wiki100k/docs/Christian_Social_Union_of_Bavaria.html 220 German Law Journal [Vol. 13 No. 05 In the debates on the electoral system, it has generally been observed that the political situation in Germany has changed dramatically in recent years. Instead of three parties competing for votes, currently five to six parties can be found permanently on the political stage. The gra d old parties, the “PD a d the CDU with its Ba aria affiliate C“U, are still the ai political forces, a d the eter al third, the Free De ocratic Party FDP , 35 continues as a group with heavy ups and downs. But the race for positions three through six is very open. The Green Party has by now established itself as a political factor that can reliably count on a share between ten and twenty percent of the votes in national 36 elections. After Ger a reu ificatio , the ew party Die Linke The Left) came into existence as the fruit of a merger between the former Party of Democratic Socialism (PDS), which had its roots in the Party of Socialist Unity (SED) of the extinct German Democratic Republic, and some left wing splinter movements in West Germany. Lastly, the Pirate party has made its appearance in the most recent past, a group of young people with a sparsely defined political program. Given this intensification of the political battle with the ensuing increased diversification of the vote, it may well be that, in a Land of the Federal Republic, a political party which has obtained no more than thirty-five percent of the total vote at that level wins nonetheless all of the nominal seats in the relevant districts. It will then be provided with half of the seats available for that Land, largely exceeding, through its nominal seats, its proportional share. For advocates of proportional representation in its pure form, this state of affairs 37 creates uneasiness. From the inception of the two-list system, however, the principle has persisted that surplus seats should be kept in existence. In fact, how could a political system oppose the will of the voters in a constituency who has expressed their preference for a specific candidate? Any repeal of such seats through subsequent computational 38 exercises would be considered as highly illegitimate. As of August 2012, the Bundestag 35 While, as indicated, the FDP collected a record 14.5% of the vote in 2009. See Germany: Political Volatility Sees Greens Rise, SOCIALISM TODAY, http://www.socialismtoday.org/148/germany.html. 36 The Green Party rose to 10.7% at the federal elections in 2009. See Mixed results in German Federal Election, GREEN PAGES (Oct. 15, 2009), http://gp.org/greenpages-blog/?p=1648. However, at the last Land election in Baden-Württemberg in 2011, it came in surprisingly as second with 24.2%. See Landtagswahl 2011 in BadenWürttemberg, LANDESZENTRALE FÜR POLITISCHE BILDUNG BADEN WÜRTTEMBERG, http://www.landtagswahl-bw.de/. 37 The most fervent adversary of surplus seats, raising many sinister speculations, is Hans Meyer in several publications. See, e.g., DEMOKRATISCHE WAHL UND WAHLSYSTEM, III HANDBUCH DES STAATSRECHTS 521, 537 (Josef Isensee & Paul Kirchhof eds., 3d. ed. 2005); WAHLRECHTSGRUNDSÄTZE, WAHLVERFAHREN, WAHLPRÜFUNG, III HANDBUCH DES STAATSRECHTS 543, 570–77; DIE ZUKUNFT DES BUNDESWAHLRECHTS passim (2010). 38 See, e.g., MICHAEL WILD, DIE GLEICHHEIT DER WAHL, 244 (2003). Howe er, the i ority group of four judges in the judgment of Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 1/95, Apr. 10, 1997, 95 BVerfGE 335, 374 (Ger.), saw no inconvenient in denying a seat to the district candidates with the lowest scores. 2012] Ger a y’s Mi ed-Member Electoral System 221 had 620 members, notwithstanding the determination in the Electoral Act that, in principle, it consists of 598 members (Electoral Law, Article 1). For a long time, the surplus seats did not give rise to major objections. Their number was low, and the general political landscape was not seriously reshuffled by them. From 1949 to 1990, only 17 such seats came into existence. However, since the first elections at the national level in the reunified Germany, the relevance of surplus seats has considerably increased. In 2009, the CDU/CSU group reaped no less than 24 surplus seats, providing the majority under Chancellor Merkel with a comfortable edge (332 seats) over the opposition, 39 which could not boast a single surplus seat. Yet, even without such additional seats, a solid majority would have been ensured (308 majority seats against 290 seats for the opposition). In 1998, by contrast, the SPD had been able to collect all of the 13 surplus 40 seats allocated at that time. Thus, it is by no means guaranteed that the CDU/CSU group will exclusively benefit from the surplus regime. In any event, however, the smaller parties have only theoretical chances to bring home such an additional yield. They must be satisfied if now and then one of their candidates obtains a (relative) majority in one of the electoral districts, their second-list score normally surpassing the low level of their first-list wins. It is a recently discovered and curious phenomenon that the chances of winning surplus seats increase in the measure in which a party starts losing its dominant position in the 41 political environment of a given Land. A party which, like the CSU, had in the past continually achieved an absolute majority of the vote in Bavaria, cannot win any additional seats since only half of the seats granted to a Land are allocated via the first list on the 42 basis of the nominal vote. On the other hand, although a party may suffer a certain decline, it may still be able to win more nominal seats than it could claim on the basis of proportional computation where its proportional score amounts to a percentage between 30 and 50%. In Baden-Württemberg in 2009, the CDU obtained 34.4% of the vote, but succeeded in getting approval for its direct candidates in all but one of the 38 electoral 39 Press Release, Roderich Egeler, President of Statistischen Bundesamtes, Gültiges amtliches Ergebnis der Bundestagswahl 2009 (Oct. 14, 2009), available at http://www.bundeswahlleiter.de/de/bundestagswahlen/BTW_BUND_09/presse/75_EndgueltigesErgebnis.html. 40 See Geschichte der Überhangmandate im Deutschen Bundestag, WAHLRECHT.DE (Nov. 1, 2009), http://www.wahlrecht.de/ueberhang/ueberhist.html. 41 42 See MEYER, supra note 19, at 23, 101. The share of the vote won by the CSU in Bavaria has been impressive for decades but seems to deteriorate in the recent past: 1957: 57.2%; 1961: 54.9%; 1965: 55.6%; 1969: 54.4%; 1972: 55.1%; 1976: 60.0%; 1980: 57.6%; 1983: 59.5%; 1987: 55.1%; 1990: 51-9%; 1994: 51.2%; 1998: 47.7%; 2002: 58.6%; 2005: 49.2%; 2009: 42.5%. Breakdowns of the votes from 1949 to present can be found at http://www.bundeswahlleiter.de/de/bundestagswahlen/fruehere_bundestagswahlen. German Law Journal 222 [Vol. 13 No. 05 43 districts of the Land. Its share of distributed seats was thus increased to 45.2%, which was an augmentation of 10.8 percentage points over the percentage to which it would have been entitled to according to the proportional method. This is certainly an intriguing feature of surplus seats. It seems to fly in the face of justice if justice is seen exclusively in 44 terms of proportional distribution of parliamentary seats. On the other hand, it remains that such seats accrue only to political parties whose candidates are strongly rooted in their local constituencies. It would be wrong, therefore, to disqualify the surplus seats as a 45 bonus for ailing parties: They will invariably go to political parties that enjoy large, though not necessarily overwhelming, support among the population. Thus, they can be seen as a mechanism of assistance to parties that can legitimately vie for assuming governmental responsibility although not being able to enlist a majority of the voters. D. The Legal Position Under the Basic Law One can only conclude that the system, notwithstanding the intellectual simplicity of its premises, has acquired unnecessary features of complexity through implementing legislation that tried to realize outcome equality to its very extreme by even establishing a system providing for the distribution of the remainder vote with repercussions in all 16 46 Laender. Outside observers are hardly able to understand the refined conclusions drawn by the FCC from the principle of equality of the vote. One is faced here with one of the frequent situations where the Basic Law itself, the plain meaning of its texts, is pushed to the sidelines. It is only the jurisprudence of the FCC which prevails in the doctrinal debates on the electoral system. The FCC proceeds from the assumption that the electoral system of Germany is a system of proportional representation, only slightly modified by some elements intended to 47 personalize the balloting process. In fact, the Electoral Act provides in Article 1(1), 43 Die Bundestagswahl 2009 in Baden-Württemberg, LANDESZENTRALE FÜR POLITISCHE BILDUNG BADEN WÜRTTEMBERG, http://www.bundestagswahl-bw.de/bundestagswahlen.pdf. 44 Heiko Holste, Die Reform des Bundeswahlrechts: Wiedervorlage in Karlsruhe, 31 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT 8, 10 (2012) (calling it sarcastically an irratio al loser o us . 45 MEYER, supra note 19, at 109. 46 No attempt will be made here to explain in detail the legal rules governing this additional aspect of the electoral regime. 47 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvE 2/56, Jan. 23, 1957, 6 BVERFGE 84, 90 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 3/62, May 22, 1963, 16 BVERFGE 130, 139 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 1/95, Apr. 10, 1997, 95 BVERFGE 335, 358 (Ger.); Bundesverfassungsgericht (BVerfG - Federal Constitutional Court), Case No. 2 BvC 1, 7/07, July 3, 2008, 121 BVERFGE 266, 297 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 3/11, July 25, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 2869 margin n.115 (Ger.). 2012] Ger a y’s Mi ed-Member Electoral System 223 second clause, that the members of the Bundestag shall e elected i accorda ce with the principle of proportional representation combined with the personal election of ca didates. It sta ds to reaso that this deter i atio ust e respected. But it does not necessarily reflect the essence of the requirements to be derived from Article 38(1) BL. Undeniably, at the level of ordinary legislation, the principle of proportional representation has been emphasized through the clause providing for the subtraction of the seats directly obtained in the different constituencies from the share obtained in consonance with the list results (Electoral Act, Article 6(4)). But the contention that the Basic Law must be 48 interpreted in line with its construction by the legislative bodies is not persuasive. The FCC has entangled itself with its own jurisprudence, proceeding step by step on a path leading to the total elimination of legislative discretion. The nature of the electoral system to be adopted for the members of the Bundestag came up quite naturally in the period between 1948 and 1949 during the deliberations on the constitution of the new democratic Germany before the Parlamentarischer Rat 49 (Parliamentary Council), the body entrusted with drawing up the draft of the Basic Law. It was clear to every one of the members of that body that the design of an electoral system was an issue of the highest importance; many members had served in the Reichstag when it was closed down by the Nazi government in 1933, and the failures of the Weimar Republic electoral system that gave rise to the Nazis were still vivid in their memories. Eventually, the opinion prevailed that as little as possible on the electoral process should be enshrined in the Basic Law itself, the better option being to leave the 50 determination of the procedure to implementing legislation. On a couple of occasions, 51 the FCC has confirmed this finding. The most plausible inference to be drawn therefrom would be to affirm the discretion of the competent legislative bodies to choose the system best suited to the needs of society. In fact, some of the relevant decisions explicitly state that the legislature would be free either to introduce a majoritarian system following the 48 See criticism by Christofer Lenz, Die Wahlrechtsgleichheit und das Bundesverfassungsgericht, 121 ARCHIV DES ÖFFENTLICHEN RECHTS 337, 352 (1996); MEYER, supra note 19, at 15. 49 The 65 members of the Parliamentary Council were elected by the Länder parliaments; the Länder had come into existence prior to the establishment of overarching governmental system of the Federal Republic of Germany. 50 See Summary of the Deliberations of the Parliamentary Council, 1 JAHRBUCH DES ÖFFENTLICHEN RECHTS DER GEGENWART, NEUE FOLGE 349 (1951); see also HARALD ROSENBACH, DER PARLAMENTARISCHE RAT 1948–1949 AKTEN UND PROTOKOLLE AUSSCHUSS FÜR WAHLRECHTSFRAGEN VII (6th ed. 1994). 51 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 1/95, Apr. 10, 1997, 95 BVERFGE 335, 349 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 1, 7/07, July 3, 2008, 121 BVERFGE 266, 296 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 4/04, Jan. 15, 2009, 122 BVERFGE 304, 314 (Ger.); Bundesverfassungsgericht [BVerfG Federal Constitutional Court], Case No. 2 BvC 2/06, Apr. 21, 2009, 124 BVERFGE 1, 19 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 3/11, July 25, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 2869 at margin n.54, 56 (Ger.). 224 German Law Journal [Vol. 13 No. 05 British model or to opt for proportional representation. Such holdings can be found not 52 only in decisions from the early years of the Federal Republic, but also in the most recent 53 pronouncements. The FCC has even acknowledged that it would be permissible to introduce a Grabensystem, a gap or ditch system that would consist of electing half of the members of the Bundestag by nominal vote and the other half on the basis of party lists, 54 but without any kind of offsetting. Both systems would operate independently of one another, meaning that the smaller parties would suffer a tremendous disadvantage, their 55 share of the seats of the Bundestag being more or less reduced by half. In spite of the obvious advantages of such a system for the two larger parties, it has never materialized. More than half a century ago, in 1956, its introduction was seriously contemplated. Eventually, however, the potential beneficiaries shied away from initiating a legislative procedure, not only because of the resistance of the FDP, but also on account of the 56 reaction of the public at large. Generally, observers opined that to adopt the gap system amounted to a quasi-revolutionary coup d’ tat. The existence of smaller political parties 57 had become an element of constitutional practice cherished by the electorate. At that time, the existence of the FDP was viewed as a moderating element capable of putting a mitigating brake on any of the policies of the larger parties that would invariably need a coalition partner for the formation of a government. Accordingly, the FDP appeared as an element of compromise and moderation. In spite of its point of departure, the discretionary freedom of the legislature to choose an electoral system according to political expediency, the FCC has constantly maintained that the choice of the system of proportional representation entailed strict systemic 58 consequences. Once the fundamental option had been made, the law was bound to 52 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvH 1/52, Apr. 5, 1952, 1 BVERFGE 208, 248 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvE 2/56, Jan. 23, 1957, 6 BVERFGE 84, 90 (Ger.). 53 See cases cited supra, note 51. 54 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 1/95, Apr. 10, 1997, 95 BVerfGE 335, 354 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 1, 7/07, July 3, 2008, 121 BVerfGE 266, 296 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 4/04, Jan. 15, 2009, 122 BVerfGE 304, 311 (Ger.). 55 Obviously, the relevant percentages could also be changed, the election of nominal candidates being confined, e.g., to one third of the seats. See Josef Isensee, Funktionsstörung im Wahlsystem: das negative Stimmgewicht— Denkbare Lösungen eines Dilemmas, in DEUTSCHES VERWALTUNGSBLATT 269, 276 (2010). 56 See WILD, supra note 38, at 88. 57 Id. 58 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvE 2/56, Jan. 23, 1957, 6 BVERFGE 84, 90 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 3/62, May 22, 1963, 16 BVERFGE 130, 140 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 912/71, Oct. 11, 1972, 34 BVERFGE 81, 100 (Ger.); Bundesverfassungsgericht [BVerfG - Federal 2012] Ger a y’s Mi ed-Member Electoral System 225 59 remain on that course. Any departure required specific justification. Although the FCC has never reneged on its holding that even first past the post was constitutionally permissible, it has constantly examined the two-vote system with its implication of surplus 60 seats with a high degree of distrust. A dramatic culmination point was reached in 1997 61 with a judgment where the judges of one of the chambers of the FCC split into two groups of four, the first group holding that surplus seats were constitutionally permissible 62 though having to be kept within certain limits, while the second group pronounced itself 63 unreservedly against the lawfulness of such seats. Given the equal weight of the two groups, no finding as to the unconstitutionality could be made, as provided by Article 15(4), third clause, of the Act on the FCC. It is submitted that the line of reasoning generally pursued by the FCC with regard to surplus seats should be abandoned. Two major reasons militate for such a radical shift. In the first place, the conclusion that the choice of the system by the responsible parliamentary bodies requires consistency has no valid foundations. In many of its decisions, the FCC speculates about the possible consequences of the adoption of one or Constitutional Court Case No. 2 BvF 1/95, Apr. 10, 1997, 95 BVERFGE 335, 390, 392 (dissenting). Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 3/11, July 25, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 2869 margin nn.116–22 (Ger.), employs more cautious formulations. The key sentence of the judgment of Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 912/71, Oct. 11, 1972, 34 BVERFGE 81, 100 (Ger.), reads: Whe the legislature opts for the proportio al syste , it submits thereby in principle to the requirement of outcome equality of every electoral vote as the specific elaboration of the principle of equality of suffrage under the proportional system . . . . 59 See, e.g., Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 1, 7/07, July 3, 2008, 121 BVERFGE 266, 297 (Ger.) ( A y differe tiatio s re uire for their justificatio i aria ly a special, well fou ded, co pelli g’ reaso . ) This was reiterated in the decision of Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 2/06, Apr. 21, 2009, 124 BVerfGE 1, 19 (Ger.). 60 Ample proof of this distrust is provided by the large number of decisions in which the FCC discussed the lawfulness of surplus seats. See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 9/56, July 3, 1957, 7 BVERFGE 63, 74 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 3/62, May 22, 1963, 16 BVERFGE 130, 139–40 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Nov. 24, 1988, 79 BVERFGE 169, 171–72 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 1/95, Apr. 10, 1997, 95 BVERFGE 335, 358–63 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 1, 7/07, July 3, 2008, 121 BVERFGE 266, 294 (Ger.) 61 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 1/95, Apr. 10, 1997, 95 BVERFGE 335 (Ger.). 62 Id. at 349–67. 63 Id. at 367–407 German Law Journal 226 [Vol. 13 No. 05 64 the other system. Matters of legislative discretion are transformed into constitutional arguments without any convincing reason. In that sense, the Court loses sight of the 65 constitutional background. The decision of the framers to leave the electoral system open, thereby entrusting ordinary legislation with making the requisite determinations, must be taken seriously. Their silence cannot be interpreted as an implicit prohibition of first past the post as has been suggested 66 by some voices in the legal literature. An examination of the travaux préparatoires reveals that the issue was highly controversial, the CDU suggesting with regard to the first federal elections in 1949 the introduction of a plurality (majority) system while the SPD 67 favoured proportional representation. The United Kingdom and the United States, which still held their powers a d respo si ilities resulti g fro Ger a y’s surre der i 94 , strongly favoured a plurality system modeled on the British first-past-the-post regime of single-member constituencies. They even intervened in the drafting process, rejecting the 68 first draft drawn up by the Parliamentary Council. Under these circumstances, no agreement on specifying the main elements of the electoral system at the constitutional level was possible. No matter how one may appraise such external constraints, the fact is that the Parliamentary Council did not exclude any legitimate option within the framework determined by the principles of Article 38(1) of the Basic Law. By holding that the choice of proportional representation is a systemic determination that requires consistency, the FCC follows a curious logic that has no legitimacy from the viewpoint of constitutionality. Systemic consistency may be required as an inference of equality and non-discrimination, which is not the issue with regard to the choice of the 69 electoral system. Almost half a century ago, a short study appeared bearing the title, Von 70 der Verfassungsmäßigkeit der Gesetze zur Gesetzmäßigkeit der Verfassung. The FCC construes indeed the Basic Law in accordance with an ordinary law of implementation, 64 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 1/95, Apr. 10, 1997, 95 BVERFGE 335, 362–63 (Ger.); see also Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 3/11, July 25, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 2869 margin nn.92–97 (Ger.). 65 Criticism from the viewpoint of political science by Herbert Kleinert, Anmerkungen zum Wahlrechtsstreit—Ein Problem gelöst, ein anderes bleibt. Oder: Ein Blick über die Grenzen lehrt Gelassenheit, 43 ZEITSCHRIFT FÜR PARLAMENTSFRAGEN 185, 187 (2012). 66 MEYER, supra note 19, at 98; see also Meyer, supra note 37, at 537. 67 ROSENBACH, supra note 50, at XXXV. 68 See id. 69 On the issue of Folgerichtigkeit, see, for example, Paul Kirchhof, Allgemeiner Gleichheitssatz, in VIII HANDBUCH DES STAATSRECHTS 697, 818–30 (Josef Isensee & Paul Kirchhof eds., 3d. ed. 2010). 70 WALTER LEISNER, VON DER VERFASSUNGSMÄßIGKEIT DER GESETZE ZUR GESETZMÄßIGKEIT DER VERFASSUNG passim (1964). 2012] Ger a y’s Mi ed-Member Electoral System 227 thus resorting to a method which reverses the normative hierarchy. It opines that the determinations made through the Electoral Act, explicitly in Article 1(1) of that Act, must be respected: Proportional representation requires consequential implementation. From a logical viewpoint, this rigidity appears to be erroneous. Proportional representation in its pure form would require establishing the German territory as a single territorial district so that any differentiations resulting from the federal structure as the basis for the allocation of seats are completely done away with. Yet many intermediate systems between first past the post, the system of relative plurality, and proportional representation in such rigid form are conceivable and may be advisable on legitimate grounds. The two systems are not opposed to one another as irreconcilable antipodes. Rather, the transition from one to 71 the other must be seen as a continuum. No explanation has been given by the FCC for why, in principle, no variations of proportional representation should be permissible under the terms of the Basic Law, apart from the 5% threshold. In fact, notwithstanding the rigidity of the principled position taken by the FCC, until very recently the system of surplus 72 seats had always been confirmed, notwithstanding the objections raised against it. The departure from the orthodoxy of proportional representation began with the clause 73 contained in the Electoral Act of 1953 (Article 9(4)) denying any seats to political parties that have not reached at least 5% of the vote at the federal level. To prevent parliamentary representation to freely constituted political groups competing for political power parties raises serious questions in a free pluralistic society. The relevant clause was indeed challenged already in the early years of the Federal Republic of Germany, as being 74 designed to deny a political voice to minorities outside the mainstream. However, the primary function of elections is not to faithfully reflect all of the political currents and tendencies in society. Rather, elections must prepare the ground for the formation of a stable government capable of effectively discharging the manifold tasks confronting the 75 nation. As previously hinted, at the initial stage of the Federal Republic of Germany, politicians were still haunted by the fragmentation of the Reichstag under the Weimar Constitution, believing that the continual internal fights in that body, facilitated by the multitude of small and even tiny parties, was a determinative factor in the erosion of 71 Persuasively demonstrated by Lenz, supra note 48, at 346. This is also acknowledged by Meyer, supra note 37, at 535. 72 See supra note 58. 73 Federal Electoral Act, supra note 5, at 470. 74 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvE 2/56, Jan. 23, 1957, 6 BVERFGE 84 (Ger.). 75 All of these arguments were already considered with thorough attention in the judgment of Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvH 1/52, Apr. 5, 1952, 1 BVERFGE 208, 248 (Ger.). German Law Journal 228 [Vol. 13 No. 05 76 governmental authority. Under this historical premise, the FCC declared the 5% threshold to be unobjectionable, in spite of its departure point that the choice of proportional representation required outcome equality with regard to the balloting 77 process. Concerning the surplus seats, the FCC originally proceeded from the assumption that they were just a marginal phenomenon, not susceptible of putting a decisive hallmark on the election process and therefore not constituting a disturbing element affecting the requirement of outcome equality. At the same time the Court cautioned as early as 1957 78 that surplus seats could be deemed to be admissible only within certain limits, which were not specified in detail. Eventually, the 25 July 2012 judgment abandoned the vagueness of the earlier holdings, stating that the new regulation needed to fill the vacuum left by the invalidation of the key provision of the Electoral Act in its 2011 version must 79 provide for a limit of 15 surplus seats. The FCC itself acknowledges that this limit, which corresponds roughly to half of the seats a political party must obtain in order to overcome 80 the 5% hurdle, may seem to have been chosen with some degree of arbitrariness. It does not even attempt to give a rational explanation for that number. The observer has the impression that the FCC has confined itself to articulating its uneasiness about, and distrust of, surplus seats without being able to identify the true grounds for its dictum. Thus, it has failed to comply with its judicial duty to provide appropriate reasons for its determination. It is hardly persuasive to leave surplus seats in a grey zone between constitutional acceptability and illegitimacy. If surplus seats are objectionable, then they must be abolished once and for all without any restriction. On the other hand, if they constitute a legitimate complement to the system of proportional representation, institutional mechanisms should be sought which are suited to keep them as a complement. To decree that a ceiling of fifteen seats must be introduced smacks of arbitrariness, as the FCC itself has acknowledged. Hardly any mechanism is conceivable that would, without leading to new complexities, ensure compliance with the borderline drawn by the FCC. 76 KARL-DIETRICH BRACHER, DIE AUFLÖSUNG DER WEIMARER REPUBLIK: EINE STUDIE ZUM PROBLEM DES MACHTVERFALLS IN DER DEMOKRATIE, 84–86 (5th ed. 1971). 77 See text accompanying supra note 32. 78 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 9/56, July 3, 1957, 7 BVERFGE 63, 75 (Ger.); see also Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 3/62, May 22, 1963, 16 BVERFGE 130, 140 (Ger.). 79 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 3/11, July 25, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 2869, at margin nn.143–44 (Ger.). 80 ca Id. ( The Cha er realizes that the u er of ot co pletely e supported y reaso s. ). surplus seats, a act of judicial particularizatio of the law, 2012] Ger a y’s Mi ed-Member Electoral System 229 In the first place, the rigid idea of outcome equality (Erfolgswertgleichheit) should be abandoned. This concept stands in stark contrast to the many findings of the FCC itself to 81 the effect that the German legislature is free to choose any appropriate electoral system. If first past the post is compatible with Article 38(1) of the Basic Law and if the intermediate regime of a ditch system, according to which the two lists would operate as independent systems, does not meet with any objections either, the slight modifications of proportional representation resulting from the acceptance of surplus seats can hardly be deemed to infringe the electoral principle of equality of the vote. The jurisprudence of the FCC lacks consistency. The basic propositions it proclaims as deriving from Article 38(1) of the Basic Law, in no way lead to the rejection of surplus seats. If total rejection of proportional representation is permissible under first past the post, and if the ditch system with its incisive consequences for smaller parties is also a viable option, slight variations of proportional representation cannot be rejected. In the legal literature, various writers 82 have advocated such a conclusion a maiore ad minus. The constant jurisprudence of the FCC stands like a rocher de bronze, which prevents embarking on any paths that would circumvent the holy dogma of outcome equality. To date, the FCC has rarely ever withdrawn from positions taken in earlier decisions. Such new orientations, even by 83 explicit acknowledgment, have occurred, but only in very rare instances. It is true, on the other hand, that the electoral system of a nation having embraced pluralist political freedom must be fair and equitable. Any attempt to misuse the electoral regime for manipulative purposes must therefore be deemed to infringe core principles of the Basic Law. For that reason, the FCC made a painstaking effort in 1957 to justify the 5% 84 clause. The reasons it adduced were legitimate; they have stood the test of time and find 85 confirmation in the legislation of other countries resting on the same political paradigms. 81 See text accompanying supra note 54. 82 See references in the opinion of the four dissenting judges concerning the judgment of Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 1/95, Apr. 10, 1997, 95 BVerfGE 335, 373 (Ger.); Dirk Ehlers & Marc Lechleitner, Die Verfassungsmäßigkeit von Überhangmandaten, JURISTENZEITUNG 761, 762 (1997); Lenz, supra note 48, at 345. 83 The most outstanding example is the distancing of the FCC from the Halbteilungsgrundsatz, the principle according to which income taxes must not exceed 50% of the taxable revenue. The principle was proclaimed in a decision of Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvL 37/91, June 22, 1995, 93 BVERFGE 121, 138 (Ger.), but abandoned by a decision of Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 2194/99, Jan. 18, 2006, 115 BVERFGE 97, 114 (Ger.). The second relevant example is the departure of the FCC from the 5% clause concerning elections to the European Parliament. Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 3/11, July 25, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 2869 margin n.143 (Ger.). 84 85 See text accompanying supra note 32. Detailed references are given by Dieter Nohlen & Philip Stöver, Elections in Europe, in ELECTIONS IN EUROPE 69, 92 (2010). 230 German Law Journal [Vol. 13 No. 05 In terminology, the FCC seems to have moved away from the earlier formulations where systemic consistency was explicitly presented as a constitutional requirement. All of the more recent decisions emphasize the necessity of justifying any departure from the ground rule of proportio al represe tatio , tryi g to softe the sta dard of co pelli g 86 zwingend reaso s to appropriate sachlich legitimiert . Yet, the yardstick applied still remains Erfolgswertgleichheit outco e e uality , which, it is submitted, has led the FCC onto the wrong path. It is much easier to apply outcome equality as the appropriate yardstick than to inquire into the fairness and equity of an electoral regime. Outcome equality provides a rather rigid yardstick. On the other hand, fairness constitutes a flexible standard, the application of which is essentially left to the decision-making power of the legislature. In this regard, the jurisprudence of the FCC would appear amply to transgress the boundary line between legislative discretion and constitutional requirements. The judgment of 25 July 2012, in particular, is filled up with speculations about any possible consequences entailed by the 87 acceptance of surplus seats under contemporary conditions. It may well be that today surplus seats come into being under circumstances that had not been foreseen by anyone. But the system as such could never be challenged as embodying manipulative tendencies. On the contrary, the considerations that have led to the instauration of the German mixedmember system are basically sound and remain unobjectionable. The original idea was to foster a close relationship between members of the Bundestag and the electorate, at least with regard to candidates running in the different electoral districts. It was assumed that persons nominated by the political parties for the first list would have to be firmly rooted in the societal environment of their districts. Democracy would therefore not remain an abstract, somewhat hollow concept, but rather a living 88 reality. In order to win the seat in issue, candidates would have to devote special care to 86 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 3/96, Apr. 10, 1997, 95 BVERFGE 408, 418 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 1, 7/07, July 3, 2008, 121 BVERFGE 266, 297 (Ger.); see also Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 3/11, July 25, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 2869 margin n.58, 127 (Ger.). 87 Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 3/11, July 25, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 2869 margin n.62 (Ger.). 88 The argument has been generally accepted in the jurisprudence of the FCC. See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 9/56, July 3, 1957, 7 BVERFGE 63, 74 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 3/62, May 22, 1963, 16 BVERFGE 130, 140 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 89/74, Mar. 9, 1976, 41 BVERFGE 399, 423 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 1/95, Apr. 10, 1997, 95 BVERFGE 335, 358 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 3/96, Apr. 10, 1997, 95 BVERFGE 408, 412 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 28/96, Feb. 26, 1998, 97 BVERFGE 317, 327 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 3/11, July 25, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 2869 margin n.133 (Ger.). 2012] Ger a y’s Mi ed-Member Electoral System 231 the needs and wishes of the inhabitants of their constituency, thereby vitalizing the idea that democracy springs up from the grassroots level, as indicated in Article 20(2) of the Basic Law: All state authority is deri ed fro the people. Concerning the choice of district candidates, the political parties have far less influence than with regard to establishing the Laender lists, where normally the party bureaucracies 89 wield decisive influence. In this sense, the district nominations embody a piece of bottom-up democracy, in full conformity with the objective of Article 38(1) that elections must be direct, although the political parties are also structurally present in the selection of the district candidates. Admittedly, list candidates are also elected directly, but in every one of the electoral districts, the voters know the identity of the person to whom they entrust their confidence, whereas no forecasts can be made as to which candidates on the second list will ultimately make his/her way to the Bundestag. This original concept has not lost its raison d’ tre by virtue of the profound 90 transformations modern society has witnessed. One of the most fervent advocates of strict proportional representation, Hans Meyer, has argued that local representation is a 91 thing of the past that has no basis in the sociological reality of our time. He therefore rejects the design of the two-vote system, holding that party allegiance is the primary 92 criterion relied upon by voters casting their ballot. It may well be true that the political parties have de facto won the upper hand in all political processes, not only in Germany 93 but also in most other European countries. However, the conceptual premises of the constitutional order of Germany diverge considerably from the factual position. Although the Basic Law recog izes political parties as participa ts i the for atio of the political will of the people Article , they are esse tially o ore tha i stru e ts ser i g the people in the actual exercise of their democratic rights. In particular, they do not enjoy a monopoly. In the last analysis, the electorate selects individual candidates, not political parties, and the Bundestag is composed of individual human beings, not political parties 94 (Article 38(1) of the Basic Law). Consequently, to determine that half of the seats of the 89 See Nir Atmor, Reuven Y. Hazan & Gideon Rahat, Candidate Selection, in PERSONAL REPRESENTATION: THE NEGLECTED DIMENSION OF ELECTORAL SYSTEMS 21, 28 (Joseph P. Colomer ed., 2011); Matthew Soberg Shugart, E tre e Electoral Systems and the Appeal of the Mixed-Member Alternative, in MIXED-MEMBER ELECTORAL SYSTEMS: THE BEST OF BOTH WORLDS? 25, 35–36 (Matthew Soberg Shugart & Martin P. Wattenberg eds., 2001). 90 See, e.g., Pappi & Herrmann, supra note 19, at 270. 91 MEYER, supra note 19, at 8, 11; see Meyer, Demokratische Wahl und Wahlsystem, supra note 37, at 534. 92 Similar arguments are advanced by Sophie-Charlotte Lenski, Paradoxien der personalisierten Verhältniswahl, 134 ARCHIV DES ÖFFENTLICHEN RECHTS 473, 479–500 (2009); Christoph Möllers, 1 Wahlrecht: Das missverstandene Systemargument im Streit um die Überhangmandate, RECHT UND POLITIK 1, 7–8 (2012). 93 See, e.g., JAAP WOLDENDORP, HANS KEMAN & IAN BUDGE, PARTY GOVERNMENT IN 48 DEMOCRACIES (1945–1998): COMPOSITION, DURATION, PERSONNEL, 1–10 (2000). 94 Text accompanying supra note 3. 232 German Law Journal [Vol. 13 No. 05 Bundestag shall be allocated in single-member districts is a decision fully in line with the 95 political philosophy of the Basic Law. This same philosophy supports also the proviso of the Electoral Act that surplus seats shall be maintained even when their number exceeds the share a party has won on the basis of the relevant Land list. Any attempt to deprive persons having obtained the (relative) majority in an electoral district would appear as an affront to the democratic principle. At first sight, it may appear contradictory that surplus seats will primarily go to political parties that have lost their dominating positions, collecting no more than between 30% and 50% of the proportional vote according to the second list. However, this is an unintended side effect of the regime of overhang seats. Furthermore, if indeed the intention pursued is to provide the strongest parties, even those below an approval rate of 50%, with a bonus, this cannot be characterized as an illegitimate maneuver. It follows the logic of first past the post or of the ditch system where structurally the largest parties are provided with additional seats because of their strength. It is therefore hardly understandable why the FCC has rejected such an objective as constitutionally unacceptable. Again the FCC was blinded by its fixation with the principle of outcome equality, which, it should be reiterated again, has no validity under the auspices of free choice of the electoral system. In recent years, some authors have formulated the reproach that the two-vote system lends itself too easily to manipulative purposes, and that the voters are resorting to 96 strategic vote splitting. Indeed, this has become a current feature for a couple of years. Whereas during the foundational years of the Federal Republic, voters were, in their great majority, unaware of the relative importance of their first and their second vote, they have progressively become conscious of their decisional power. They know that to cast a ballot for a district candidate nominated by one of the smaller parties who has no chance 97 whatsoever to get elected is a wasted ballot. Therefore, they may cast their first vote for a candidate of a friendly political party that might later form a coalition with their own preferred political party, hoping that that candidate will win the district seat, perhaps even in the form of a surplus seat. Mainly, the FDP has benefited from such strategic thinking inasmuch as it was crystal clear on election day that their aim was to enter into a coalition 95 Federal Electoral Act, supra note 5, at art. 1(2). 96 Lenski, supra note 92, at 502; MEYER, supra note 19, at 36, 59, 72–74, 100. A first hint was given by the FCC itself in its decision of Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvR 9/56, July 3, 1957, 7 BVERFGE 63, 75 (Ger.). 97 However, where a political party has no allies—like the party Die Li ke The Left or the Natio al De ocratic Party NPD o the e tre e right ha d side of the political spectrum—voters have no such choice. 2012] Ger a y’s Mi ed-Member Electoral System 233 with the CDU/CSU. Well-advised supporters of the FDP therefore gave their first vote to 98 the CDU/CSU, putting their crosses for the FDP only on the second list. As an observer, one may wonder why such strategic casting of the two ballots should be stig atized as a ipulatio . By such co duct, voters do nothing else than make use of 99 the opportunities that the electoral system offers them. The contention that this amounts to an infringement of the principle of outcome equality fails dramatically. Every voter has the same opportunity to cast his/her ballot by splitting the two votes. No one is obligated to cast the vote twice for the same political party, both on the first and on the second list. Splitting is an integral element of the system and does not confer a double vote on those making use of that opportunity, in violation of the principles of equality and 100 non-discrimination. The bitterness with which this doctrinal battle has been fought is largely explained by partisan political considerations. In 2005 and 2009, the strategy of vote splitting was largely used, as already pointed out, for the benefit of the FDP: Its first 101 list nominations obtained generally far fewer votes than its Laender lists. There can be no doubt that adherents of the CDU, knowing that their candidates would win in the district balloting, massively cast their second vote for the FDP, which had already been identified as the partner in the governmental coalition to be formed after the elections. No trace of manipulation can be detected in these strategies, which have their source in enlightened individual decisions. The fact is, on the other hand, that no similar configuration existed on the left hand side of the political spectrum. The SPD did not have a potential coalition partner related to it by ties of confidence. The Green Party is much 102 too independent to need, or to request, such electoral assistance. 98 Thus, in 2009 the FDP obtained 9.4% of the first list votes but 14.7% for their second lists, Der Bundeswahlleiter, Endgültiges Ergebnis der Bundestagswahl 2009, http://www.bundeswahlleiter.de/de/bundestagswahlen/BTW_BUND_09/ergebnisse/bundesergebnisse/index.ht ml, the gap was also considerable, but on a lower level, 4.75% against 9.8%. See Der Bundeswahlleiter, Wahl Zum 16 Deutschen Bundestag Am 18 September 2005, at 6, 10, available at http://www.bundeswahlleiter.de/de/bundestagswahlen/BTW_BUND_05/downloads/ergebnisse_2005/heft3_mit _grafiken.pdf. 99 Formally acknowleged by the FCC in Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 2/06, Apr. 21, 2009, 124 BVERFGE 1, 21 (Ger.). See Isensee, supra note 55, at 276; Hans-Dieter Klingemann & Bernhard Wessels, The Political Conse uences of Ger any’s Mixed-Member System: Personalization at the Grass Roots?, in MIXED-MEMBER ELECTORAL SYSTEMS THE BEST OF BOTH WORLDS? 279, 285–88 (Matthew Soberg Shugart & Martin P. Wattenberg eds., 2001). 100 For the contrary view, see MEYER, supra note 19, at 100, 108. 101 See supra note 98. 102 However, it is striking that the Green Party, too, scored much better on its second than on its first lists. In 2005, the percentages were 5.4 and 8.1 respectively. See Der Bundeswahlleiter, Wahl Zum 16 Deutschen Bundestag Am 18 September 2005, at 6, 10, available at http://www.bundeswahlleiter.de/de/bundestagswahlen/BTW_BUND_05/downloads/ergebnisse_2005/heft3_mit _grafiken.pdf. In 2009, the score was 9.2 to 10.7 respectively. See Der Bundeswahlleiter, Endgültiges Ergebnis der Bundestagswahl 2009, 234 German Law Journal [Vol. 13 No. 05 Finally, it can hardly be maintained that the surplus regime produces irrational results and must therefore be rejected as inherently arbitrary. It is true that surplus seats do not necessarily accrue to political parties that will be called, on the basis of their overall electoral success, to form the federal government. This de-linkage results from the division of the federal territory into electoral zones constituted by the 16 Laender. It is within the framework of the Laender that surplus seats are allocated while a parliamentary 103 majority for the election of the Federal Chancellor is required at the federal level. Nonetheless, this does not detract from the legitimacy of the idea to provide a party which, through winning a high number of nominal seats exceeding its proportional share, has demonstrated its widespread acceptance by the electorate, with an extra bonus intended to increase the stability of the political system. Surplus seats stand at the opposite end of the rationale that justifies the 5% threshold. While this latter clause is designed to solidify the governmental system by eliminating splinter parties from the parliamentary stage, surplus seats are intended to attain a similar effect by increasing the weight of the top runners. Although it cannot be denied that the intentions pursued by the legislative bodies do not 104 always materialize, the ensuing gap between expectations and actual outcomes does 105 not reach the quality of a constitutional defect. What matters is that the Electoral Act has never been used as an instrument of manipulation. In law, surplus seats have been an 106 integral component of the German electoral system since 1953. The fact that their actual importance has augmented since Germany's reunification does not cast a shadow over them since they are not irreconcilable with the basic tenets of that system. Contrary to the constant jurisprudence of the FCC, the principle of equal suffrage does not require outcome equality on account of the choice of a system of proportional representation. Surplus seats could only be deemed to infringe the Basic Law if they were intended to, or http://www.bundeswahlleiter.de/de/bundestagswahlen/BTW_BUND_09/ergebnisse/bundesergebnisse/index.ht ml. 103 Article 63(1) of the Basic Law provides: The Federal Cha cellor shall e elected y the Bundestag without de ate o the proposal of the Federal Preside t. GRUNDGESETZ FUR DIE BUNDESREPUBLIK DEUTSCHLAND [GRUNDEGESETZ] [GG] [BASIC LAW] (Ger.). 104 They materialized, for example, at the federal elections of 2009 when the CDU, for which Angela Merkel was the top candidate, obtained 24 surplus seats which gave a comfortable majority to the coalition government of CDU/CSU and FDP. 105 In a somewhat naive manner, Lenski, supra note 92, at 501, argues that the legislature had expected that voters would regularly cast their vote in an uniform manner. 106 See Electoral Act of 8 July 1953, Bundesgesetzblatt 1953 I, 470, at Article 9(4). For the actual practice see Geschichte der Überhangmandate im Deutschen Bundestag, WAHLRECHT.DE (Nov. 1, 2009), http://www.wahlrecht.de/ueberhang/ueberhist.html. 2012] Ger a y’s Mi ed-Member Electoral System 235 did in fact amount to, falsifying the will of the electorate. This has never been alleged, and can indeed not be proven. E. Reform of the Electoral Act Different solutions are conceivable to prevent any undesirable side effects of surplus 107 seats. If the number of seats available for distribution within the framework of the individual Laender is determined beforehand on the basis of the number of the voters entitled to take part in the elections, instead of a calculation resting on the number of voters actively casting their ballots, any subsequent modifications of the allocation on the basis of the attribution of surplus seats in other Laender are excluded. With a view to maintaining the maximum of 598 seats of the Bundestag, it could also be thought of subtracting the surplus seats already at the first stage of the computational process at the federal level so that the contingent for distribution according to the scores obtained on the second lists would accordingly be reduced from the very outset. It is obvious that the political parties will consider the pros and cons of either solution with the greatest care. To the extent that surplus seats are kept as a traditional and well-proven element of the German electoral system, the issue of the size of the constituencies will rise to 108 considerable relevance. The principle of electoral equality stands in the way of granting advantages to people in thinly populated areas, thereby discriminating against the 109 population of larger agglomerations. Currently, the Electoral Act allows departures from the average size of a constituency of up to 15%, providing that if the departure amounts to more than 25% the boundaries must be redrawn (Article 3(1), 3), which means that discrepancies in the range between 15% and 25% are tolerated. This margin would appear to be excessive, notwithstanding the fact that because of the increasing mobility of the population some flexibility is necessary. Constituencies cannot be newly tailored at a quick pace. A departure of 15% in either direction should be the allowable maximum. 107 For a comprehensive discussion see MEYER, supra note 19, at 68. 108 See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 3/62, May 22, 1963, 16 BVERFGE 130, 136 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Nov. 24, 1988, 79 BVERFGE 169, 171 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 1/95, Apr. 10, 1997, 95 BVERFGE 335, 353 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 1, 7/07, July 3, 2008, 121 BVERFGE 266, 295 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 2/06, Apr. 21, 2009, 124 BVERFGE 1, 18 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvF 3/11, July 25, 2012, 2012 NEUE JURISTISCHE WOCHENSCHRIFT (NJW) 2869 margin n.60 (Ger.). 109 As already indicated, the FCC emphasized already in early decisions of 1961 and 1963 that to the extent possible the size of the population in the different constitue cies should e appro i ately equal. See Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Aug. 26, 1961, 13 BVERFGE 127, 128 (Ger.); Bundesverfassungsgericht [BVerfG - Federal Constitutional Court], Case No. 2 BvC 3/62, May 22, 1963, 16 BVERFGE 130, 140 (Ger.). 236 German Law Journal [Vol. 13 No. 05 F. Concluding Observations It is not the objective of the above considerations to make a plea for the preservation of surplus seats. The intention was to show that the FCC errs in establishing a rigid framework of sophisticated rules under the auspices of outcome equality. Since the Basic Law has left the choice of the electoral system open, the legislative bodies are free to choose any appropriate and fair balloting mechanism. A system modeled on first past the post and a system of proportional representation are the two extreme ends of a continuum on which many intermediate mechanism, including the regime of surplus seats, find their legitimate place. G. Post Scriptum In October 2012, the political parties represented in the Bundestag, with the exception of The Left, agreed o a ew for ula for deali g with the issue of surplus seats. The gist of this formula is simple. All the parties that on election day have not benefited from such seats shall obtain compensatory seats intended to adjust the size of the different groups in 110 the Bundestag to their exact share of the vote. The main problem now is constituted by equitable regional distribution. It is generally expected that, at the next elections in September 2013, the Bavarian party CSU will fall far below the 50% mark but will still be able to win almost all of the relevant district seats, thereby being allocated a considerable 111 number of surplus seats. If the envisaged compensation scheme should operate within Bavaria and not at the federal level, the Bavarian deputies would reach a number largely surpassing the weight of the Bavarian population in Germany as a whole. Details have not yet been settled in this regard; no documents exist to be indicated as reference sources. The consequences of this political agreement must be called outright worrying. In 2002, the number of seats had been cut down from 656 to 598 precisely with the aim of 112 facilitating parliamentary work. The new compensation scheme could increase the 113 number of deputies considerably, according to certain calculations, up to 700. Thus, the Bundestag might not be significantly smaller than the European Parliament, whose 110 A common proposal was introduced by all parties represented in the Bundestag, with the e ceptio of The Left, on 11 December 2012. See Bundestag document 17/11819 (2012). 111 In 2009, the CSU obtained 42.5% of the vote in Bavaria according to the Land list but won all seats available on the first lists, which resulted in three surplus seats. Should its general approval rate shrink even further, it might still be able to take all of the direct seats. 112 113 See Report of the Committee of Elders, DEUTSCHER BUNDESTAG: DRUCKSACHE [BT] 13/1803, at 7–8. Severin Weiland, Bundestag nach der Wahlrechtsreform: Größer als Nordkorea, SPIEGEL ONLINE, Oct. 18, 2012, http://www.spiegel.de/politik/deutschland/bundestagsfraktionen-einigen-sich-auf-neues-wahlrecht-a863199.html. 2012] Ger a y’s Mi ed-Member Electoral System 114 237 maximum size has been set at 750 members. Apart from the difficulties arising for parliamentary processes, the financial costs entailed would by no means be negligible. No service will be done to the vitality of the democratic principle by such a bloating of the main legislative body. Unfortunately, the ill-conceived jurisprudence of the FCC will have to be blamed as one of the main causes of this unwelcome development. 114 Treaty on European Union, Feb. 7, 1992, 1992 O.J. (C 191) 1, 31 I.L.M. 253, art. 14(2). 238 German Law Journal [Vol. 13 No. 05 Developments The Protection of Turkish Citizens Against Expulsion—This Far and No Further? The Impact of the Ziebell Case By Kathrin Hamenstädt* A. Abstract 1 This Article focuses on the Ziebell judgment, in which the European Court of Justice rejected the analogous application of the protection against expulsion for Union citizens to Turkish citizens covered by the Association Agreement. The judgment is placed in the context of the opinion of the Advocate General, the pre-Ziebell judgments of the Court, and judgments of German courts regarding the expulsion of Turkish citizens. On the one hand, against the background of previous case-law of the Court, the judgment might be see as a set ack. O the other ha d, the Court’s refere ce to the Lo g-Term Residents Directive also provides for new interpretative possibilities. Next to the applicability of the directive and the advantages and disadvantages for Turkish nationals triggered by this shift, the interpretative possibilities are discussed in light of fundamental rights and the stand-still obligation anchored in Association Council Decision 1/80. B. Introduction The judicial activism of the European Court of Justice ( CJEU ) regarding the attribution of 2 rights to Turkish citizens covered by the Association Agreement and Association Council 3 Decision 1/80 has been more vigorous in the past than in its latest decision regarding the protection of Turkish citizens against expulsion. In its previous decisions, the Court approximated the rights of Turkish workers and their protection against expulsion to the * Kathrin Hamenstädt is a PhD researcher at Maastricht University. She wishes to thank Elise Muir for her useful comments on the article. Email: [email protected]. 1 Case C-371/08, Ziebell v. Baden-Württemberg, 2011 E.C.R. I-____, available at http://curia.europa.eu/juris/document/document.jsf?text=&docid=116127&pageIndex=0&doclang=EN&mode=ls t&dir=&occ=first&part=1&cid=1071413 [hereinafter Ziebell]. 2 Agreement Establishing an Association Between the European Economic Community and Turkey, Sept. 12, 1963, [hereinafter Ankara Agreement]. 3 Decision No. 1/80, of the Association Council of 19 September 1980 on the Development of the Association, available at http://www.inis.gov.ie/en/INIS/DECISION_No_1_80_eng.pdf/Files/DECISION_No_1_80_eng.pdf [hereinafter Decision 1/80]. 240 German Law Journal [Vol. 14 No. 01 4 rights of workers holding the nationality of a Member State of the European Union. This approximation came to a halt in the Ziebell judgment delivered by the Court on 8 5 December 2011. In recent months, much attention has been devoted to the Ruiz 6 7 Zambrano judgment and subsequent rulings in which the Court was keen not to give any far-reaching interpretation to the concept of Union citizenship which would benefit third country family members of Union citizens. The Court might have been inspired by this restrictive interpretation when it ruled in Ziebell that the protection against expulsion applicable to Union citizens could not be conferred by analogy to individuals covered by the Association Agreement. The present contribution assesses the possible impact of the Ziebell case on the protection of Turkish nationals against expulsions under EU law. First, the context in which the Ziebell judgment was delivered is briefly explained by addressing the parallel which the Court traditionally drew between the status of EU workers and Turkish citizens covered by the Association Agreement before focusing on the Ziebell judgment itself. The second section focuses on the approaches of domestic courts prior to the Ziebell judgment and the question of whether the Association Agreement has a purely economic purpose which was underlying the Court´s judgment. The third section highlights Directi e / 9/EC LT‘ 8 Directi e or Lo g Ter ‘eside ts Directi e on long-term resident third country nationals: Ziebell is the first time that the Court has considered the provision on expulsion in the Directive as the relevant framework when assessing the expulsion of a Turkish national covered by the Association Agreement. The last part discusses the stand-still clause which is incumbent on the parties to the Association Agreement and which affects expulsion decisions against Turkish workers. Finally, it addresses the possible implications of the Ziebell judgment for Turkish workers and eventually other third country nationals. 4 See, e.g., Case C-303/08, Baden-Württemberg v. Bozkurt, 2010 E.C.R. I-13445, para. 55; Case C-349/06, Polat v. Rüsselsheim, 2007 E.C.R. I-8167, para. 30; Case C-136/03, Dörr v. Sicherheitsdirektion für das Bundesland Kärnten, 2005 E.C.R. I-4759, para. 63; Case C-467/02, Cetinkaya v. Baden-Württemberg, 2004 E.C.R. I-10895, para. 43; Case C- 340/97, Nazli v.Nürnberg, 2000 E.C.R. I-957, para. 56. 5 Ziebell, supra note 1. 6 See Case C-34/09, Ruiz Zambrano v. Office Natio al de l’E ploi, 2011 E.C.R. I-____, available at http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62009J0034:EN:HTML [hereinafter Ruiz Zambrano]. But see Kay Hailbronner & Daniel Thym, Ruiz Zambrano, Die Entdeckung des Kernbereichs der Unionsbürgerschaft, 2011 NEUE JURISTISCHE WOCHENSCHRIFT 2008 (criticizing the Ruiz Zambrano decision). 7 Case C-256/11, Dereci v. Bundesministerium für Inneres, 2011 E.C.R. I____; Case C-40/11, lida v. Ulm, 2012 E.C.R. I-____; Case C-434/09, McCarthy v. “ec’y of “tate for the Ho e Dep’t, 2011 E.C.R. I-____, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62009CJ0434:EN:HTML. 8 Directive 2003/109/EC, of the Council of 25 November 2003 Concerning the Status of Third-Country Nationals Who Are Long-Term Residents, 2004 O.J. (L 16) 44 [hereinafter LTR Directive]. 2013] The Protection of Turkish Citizens Against Expulsion 241 C. Testing the Limits of the Parallel Between EU Citizens and Turkish Nationals? This section briefly outlines the jurisdiction of the Court regarding the expulsion of Turkish workers prior to the Ziebell judgment, before introducing the facts of the Ziebell case, the position adopted by Advocate General Bot and the Court´s judgment. I. Interpretation of the Public Policy Exception in Art. 14 Association Council Decision 1/80 Before Ziebell The expulsion of Turkish workers covered by the Association Agreement is regulated by Article 4 of Associatio Cou cil Decisio /8 which states that [t]he pro isio s of this section shall be applied subject to the limitations justified on grounds of public policy, 9 pu lic security or pu lic health. Before Ziebell, the CJEU made reference to the public policy, security and health exceptions for nationals of the Member States contained in Article 45(3) Treaty on the Functioning of the European Union (formerly Article 39(3) TEC), when determining the 10 public policy exception in Article 14 Decision 1/80. Accordi g to the Court, this parallel i terpretatio or a alogous applicatio was justified as the wordi g of Article 4 of Council Decision 1/80 and the wording of the Treaty provision were almost identical. The Treaty provisions which regulate public policy, security and health exceptions regarding the 11 freedom of movement of persons were specified in Council Directive 64/221/EEC. Therefore, the Court had recourse to that Directive when judging whether a restrictive national measure based on public policy considerations was in line with Union law. Council Directi e 4/ /EEC was replaced y Cou cil Directi e 4/ 8/EC Citize ship 12 Directi e , a d the Citize ship Directi e pro ides that [r]efere ces ade to the 13 repealed pro isio s a d Directi es shall e co strued as ei g ade to this Directi e. It was not clear whether the protection against expulsion, granted to Union citizens after ten 9 Article 4 is located i Chapter II, “ectio Mo e e t of Workers. which is titled Questio s ‘elati g to E ploy e t a d the Free 10 Case C-303/08, Baden-Württemberg v. Bozkurt, 2010 E.C.R. I-13445, para. 55; Case C-349/06, Polat v. Rüsselsheim, 2007 E.C.R. I-8167, para. 30; Case C-136/03, Dörr v. Sicherheitsdirektion für das Bundesland Kärnten, 2005 E.C.R. I-4759, para. 63; Case C-467/02, Cetinkaya v. Baden-Württemberg, 2004 E.C.R. I-10895, para. 43; Case C- 340/97, Nazli v. Nürnberg, 2000 E.C.R. I-957, para. 56. 11 Directive 64/221/EEC, of the Council of 25 February 1964 on the Co-ordination of Special Measures Concerning the Movement and Residence of Foreign Nationals Which are Justified on Grounds of Public Policy, Public Security or Public Health, 1964 O.J. (56) 850. 12 Directive 2004/38/EC, of the European Parliament and of the Council of 29 April 2004 on the Right of Citizens of the Union and Their Family Members to Move and Reside Freely Within the Territory of the Member States, 2004 O.J. (L 158) 77 [hereinafter Citizenship Directive]. 13 Id. at art. 38(3). 242 German Law Journal [Vol. 14 No. 01 14 years of residence in the host state, could be applied by way of analogy to Turkish 15 nationals with the same length of residence. The CJEU was already asked this question by way of preliminary ruling in the Polat case, but did not have to decide on this question because the action was brought before the referring German court in 2005 when the 16 deadline for transposition of the Citizenship Directive had not yet expired. The CJEU was 17 again asked by several German courts to give an answer to this question. II. The Facts of the Ziebell Case One of these above mentioned preliminary references was the Ziebell case which was registered under the name Örnek prior to the marriage of Mr. Örnek to his wife. Mr. Nural Ziebell was born in Germany in 1973 as the son of a Turkish worker and spent all his life in 18 the Federal Republic of Germany. Since 1991, he had held an unlimited residence permit and even applied for naturalization in Germany (though it was rejected on the basis of his criminal record dating back to 1993). His criminal record included gang-related robbery, theft and aggravated theft, actual control over a prohibited object, money counterfeiting, 19 and grievous bodily harm. He regularly used cocaine and heroin, beginning in 1998. In March 2007, the compete t authority issued a order for Mr. )ie ell’s e pulsio o the grou d that his co duct co stitutes a serious distur a ce of the social order a d that 20 there was a specific a d high risk that Mr. )ie ell will e gage i serious re-offe di g. 14 Id. at art. 28(3)(a). 15 A direct application of Art. 28(3)(a) is not possible as the provision explicitly refers to Union citizens. 16 Case C-349/06, Polat v. Rüsselsheim, 2007 E.C.R. I-8167, paras. 26–27. 17 See, e.g., Bundesverwaltungsgericht [BVerwG - Federal Administrative Court], Case No. 1 C 25/08, Aug. 25, 2009, 2010 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT (NVWZ) 392 (Ger.), CJEU referral dismissed, Order Removing the Case fro the Court’s ‘eigster, Case C-436/09 Belkiran v. Oberbürgermeister der Stadt Krefeld, 2012 E.C.R. I____, available at http://eur-law.eu/EN/Case-C-436-09-Reference-preliminary-rulingBundesverwaltungsgericht,412672,d; Verwaltungsgericht Berlin [VG Berlin - Administrative Court of Berlin], Case No. 21 A 49.08, Sept. 4, 2008 (Ger.), available at http://www.gerichtsentscheidungen.berlinbrandenburg.de/jportal/?quelle=jlink&docid=JURE090026726&psml=sammlung.psml&max=true&bs=10, CJEU referral dismissed, Order ‘e o i g the Case fro the Court’s ‘eigster, Case C-420/08, Erdil v. Berlin, 2012 E.C.R. I-____, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2012:109:0008:0008:EN:PDF; Verwaltungsgerichtshof Baden-Württemberg [VGH Baden-Württemberg - Administrative Court BadenWürttemberg], Case No. 13 S 1917/07, July 22, 2008, 2009 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT RECHTSPRECHUNGS-REPORT (NVWZ-RR) 82 (Ger.), CJEU referral, Case C-371/08, Ziebell v. Baden-Württemberg, 2011 E.C.R. I-____, available at http://curia.europa.eu/juris/document/document.jsf?text=&docid=116127&pageIndex=0&doclang=EN&mode=ls t&dir=&occ=first&part=1&cid=1071413. 18 Ziebell, supra note 1, at paras. 32–33. 19 Id. at paras. 35, 37. 20 Id. at paras. 41–42. 2013] The Protection of Turkish Citizens Against Expulsion 243 Mr. Ziebell challenged this decision. In July 2008, the Higher Administrative Court for Baden-Württemberg asked the CJEU, by way of preliminary ruling, whether Article 28(3)(a) of the Citizenship Directive could be applied by way of analogy to a Turkish national covered by Decision 1/80 who had resided in the host Member State for the previous ten years. Mr. Ziebell started a drug therapy in October 2008 which seemed to be successful. Moreover, he had not committed any further offences since then, and married a German 21 national in December 2009, became the father of a child, and found gainful employment. III. Opinion of Advocate General Bot Advocate General Bot rejected the analogous application of Article 28(3) of the Citizenship Directive. He stated that the ai of the Associatio Agree e t is to pro ote the continuous and balanced strengthening of trade and economic relations between the ‘epu lic of Turkey a d the Europea U io . Regarding Association Council Decision 1/80, he referred to the first and second recital of the Preamble to the Decision and held that it aims to revitalize and develop the Association and seeks to improve the social treatment 22 accorded to workers and members of their families. He emphasized, however, that Turkish nationals are only covered by the Association Agreement and Decision 1/80 in their capacity as a worker. Their capacity as a worker was the common denominator between them and Union workers, and, therefore, the (repealed) Council Directive 64/221/EC was applicable to Turkish workers by analogy. According to Advocate General Bot, the Citize ship Directi e which replaces Cou cil Directi e 4/ /EEC goes eyo d the purely 23 eco o ic co te t a d the co te t of workers. The Citizenship Directive refers to Union citizens and does not require the individual in question to be a worker. Applying the Citizenship Directive to Turkish nationals would result in an equation of these two groups. Bot argued that the Court would exceed its powers if it equated these two groups because 24 this was not the intention of the parties to the Association Agreement. He then emphasized that the years Mr. Ziebell spent on the national territory must also be taken into account. He referred in this context to Article 12 of the LTR Directive which also re uires the le gth of reside ce to e take i to accou t a d highlighted that the sa e must be true, a fortiori, as regard Turkish nationals who enjoy a special status in the Union, halfway between the status of a national of a Member State and a third-country 25 atio al. Bot then summarized the links Mr. Ziebell established in Germany and recalled 21 Id. at para. 39. 22 Opinion of Advocate General Bot in the Ziebell case, at para. http://curia.europa.eu/juris/celex.jsf?celex=62008CC0371&lang1=en&type=NOT&ancre=. 23 Id. at para. 52. 24 Id. at para. 55. 25 Id. at para. 64. 48 available at 244 German Law Journal [Vol. 14 No. 01 that the Court is required to take fundamental rights into account when an expulsion decision may interfere with the exercise of fundamental freedoms. In this context, he 26 explicitly referred to the right to respect for family life. IV. Judgment of the CJEU The CJEU also rejected the analogous application of Article 28(3)(a) of the Citizenship Directive to Turkish nationals who are covered by the Association Agreement. It held that Article 14(1) of the Association Council Decision and the protection against expulsion conferred by that provision do not have the same scope as Article 28(3)(a) of the Citizenship Directive. The Court acknowledged that the principles relating to the freedom of movement of workers, enshrined in the TFEU, have to be extended, as far as possible, to Turkish 27 nationals covered by the Association Agreement. This interpretation, by analogy, must apply, according to the Court, to the secondary legislation specifying these respective 28 Treaty articles. It based its finding on several arguments. The Court concluded that the Association Agreement constitutes an international treaty which has to be interpreted in 29 line with its wording and its objectives. In this context, the Court pointed to Article 2(1) of the Associatio Agree e t, which ai s to pro ote the co ti uous a d ala ced stre gthe i g of trade a d eco o ic relatio s. From this wording, the CJEU drew the 30 conclusion that the Association has a purely economic nature. This result is, according to the Court, also confirmed by the wording of Article 12 of the Association Agreement and Article 36 of the Additional Protocol. Regarding the scope of the public policy exceptions enshrined in Article 14 of Decision 1/80, the CJEU held that an analogous interpretation in line with the Article 45 TFEU (formerly Article 39 TEC) was justified because these provisions were formulated in almost 31 identical terms. 26 Id. at para. 65 (citing the Charter of Fundamental Rights of the European Union art. 7, Dec. 7, 2000, 2000 O.J. (C 364) 1, and the Convention on the Protection of Human Rights and Fundamental Freedoms art. 8, Nov. 4, 1950, 213 U.N.T.S. 222). 27 Ziebell, supra note 1, at para. 58. 28 Id. 29 Id. at para. 61. 30 Id. at paras. 64, 68. 31 Id. at para. 67. 2013] The Protection of Turkish Citizens Against Expulsion 245 By contrast, the Citizenship Directive is, according to the Court, far from pursuing a purely economic objective. It rather aims at facilitating and strengthening the right of Union 32 citizens to move and reside freely within the territory of the Union. This is demonstrated by the growing protection against expulsion depending on the length of residence of the Union citizen. Further ore, the Court poi ted out that the co cept of i perati e grou ds, which is e ployed i Article 8 a of the Citizenship Directive, has no 33 counterpart in Article 14 of Decision 1/80. The concept of Union citizenship is premised upon the fact that the individual is a national of the Member State and not on the fact that 34 he or she is a worker. Due to these differences between the purpose and objective of the Association Agreement and the Citizenship Directive, the Court held that these two legal regimes cannot be considered equivalent. The differences between these two systems also bar an analogous application of Article 28(3)(a) of the Directive to situations covered by Article 14 of 35 Decision 1/80. As an alternative solution, the CJEU considered the framework of the LTR Directive to be 36 the appropriate reference for the purpose of applying Article 14(1) of Decision 1/80. The Court stated [T]hat framework, in the case of a foreign national such as Mr. Ziebell, who has been residing lawfully and continuously in the host Member State for more than 10 years, consists of Article 12 of Directive 2003/109, which, in the absence of more favorable rules in the law under the EEC-Turkey Association, is a rule of minimum protection against expulsion for any national of a non-member State who holds the status of longterm lawful resident in the territory of a Member 37 State. 32 Id. at para. 69. 33 Id. at para. 71. 34 Id. at para. 73. 35 Id. at para. 74. 36 Id. at paras. 78–79. 37 Id. at para. 79. 246 German Law Journal [Vol. 14 No. 01 The Court then listed the considerations a Member State has to take into account when 38 expelling a long-term resident. The CJEU summarized its settled case law on the interpretation of the EEC-Turkey Agreement and the principles which have to be observed 39 when interpreting the Agreement. The Court emphasized that measures adopted on grounds of public policy or public security have to comply with, among other requirements, the principle of proportionality and the fundamental rights of the person concerned, 40 particularly the right to privacy and family life . It recalled that a case-by-case 41 assessment has to be conducted, precluding the possibility that a criminal conviction automatically results in an expulsion. Moreo er, e pulsio s ca ot e ordered as a 42 means of deterring other foreigners from committing offences. The Court also recalled 43 its Cetinkaya judgment and reiterated that domestic courts have to take all factual matters into account which occurred after the decision of the administrative authority 44 when assessing the lawfulness of an expulsion of a Turkish national. Finally, the CJEU stated that it is for the referring court to balance the interests pursued by the host “tate agai st the actual i tegratio factors e a li g the i di idual co cer ed to 45 reintegrate i to society i the host Me er “tate. The Court pointed to these considerations and emphasized that domestic courts must take due account of the particularly close li ks which the foreig i di idual has forged with society i the Federal Republic of Ger a y, o whose territory he was or . Moreover, the CJEU highlighted that Mr. Ziebell has lived legally and continuously for more than 35 years in Germany and 46 is married to a German national and gainfully employed. 38 Id. at para. 80. 39 Id. at paras. 81–84. 40 Id. at para. 82. 41 Id. at para. 82. 42 Id. at para. 83. 43 Case C- 462, Cetinkaya v. Baden-Württemberg, 2004 E.C.R. I-10895, para. 43. 44 Ziebell, supra note 1, at para. 84. 45 Id. at para. 85. 46 Id. 2013] The Protection of Turkish Citizens Against Expulsion 247 D. Approaches by Domestic Courts and the (Purely) Economic Purpose of the Association Agreement The subsequent section provides an overview of some of the arguments advanced by 47 domestic courts, prior to Ziebell, for and against an analogous application of the protection against expulsion established by the Citizenship Directive to Turkish nationals covered by the Association Agreement. Moreover, it addresses the question that underlies the CJEU ruling in Ziebell of whether the Association Agreement and Decision 1/80 have a purely economic purpose. I. The Judgments of Domestic Courts Prior to the Ziebell Judgment Not all domestic courts felt the need to refer the question of whether Art. 28 (3)(a) of the Citizenship Directive is applicable by analogy to Turkish citizens to the CJEU. But some domestic courts did decide this question prior to the judgment of the CJEU in Ziebell. To what extent this non-referral is problematic against the background of Article 267 TFEU is not addressed in the present contribution. Instead, the arguments used by the courts or 48 brought forward by the parties before domestic courts are briefly highlighted. 1. Arguments Against an Application by Analogy 49 50 Several domestic courts hold in their judgments and decisions, in line with the later CJEU judgment, that Article 28(3)(a) of the Citizenship Directive is not applicable by way of analogy to Turkish citizens. Some of these domestic courts also employ systematic, 51 historical, and textual interpretation, whereas the CJEU, with a few exceptions, focuses primarily on a teleological interpretation. 47 The list of judgments used in this article is not exhaustive. 48 Courts which referred the case to the CJEU dealt with the arguments for and against an application by analogy. Therefore, it is possible that they are listed in both groups. 49 See, e.g., Verwaltungsgericht Stuttgart [VG Stuttgart - Administrative Court of Stuttgart], Case No. 5 K 1081/06, Aug. 5, 2008 (Ger.), available at http://lrbw.juris.de/cgibin/laender_rechtsprechung/document.py?Gericht=bw&nr=10952; Niedersächsisches Oberverwaltungsgericht [NdsOVG - Lower Saxony Higher Administrative Court], Case No. 11 LB 26/08, Mar. 27, 2008. 50 See, e.g., Oberverwaltungsgericht Nordrhein-Westfalen [OVGNRW - Higher Administrative Court North RhineWestphalia], Case No. 18 A 855/07, Sept. 5, 2008 (Ger.), available at http://www.justiz.nrw.de/nrwe/ovgs/ovg_nrw/j2008/18_A_855_07beschluss20080905.html; Oberverwaltungsgericht Saarland [OVG Saarland - Saarland Higher Administrative Court], Case No. 2 B 212/08, July 9, 2008 (Ger.), available at http://www.rechtsprechung.saarland.de/cgibin/rechtsprechung/document.py?Gericht=sl&nr=1888. 51 The Court states that the very concept of ´imperative grounds´ of public security as set out in Citizenship Directive art. 28 (3)(a) has no counterpart in Decision 1/80 art. 14. Ziebell, supra note 1, at para. 71. 248 German Law Journal [Vol. 14 No. 01 One line of argumentation uses a systematic interpretation and highlights the meaning and 52 importance of the right of permanent residence. The right of permanent residence grants a certain protection against expulsion as it provides that individuals holding a permanent residence right can only be expelled on serious grounds of public policy or 53 public security. The right of permanent residence cannot be acquired by Turkish nationals, and, therefore, they cannot rely on Article 28(2) of the Citizenship Directive. Article 28(3) of the Citizenship Directive grants a more enhanced protection against expulsion than Article 28(2). An application of Article 28(3) to Turkish citizens by analogy is therefore excluded as a Turkish citizen cannot even rely on the somewhat weaker 54 protection granted by Article 28(2) of the Citizenship Directive. Another systematic interpretation focuses on the Association Agreement and the Additional Protocol to the Agreement and points out that an analogous application of Article 28(3) to Turkish nationals would infringe Article 59 of the Additional Protocol to the 55 Association Agreement. Article 59 provides that Turkey should not receive a more favorable treatment—in the fields covered by the Protocol—than that which Member States grant each other in the framework of the EEC. This line of argumentation holds that a more favorable treatment occurs with regard to third country family members of Turkish workers who are covered by Article 7 of Decision 1/80. Third country family members of Turkish workers could rely on an analogous application of Article 28(3) of the Citizenship Directive, whereas third country family members of Union citizens could not rely on Article 28(3) because this provision explicitly refers to Union citizens. The expulsion of a third country family member of a Union citizen affects the latter and causes an indirect impairment of his or her rights. In these constellations, a Turkish citizen would be treated more favorably, and the provision of Article 59 of the Additional Protocol to the 56 Association Agreement would therefore be infringed. Another line of argumentation against an analogous application uses a textual interpretation and highlights the difference in the wording of the two provisions. Article 52 Citizenship Directive, supra note 12, at ch. IV. 53 Id. at art. 28(2). 54 Oberverwaltungsgericht Nordrhein-Westfalen [OVGNRW - Higher Administrative Court North RhineWestphalia], Case No. 18 A 855/07, Sept. 5, 2008, at para. 68 (Ger.), available at http://www.justiz.nrw.de/nrwe/ovgs/ovg_nrw/j2008/18_A_855_07beschluss20080905.html. 55 See, e.g., id. at para. 74; Oberverwaltungsgericht Nordrhein-Westfalen [OVGNRW- Higher Administrative Court North Rhine-Westphalia], Case No. 18 B 2389/06, May 15, 2007. 56 Oberverwaltungsgericht Nordrhein-Westfalen [OVGNRW - Higher Administrative Court North RhineWestphalia], Case No. 18 A 855/07, Sept. 5, 2008, para. 74 (Ger.), available at http://www.justiz.nrw.de/nrwe/ovgs/ovg_nrw/j2008/18_A_855_07beschluss20080905.html. 2013] The Protection of Turkish Citizens Against Expulsion 249 14 of the Association Council Decision provides for a limitation on grounds of public policy, public security, and public health, whereas Article 28(3) of the Council Directive only 57 provides for a limitation on grounds of public security. A third line of interpretation uses a textual and a historic approach and argues, like 58 Advocate General Bot, that neither the wording of Article 14 of Decision 1/80 nor the intention of the parties to the original Association Agreement could serve as a basis to 59 argue that Article 14 constitutes a dynamic reference to all changes made at Union level. Therefore, this line of argumentation concludes that an application of Article 28(3) to 60 Turkish citizens would require a decision of the Association Council. 2. Arguments for an Application by Analogy While most domestic courts—and ultimately the CJEU—rejected an analogous application of Article 28(3)(a) of the Citizenship Directive, some courts argued that Article 28(3) can be 61 applied by analogy to Turkish workers. The latter courts highlight that the CJEU even extended the procedural safeguards for Union citizens contained in Council Directive 62 64/221/EEC to Turkish citizens. Therefore, the (substantive) provision of Article 28(3) of 63 the Citizenship Directive can all the more be applied to them. 57 See, e.g., Verwaltungsgerichtshof Baden-Württemberg [VGH Baden-Württemberg - Administrative Court Baden-Württemberg], Case No. 13 S 1917/07, July 22, 2008, 2009 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT RECHTSPRECHUNGS-REPORT (NVWZ-RR) 82 (Ger.). 58 Opinion of Advocate General Bot, supra note 22, at para. 55. 59 See, e.g., Verwaltungsgerichtshof Baden-Württemberg [VGH Baden-Württemberg - Administrative Court Baden-Württemberg], Case No. 13 S 1917/07, July 22, 2008, 2009 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT RECHTSPRECHUNGS-REPORT (NVWZ-RR) 82 (Ger.); Oberverwaltungsgericht Saarland [OVG Saarland - Saarland Higher Administrative Court], Case No. 2 B 212/08, July 9, 2008 (Ger.), available at http://www.rechtsprechung.saarland.de/cgi-bin/rechtsprechung/document.py?Gericht=sl&nr=1888. 60 See Bundesverwaltungsgericht [BVerwG - Federal Administrative Court], Case No. 1 C 25/08, Aug. 25, 2009, 2010 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT (NVWZ) 392, 395 (Ger.); Verwaltungsgerichtshof Bayern [VGH Bayern - Higher Administrative Court Bavaria], Case No. 10 B 07.304, Jan. 8 2008, 2008 Die Öffentliche Verwaltung (DÖV) 970 (Ger.) [hereinafter VGH Bayern]. 61 See, e.g., Verwaltungsgericht Karlsruhe [VG Karlsruhe - Administrative Court Karlsruhe], Case No. 2 K 1559/06, Nov. 9, 2006 (Ger.), available at http://lrbw.juris.de/cgibin/laender_rechtsprechung/document.py?Gericht=bw&nr=7715; Hessischer Verwaltungsgerichtshof [VGH Hessen - Higher Administrative Court Hesse], Case No. 12 TG 2190/06, Dec. 4, 2006, 2007 INFORMATIONSBRIEF AUSLÄNDERRECHT (INFAUSIR) 98 (Ger.); Oberverwaltungsgericht Rheinland-Pfalz [OVG Rheinland-Pfalz - Higher Administrative Court Rheinland-Palatinate], Case No. 7 A 10924/06, Dec. 5, 2006, 2007 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT - RECHTSPRECHUNGS-REPORT (NVWZ-RR) 488, 490 (Ger.). 62 63 Case C-136/03, Dörr v. Sicherheitsdirektion für das Bundesland Kärnten, 2005 E.C.R. I-4759, para. 65. Oberverwaltungsgericht Rheinland-Pfalz [OVG Rheinland-Pfalz - Higher Administrative Court RheinlandPalatinate], Case No. 7 A 10924/06, Dec. 5, 2006, 2007 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT - RECHTSPRECHUNGS- 250 German Law Journal [Vol. 14 No. 01 Another argument focuses on Article 38 (3) of the Citizenship Directive. Article 38(3) pro ides that refere ce ade to the repealed pro isio s a d Directi es shall e co strued as bei g ade to this Directi e. The CJEU has previously based its interpretation of Article 14 of the Association Council Decision 1/80 on the public policy exception contained 64 in Article 3 of Council Directive 64/221/EEC. Because the Citizenship Directive repealed Council Directive 64/221/EC, the interpretation of Article 14 of the Association Council Decision 1/80 has to be based on Article 28 of the Citizenship Directive. Another argument points out that Article 28 of the Citizenship Directive merely specifies the protection Union law grants against expulsion but does not extend the scope of this 65 protection compared to earlier legislation. Therefore, Turkish citizens must also be covered by the scope of Article 28(3) of the Citizenship Directive as they were by earlier 66 secondary legislation. Finally, it is argued that there is no indication that the principles contained in the 67 Citizenship Directive cannot be conferred on Turkish nationals. The Citizenship Directive aims at specifying the requirements for an expulsion of Union citizens and their family members and at limiting the scope of expulsion measures in accordance with the principle 68 of proportionality. The gradual differentiation established by Article 28 of the Citizenship REPORT (NVWZ-RR) 488, 490 (Ger.); Verwaltungsgerichtshof Baden-Württemberg [VGH Baden-Württemberg Administrative Court Baden-Württemberg], Case No. 13 S 1917/07, July 22, 2008, 2009 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT - RECHTSPRECHUNGS-REPORT (NVWZ-RR) 82, para. 35 (Ger.). 64 Cetinkaya v. Baden-Württemberg, 2004 E.C.R. I-10895, para. 43. 65 Rolf Gutmann, Die neue Unionsbürger-Richtlinie 2004/38/EG und ihr Verhältnis zu Art. 14 Abs. 1 ARB 1/80, INFAUSIR 401, 402 (2005). 66 See id. 67 Oberverwaltungsgericht Rheinland-Pfalz [OVG Rheinland-Pfalz - Higher Administrative Court RheinlandPalatinate], Case No. 7 A 10924/06, Dec. 5, 2006, 2007 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT - RECHTSPRECHUNGSREPORT (NVWZ-RR) 488, 490 (Ger.); Verwaltungsgericht Karlsruhe [VG Karlsruhe - Administrative Court Karlsruhe], Case No. 2 K 1559/06, Nov. 9, 2006 (Ger.), available at http://lrbw.juris.de/cgibin/laender_rechtsprechung/document.py?Gericht=bw&nr=7715; Hessischer Verwaltungsgerichtshof [VGH Hessen - Higher Administrative Court Hesse], Case No. 12 TG 494/06, July 12, 2006, 2006 ZEITSCHRIFT FÜR AUSLÄNDERRECHT UND AUSLÄNDERPOLITIK (ZAR) 331, 332. 68 Hessischer Verwaltungsgerichtshof [VGH Hessen - Higher Administrative Court Hesse], Case No. 11 UE 52/07 (June 25, 2007), http://www.lareda.hessenrecht.hessen.de/jportal/portal/t/s15/page/bslaredaprod.psml?&doc.id=JURE08000066 8%3Ajuris-r01&showdoccase=1&doc.part=L; Oberverwaltungsgericht Rheinland-Pfalz [OVG Rheinland-Pfalz Higher Administrative Court Rheinland-Palatinate], Case No. 7 A 10924/06, Dec. 5, 2006, 2007 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT - RECHTSPRECHUNGS-REPORT (NVWZ-RR) 488, 490 (Ger.); Hessischer Verwaltungsgerichtshof [VGH Hessen - Higher Administrative Court Hesse], Case No. 12 TG 494/06, July 12, 2006, 2006 ZEITSCHRIFT FÜR AUSLÄNDERRECHT UND AUSLÄNDERPOLITIK (ZAR) 331, 332. 2013] The Protection of Turkish Citizens Against Expulsion 251 69 Directive reflects the principle of proportionality, and a conferral of this system to Turkish workers is more plausible than the conferral of procedural safeguards. These procedural 70 safeguards have, however, already been conferred on Turkish citizens by the CJEU. 3. Comments Regarding the Approaches of Domestic Courts When analyzing the judgments of domestic courts issued prior to the CJEU ruling, it stands out that some courts did not refer the question to the CJEU and rather decided either in favor or against an analogous application of Article 28(3) of the Citizenship Directive. Moreover, it is remarkable that some courts argued for an analogous application even though they could have rejected an analogous application with good arguments (discussed above) as neither Union law, domestic law, nor CJEU case law required them to apply the principles contained in Article 28(3) to Turkish workers. What is the underlying motivation for an analogous application of Article 28(3) of the Citizenship Directive? One motivation could have been that these courts considered Article 28(3) to afford adequate protection. An analysis of the facts of the mentioned cases reveals another aspect. Those cases in which domestic courts accepted an application by analogy and cases in which domestic courts rejected an analogous application display certain differences. These differences relate to the category of criminal offences, the length of prison term, and the place of birth of the respective individual. In cases in which the individuals were mostly born in Germany and committed drug-related offences, assaults, theft, breach of domestic peace, damage to property, or obtained 71 benefits by devious means, the courts accepted an analogous application of Article 28(3). In cases in which the respective individual committed severe offences such as rape, sexual abuse of his daughter, rape of his wife, murder, and attempted manslaughter, the perpetrators received high prison terms and domestic courts rejected an analogous 72 application. It should, however, also be noted that an analogous application of Article 28 69 See Oberverwaltungsgericht Rheinland-Pfalz [OVG Rheinland-Pfalz - Higher Administrative Court RheinlandPalatinate], Case No. 7 A 10924/06, Dec. 5, 2006, 2007 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT - RECHTSPRECHUNGSREPORT (NVWZ-RR) 488, 490 (Ger.); see also Reinhard Marx, Aktuelle Entwicklungen im gemeinschaftsrechtlichen Ausweisungsschutz, 2007 ZEITSCHRIFT FÜR AUSLÄNDERRECHT UND AUSLÄNDERPOLITIK (ZAR) 142, 147. 70 Oberverwaltungsgericht Rheinland-Pfalz [OVG Rheinland-Pfalz - Higher Administrative Court RheinlandPalatinate], Case No. 7 A 10924/06, Dec. 5, 2006, 2007 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT - RECHTSPRECHUNGSREPORT (NVWZ-RR) 488, 490 (Ger.). 71 Hessischer Verwaltungsgerichtshof [VGH Hessen - Higher Administrative Court Hesse], supra note 68; Verwaltungsgericht Karlsruhe [VG Karlsruhe - Administrative Court Karlsruhe], supra note 61. 72 See, e.g., Oberverwaltungsgericht Nordrhein-Westfalen [OVGNRW- Higher Administrative Court North RhineWestphalia], Case No. 18 A 855/07 (Sept. 5, 2008), http://www.justiz.nrw.de/nrwe/ovgs/ovg_nrw/j2008/18_A_855_07beschluss20080905.html (sexual abuse of the daughter); Oberverwaltungsgericht Nordrhein-Westfalen [OVGNRW- Higher Administrative Court North RhineWestphalia], Case No. 18 B 2389/06, May 15, 2007, 2007 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT 1445 (rape); 252 [Vol. 14 No. 01 German Law Journal 73 (3)(a) was also rejected in a case concerning drug related offences. Some of these individuals were born outside of Germany, while others were born in Germany. The comparison of these cases might foster the assumption that the question of analogous application has been less a fundamental question for these courts and rather an instrument to achieve the result considered adequate in the respective case. II. Purely Economic Purpose of the Agreement and Decision 1/80? The Court in Ziebell referred to the purely eco o ic purpose of the Associatio Agreement and Association Council Decision 1/80. The question of whether the Association Agreement and Decision 1/80 have a purely economic purpose is debatable. Several of these different arguments are discussed below. It could be argued that Association Council Decision 1/80 is not exclusively based on economic considerations. This is reflected in Recital Three to the Preamble to Decision 1/80, stating I the social field, a d withi the fra ework of the i ter atio al commitments of each of the Parties, the above considerations make it necessary to i pro e the treat e t accorded to workers a d e ers of their fa ilies . The second chapter contains, among others, the section on employment and the free o e e t of workers is e titled “ocial Pro isio s . Article 15(1) refers to the periodical e cha ge of i for atio to i pro e utual k owledge of the eco o ic a d social situatio . Sectio is titled “ocial a d Cultural Ad a ce e t a d E cha ge of You g Workers , a d the first article of that sectio , Article 7, pro ides that Me er “tates a d Turkey shall co-operate, in accordance with their domestic situations and their legal systems, in appropriate schemes to promote the social and cultural advancement of Turkish workers a d the e ers of their fa ily . Fi ally, Protocol No. to the Associatio Agree e t pro ides i Article 8 that aid to Turkish economic and social development under the conditions set out in this Agreement and in this Protocol shall be supplementary to the endeavors of the Turkish State . It must be noted, however, that the recitals of a preamble serve solely as instruments for the interpretation of the object and purpose of the main body of the respective legal instrument. The preamble itself is not legally binding. The same caveat applies to the Verwaltungsgericht Stuttgart [VG Stuttgart - Administrative Court of Stuttgart], Case No. 5 K 1081/06, Aug. 5, 2008 (Ger.), available at http://lrbw.juris.de/cgibin/laender_rechtsprechung/document.py?Gericht=bw&nr=10952 (murder); Niedersächsisches Oberverwaltungsgericht [NdsOVG - Lower Saxony Higher Administrative Court], Case No. 11 LB 26/08, Mar. 27, 2008, 2008 DIE ÖFFENTLICHE VERWALTUNG (DÖV) 970 (Ger.) (attempted murder and aggravated assault of a youth). 73 Verwaltungsgerichtshof Bayern [VGH Bayern - Higher Administrative Court Bavaria], Case No. 10 B 07.304, 2008 DIE ÖFFENTLICHE VERWALTUNG (DÖV) 970 (Ger.). 2013] The Protection of Turkish Citizens Against Expulsion 253 headings of Decision 1/80. Only the provisions of the Association Agreement and Council Decision 1/80 themselves are legally binding. Therefore, it is relevant to assess whether these provisions confer social or other non-economic rights on the individual. According to the C EU’s judg e t i Demirel, a provision in an agreement concluded between the Community and a third state ust e co sidered as ei g directly applica le whe , regard being had to its wording and the purpose and the nature of the agreement itself, the provision contains a clear and precise obligation which is not subject in its 74 implementation or effects to the adoption of any subsequent measure . In Sevince, the CJEU held that the same requirements apply to provisions of the Association Council 75 Decision 1/80. In light of these criteria, Articles 15 and 17 of Decision 1/80 cannot be considered as being directly applicable. The reference in Article 8 of the Protocol to the Associatio Agree e t to Turkish eco o ic a d social de elop e t is also ot phrased in a way as to confer rights on the individual. As an interim result, the Association Agreement pursues a primarily economic objective; whether it pursues a purely economic purpose is debatable. E. The LTR Directive The subsequent section focuses on the LTR Directive as, for the first time, the Court drew a parallel to the LTR Directive instead of referring to the provisions applicable to nationals of the Member States. It examines the CJEU´s reference regarding the applicability of the LTR Directive, the meaning of fundamental rights in the context of Article 12 of the LTR Directive, and the advantages and disadvantages of the LTR Directive vis-à-vis Decision 1/80. Finally, it addresses the differences in the expulsion provisions and case law regarding Union citizens and Turkish workers compared to the wording of Article 12 of the LTR Directive. I. Applicability of the LTR Directive to the Ziebell Case The Court created some uncertainty regarding the applicability of the LTR Directive. It held that, i sce arios i which the Citize ship Directi e is ot applica le y a alogy, it is appropriate to determine another reference framework under European Union law for the 76 purpose of applyi g Article 4 of Decisio /8 . The Court then stated that: The framework, in the case of a foreign national such as Mr. Ziebell, who has been residing lawfully and continuously in the host Member State for more than 74 Case C-12/86, Demirel v. Schwäbisch Gmünd, 1987 E.C.R. 3747, para. 14. 75 Case C-192/89, Sevince v. Staatssecretaris van Justitie, 1990 E.C.R. I-3497, paras. 14–15. 76 Ziebell, supra note 1, at para. 78. 254 German Law Journal [Vol. 14 No. 01 10 years, consists of Art. 12 of Directive 2003/109, which . . . is a rule of minimum protection against expulsion for any national of a non-member State who holds the status of a long-term lawful resident in the 77 territory of a Member State. It is debatable whether the Court intended to apply the LTR Directive to the case of Mr. Ziebell and other similar cases. On the one hand, to support a claim against applying the LTR Directive to Mr. Ziebell and others similarly situated, it could be argued that the Court’s holdi g that Article of the LT‘ Directi e is a rule of i i u protectio for a third country national that holds a long-term resident status. By referring to a national who actually holds a long-term resident status, the judgment could be interpreted as excluding all Turkish workers who do not hold long-term resident status. In that regard, it should be noted that the judgment neither gives information that Mr. Ziebell applied for the long-term resident status according to Article 7 of the LTR Directive nor that he acquired that status. Having regard to Article 6 of the LTR Directive—which provides Member States the option to refuse the granting of long-term status on grounds of public policy and public security, as well as the long criminal record of Mr. Ziebell dating back to 1993 and comprising four prison terms of at least two years and one prison term of at least 78 three years —it is highly questionable whether the German authorities would have granted him a long-term resident status. O the other ha d, it could e argued that the Court refers to a other refere ce fra ework u der Europea law for the purpose of applyi g Article 4 of Decisio /8 , thus the LTR Directive could apply to Mr. Ziebell and others similarly situated. Mentioning the LTR Directive as a reference framework would be superfluous if the Directive were directly applicable to Mr. Ziebell. If Mr. Ziebell was a long-term resident pursuant to the Directive, the Court could directly apply Article 12 of the LTR Directive. The application of Article 12 of the LTR Directive as a reference framework shows that it only indirectly applies and that the person concerned is not required to actually hold the long-term resident status. By establishing a further requirement, the Court demonstrates that Article 12 of the LTR Directive shall apply to a foreign national—such as Mr. Ziebell—who does not hold the status of a long-term resident. The requirement the CJEU refers to is a lawful and 79 continuous residence in the host Member State for more than ten years, whereas the LTR 77 Id. at para. 79. 78 Id. at para. 37. 79 Id. at para. 79. 2013] The Protection of Turkish Citizens Against Expulsion 255 80 Directive only requires a lawful and continuous residence of five years. By setting this stricter sta dard, the Court shows that a longer period of residence than the period provided for in the LTR Directive is necessary for its application as a reference framework. Fi ally, the Court also applies the criteria of Article of the LT‘ Directi e to Mr. )ie ell’s case without, however, referring explicitly to the relevant paragraphs. The Court holds that the referring court must conduct a balancing process between the interests of the state a d the actual i tegratio factors e a li g the i di idual co cer ed to rei tegrate 81 into society in the host Member State . The Court lists the considerations which must be observed by the domestic court. These criteria are taken from Article 12 of the LTR Directi e. The Court refers to the particularly close li ks the foreig atio al has forged 82 with society i the Federal ‘epu lic of Ger a y . It thereby refers to the links with the country of residence as provided for by Article 12(3)(d) of the LTR Directive. The Court states that Mr. Ziebell was born in Germany and has lived there lawfully and continuously for more than 35 years. Thus, the Court hints at Article 12(3)(a) and (b) of the LTR Directive, which obliges Member States to take the duration of residence in their territory into account as well as the age of the person concerned. The Court points to the fact that Mr. Ziebell is married to a German national, and thereby alludes to Article 12(3)(c). This provision stipulates that Member States shall consider the consequences of an expulsion for the person concerned and for the family members. The Court does not elaborate on these aspects, as it is for the domestic court to conduct the assessment and the balancing process. It is interesting that the Court considers Article 12 of the LTR Directive as the relevant reference framework, even though it is most likely that Mr. Ziebell does not hold the long-term resident status and would probably not qualify for it given his criminal record. The Court, it would appear, has thus created a new scope of application for Article 12 of the LTR Directive. II. The Long-Term Residents Directive and Fundamental Rights It is notable that the Court does not explicitly mention the Charter of Fundamental Rights 83 of the European Union when referring to the Long-Term Residents Directive, whereas 84 Advocate General Bot made such reference. Elsewhere, namely when summarizing its previous case law, the Court makes reference to fundamental rights by stating that measures taken on grounds of public policy and public security may only be taken after a 80 LTR Directive, supra note 8, at art. 4(1). 81 Ziebell, supra note 1, at para. 85. 82 Id. 83 Id. at paras. 79–80. 84 Opinion of Advocate General Bot, supra note 22, at para. 65. 256 German Law Journal [Vol. 14 No. 01 case-by-case assessment has been conducted and that the measures have to observe the 85 principle of proportionality and fundamental rights. The CJEU also indirectly refers to human rights when listing the considerations that have to be observed by domestic courts in the balancing process (the particularly close links which 86 the foreign national has forged and so forth). These requirements correspond to the requirements established by the European Court of Human Rights (ECtHR) in cases regarding interferences with the right to private and family life as well as with the requirements listed in Article 12 of the LTR Directive. III. LTR Directive and Association Agreement Focusing on the access to the labor market and social security, Decision 1/80 and 3/80 place Turkish citizens in a more advantageous position than they are given under the LTR 87 Directive. Article 6(1) of Council Decision 1/80 accords a Turkish worker the right to take up any paid employment of his or her choice after four years of legal residence, whereas the long-term resident status, which entails equal treatment with nationals regarding 88 access to employment and self-employed activity, is only acquired after five years of legal 89 residence. In contrast, Council Decision 1/80 contains neither a provision conferring long-term resident status on Turkish citizens nor a provision according internal mobility to 90 them. The access to social assistance and equal treatment is also considered to be more 91 beneficial under the LTR Directive than under Decision 1/80. It is argued that Turkish workers and their family members can benefit from several provisions of the LTR 92 Directive. 85 Ziebell, supra note 1, at para. 82. 86 Id. at para. 85. 87 Louise Halleskov, The Long-Term Residents Directive: A Fulfillment of the Tampere Objective of Near-Equality?, 7 EUR. J. MIGRATION & L. 185, 192–99 (2005). 88 LTR Directive, supra note 8, at art. 11(1)(a). 89 See id. at art. 4(1); see also Halleskov, supra note 87, at 192. 90 Sonja Boelaert-Suominen, Non-EU Nationals and Council Directive 2003/109/EC on the Status of Third-Country Nationals Who Are Long-Term Residents: Five Paces Forward and Possibly Three Paces Back, 42 COMMON MKT. L. REV. 1011, 1037–39 (2005). 91 Kees Groenendijk, The Long-Term Residents Directive, Denizenship and Integration, in WHOSE FREEDOM, SECURITY, EU IMMIGRATION AND ASYLUM LAW AND POLICY 429, 441-42 (Anneliese Baldaccini, Elspeth Guild & Hellen Toner eds., 2007). AND JUSTICE?: 92 Boelaert-Suominen, supra note 90, at 1037–40. 2013] The Protection of Turkish Citizens Against Expulsion 257 IV. LTR Directive and Expulsion Focusing on expulsion, Peers points out that the wording of the LTR Directive and the case law of the C EU regardi g Decisio /8 is ot e tirely clear, ut it is possi le that the ground for expulsion (or at least for the loss of the LTR status) on grounds of public policy, public security and public health is subject to lower procedural and/or substantive 93 sta dards u der the Directi e. Comparing the provisions on expulsion for Union citizens and third country nationals, Langeheine argues that the requirements anchored in Article 12 of the LTR Directive do not correspond with the requirements of Article 27(1) and (2) of 94 the Citizenship Directive, and therefore different standards apply. The CJEU has not yet provided an interpretation of Article 12 of the LTR Directive. The subsequent analysis which excludes expulsion on grounds of public health is, therefore, based upon the CJEU´s case law regarding Union citizens and Turkish citizens covered by the Association Agreement on the one hand and the wording of the LTR Directive and opinions of scholars on the other. It assesses the components of the substantive provision 95 on expulsion, and it aims at identifying differences and similarities. 1. Economic Considerations 96 An expulsion which relies upon economic considerations is excluded. Handoll points out that the requirement in Article 12 of the LTR Directive not to base an expulsion decision on economic considerations is also contained in the provisions on the free movement in the 97 TFEU and is likely to be interpreted in the same way. 93 Steve Peers, EU Migration Law and Association Agreements, in JUSTICE, LIBERTY, SECURITY: NEW CHALLENGES FOR EU EXTERNAL RELATIONS 53, 81 (Bernd Martenczuk & Servaas van Thiel eds., 2008). 94 Claudia Langeheine, Section 5 - Aufenthaltsbeendigung, Abschiebung, Sicherheit, in ZUWANDERUNGSRECHT marginal no. 127 (Winfried Kluth, Michael Hund & Hans-Georg Maaβen eds., 2008). 95 Procedural aspects were not addressed by the CJEU in Ziebell and are not addressed in this contribution. The Higher Administrative Court Baden-Württemberg argues that the so-called ´four-eyes principle´ enshrined in Article 9 Council Directive 64/221/EEC cannot be applied to Turkish workers any longer and bases its finding on the Ziebell judgment. Verwaltungsgerichtshof Baden-Württemberg [VGH Baden-Württemberg - Administrative Court Baden-Württemberg], Case No. 11 S 1361/11, Feb. 10, 2012, 2012 NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT RECHTSPRECHUNGS-REPORT (NVWZ-RR) 492, para. 35 (Ger.). 96 See Citizenship Directive, supra note 12, at art. 27(1); Directive 64/221/EEC, supra note 11, at art. 2(2), see also LTR Directive, supra note 8, at art. 12(2) (providing the same protection for long-term residents). 97 John Handoll, Art. 12 Council Directive 2003/109/EC, in EU IMMIGRATION AND ASYLUM LAW: A COMMENTARY marginal no. 7 (Kay Hailbronner ed., 2010). 258 German Law Journal [Vol. 14 No. 01 2. Personal Conduct Article 27(2) of the Citizenship Directive stipulates that expulsion decisions taken against atio als of the EU Me er “tates shall e ased e clusi ely o the perso al co duct of 98 the i di idual co cer ed. Reasons which are detached from the individual case can, according to the CJEU, not be used to justify measures aiming at protecting public policy or 99 public security. The re uire e t of perso al co duct, oreo er, prohi its a 100 expulsion based on general preventive reasons. Conferring these principles applicable to Union citizens on Turkish citizens covered by the Association Agreement, the Court held that the personal conduct of the offender has to be 101 assessed. Expulsion decisions against Turkish workers which were based on general preventive reasons are considered to be incompatible with Article 14(1) of the Association 102 103 Council Decision 1/80 by the CJEU. This was again confirmed by the Court in Ziebell. Article of the LT‘ Directi e does ot co tai the otio of perso al co duct, so it has been argued that the Directive does not require that the expulsion decision be based on 104 the perso al co duct of the lo g-term resident. Peers rightly points out that it is difficult to assess the actual a d sufficie tly serious threat so eo e poses to pu lic policy or public security—as stated in Article 12(1) of the LTR Directive—without having 105 recourse to his or her personal conduct. The Court did not yet have the chance to take a stand on this matter, but in (German) doctrine it is argued that Article 12 of the LTR 106 Directive contains an exclusion of expulsions based on general preventive grounds. In Germany, long-term third country nationals enjoy, due to the transposition of the LTR 98 See Directive 64/221/EEC, supra note 11, at art. 3(1) (containing the same requirement). 99 Case C-67/74, Bonsignore v. Köln, 1975 E.C.R. 297, para. 6. 100 See Citizenship Directive, supra note 12, at art. 27(2); see also Bonsignore, 1975 E.C.R. 297, para. 7. 101 Case C-325/05, Derin v. Darmstadt-Dieburg, 2007 E.C.R. I-06495, para. 74; Case C- 340/97, Nazli v.Nürnberg, 2000 E.C.R. I-957, para. 61. 102 Nazli, 2000 E.C.R. I-957, at para. 63. 103 Ziebell, supra note 1, at para. 83. 104 MARION SCHMID-DRÜNER, DER BEGRIFF DER ÖFFENTLICHEN AUSGEWÄHLTER EU-MITGLIEDSTAATEN 410, 431 (2007). SICHERHEIT UND ORDNUNG IM EINWANDERUNGSRECHT 105 Steve Peers, Implementing Equality? The Directive on Long Term Resident Third Country Nationals, 29 EUR. L. REV. 427, 452 (2004). 106 Langeheine, supra note 94, at marginal no. 127; Marx, supra note 69, at 148; Jürgen Bast, Transnationale Verwaltung des europäischen Migrationsraums 7 Ma Pla ck I st. for Co parati e Pu . Law I t’l Law, Working Paper No. 9/2006), available at http://www.mpil.de/shared/data/pdf/bast_working_paper_9-2006.pdf. 2013] The Protection of Turkish Citizens Against Expulsion 259 107 Directive, a reinforced protection against expulsion, and the view is advanced that the expulsion of third country nationals covered by the LTR Directive—and § 56(1a) Residence 108 Act—cannot be based on general preventive reasons. Handoll also points to the a se ce of the criterio of perso al co duct ut refers to the re uire e t of a actual a d sufficie tly serious threat. He argues that the clea age etwee the rights of U io citizenship and rights of long-ter reside t third cou try atio als is less pro ou ced, 109 highlights recital 16 of the Preamble to the LTR Directive, and co cludes that this could 110 result in the courts refusing to distinguish between the two . 3. Previous Criminal Convictions The Union Citizen Directive provides that previous criminal convictions shall not in 111 themselves constitute grounds for taking such measures. Relating to a Turkish citizen, the Court held in Nazli that a pre ious cri i al co ictio ca justify a e pulsio o ly i so far as the circumstances which gave rise to that conviction are evidence of personal 112 conduct constituting a prese t threat to the re uire e ts of pu lic policy. The proposal of the LTR Directive contained the reference to criminal convictions and provided that cri i al co ictio s i the sel es shall ot auto atically warrant an expulsion 113 decision . This safeguard was removed from the final version of the Directive and could be used as an argument for basing an expulsion of a long-term resident on previous criminal convictions. The reference to previous criminal convictions, however, relates again to general 114 preventive grounds, which are, according to doctrine, also excluded as a consideration 115 for expelling long-term third country nationals. Moreover, Article 12(1) of the LTR 107 Aufenthaltsgesetz [AufenthG] [Residence Act], July 30, 2004, BGBL. I at 1950, as amended, § 56(1)1a (Ger.). 108 Hans Alexy, § 56, in AUSLÄNDERRECHT KOMMENTAR marginal nos. 3, 24 (Holger Hoffmann & Rainer Hofmann eds., 2008). 109 Lo g-term residents should enjoy reinforced protection against expulsion. This protection is based on the criteria deter i ed y the decisio s of the Europea Court of Hu a ‘ights. LTR Directive, supra note 8, at pmbl. recital 16. 110 Handoll, supra note 97, at marginal no. 6. 111 See Citizenship Directive, supra note 12, at art. 27(2); see also Directive 64/221/EEC, supra note 11, at art. 3(2). 112 Case C- 340/97, Nazli v. Nürnberg, 2000 E.C.R. I-957, at para. 58. 113 Commission Proposal for a Council Directive Concerning the Status of Third-Country Nationals Who Are LongTerm Residents, at art. 13(3), COM (2001) 127 final (Mar. 13, 2001) [hereinafter Commission Proposal]. 114 Nazli, 2000 E.C.R. I-957, at paras. 59, 60, 63. 115 Langeheine, supra note 94, at marginal no. 127; Marx, supra note 68, at 148; Bast, supra note 106, at 17. 260 German Law Journal [Vol. 14 No. 01 Directive requires an actual and sufficiently serious threat to public policy or public security which cannot be sufficiently proven by mere reference to a previous criminal conviction. 4. The Requirement of a Genuine, Present and Sufficiently Serious Threat Affecting One of the Fundamental Interests of Society The Union Citizens Directive requires that the personal conduct of the individual concerned represe t a ge ui e, prese t a d sufficie tly serious threat affecti g o e of the 116 117 fu da e tal i terests of society. The same criteria apply to Turkish citizens. By way of contrast, the LT‘ Directi e stipulates that the i di idual ust co stitute a actual a d 118 sufficie tly serious threat to pu lic policy a d pu lic security. Whether there is a difference between a present and an actual threat is questionable: Both notions require that the threat is not only hypothetical. The slightly different wording of the later-adopted Citizenship Directive might have been chosen to avoid an identical wording and thereby a conferment of the case law regarding Union citizens on long-term residents. The LTR Directive neither requires that a fundamental interest of society must be affected nor a genuine threat be present. In this context, it is interesting that the provisions in the original draft of the LTR Directive required that an expulsion decision can be issued only if 119 the perso al co duct affects a fu da e tal i terest of society. This and other safeguards were removed before the adoption of the Directive, demonstrating that the Member States did not agree on an unlimited transfer of the case law on Union citizens to third country nationals. It remains to be seen to what extend the different wording matters. 116 Citizenship Directive, supra note 12, at art. 27(2); Case C-36/75, Rutili v. Ministre de l'intérieur, 1975 E.C.R. 1219, para. 28. 117 Nazli, 2000 E.C.R. I-957, at para. 57. Accord Derin, 2007 E.C.R. I-06495, at para. 35 (referring to genuine and serious threats). 118 LTR Directive, supra note 8, at art. 12(1). 119 Commission Proposal, supra note 113, at art. 13(1). 2013] The Protection of Turkish Citizens Against Expulsion 261 5. Principle of Proportionality and the Relevant Considerations in the Balancing Process 120 121 Expulsion decisions against Union citizens and Turkish workers must comply with the principle of proportionality. Even though the LTR Directive does not explicitly refer to the 122 principle of proportionality, it constitutes a principle of Union law and has to be complied with. Concerning the relevant considerations in the balancing process, Article 28(1) of the Citizenship Directive provides that the competent authority has to take into consideration the length of residence on the territory of the host Member State, the age and the state of health of the individual, his or her family and economic situation, social and cultural integration into the host Member State, and the extent of his or her links with the country of origin. The LTR Directive prescribes that the duration of residence of the individual in the host Member State, his or her age, the consequences of the expulsion of the person concerned and his or her family members, and the links with the country of residence or the absence 123 of links with the country of origin have to be considered. Article 12(3)(d) does not specify the type of links with the host country, and it could be argued that a national implementation measure taking only economic links or the economic integration into consideration would thereby be sufficient. This argument can be rebutted by a reference to the prea le which pro ides that lo g-term residents should enjoy reinforced protection against expulsion. This protection is based on the criteria determined by the 124 decisions of the European Court of Human Rights. The ECtH‘ held that the solidity of social, cultural a d fa ily ties i the host cou try a d i the cou try of desti atio has to 125 be assessed. Therefore, an assessment which only focuses on economic links cannot be considered to be sufficient in light of Article 12(3)(d) when read in conjunction with recital 16 of the preamble and the case law of the ECtHR. A criterion of health is mentioned in the Citizenship Directive, but health is not mentioned in Article 12(3) LTR Directive. It should be noted that that the lists of considerations contained in the Citizenship Directive e ploys the phrase such as, a d is therefore ot e hausti e. The LTR Directive states 120 Citizenship Directive, supra note 12, at art. 27(2). 121 Derin, 2007 E.C.R. I-06495, at para. 74. 122 Treaty on European Union art. 5(3), Feb. 11, 1992, 1992 O.J. (C191) 1 [hereinafter TEU]. 123 LTR Directive, supra note 8, at art. 12(3)(a)-(d). 124 LTR Directive, supra note 8, at pmbl. recital 16. 125 Üner v. The Netherlands, 2006-XII Eur. Ct. H.R. 873, para. 58. 262 German Law Journal [Vol. 14 No. 01 that decisio s ust ha e regard to the followi g factors ; it is u clear whether other 126 considerations not specifically enumerated are excluded. 6. Special Protection Against Expulsion in Art. 28 (2) and (3) of the Citizenship Directive A major difference between the LTR Directive and the Citizenship Directive is the enhanced protection against expulsion according to Article 28(2) and (3)(a) after five or ten years of residence in the host Member State. This protection is not provided by the LTR Directive, and the Court clarified in Ziebell that it cannot be conferred on Turkish citizens. The LTR Directive does, however, require taking the length of residence and other factors into account. It does not expressly prohibit granting long-term residents a similar protection as the protection accorded to Union citizens. Much will depend on the interpretation of Article 12 by the CJEU and the judgments of domestic courts regarding the domestic implementation of Article 12 of the LTR Directive. The comparison demonstrates that the requirements enshrined in Article 27(1) and (2) of the Citizenship Directive do not differ considerably from those of Article 12 of the LTR 127 Directive. Therefore, the above mentioned statement that different standards apply is questionable, and further case-law might be needed to clarify this question. Acosta o ser es that there are co i ci g argu e ts that the C EU will pro a ly i terpret the possibility of expelling a long-term resident with the same principles applied to European 128 citize s. It is true that the enhanced protection against expulsion anchored in Article 28(2) and (3) is not provided for long-term residents in Article 12 of the LTR Directive. It remains to be seen whether the protection granted by Article 12 of the LTR Directive will be interpreted by the CJEU and domestic courts in a similar way as Article 28 (2) and (3) of the Citizenship Directive. The court’s i terpretatio a d applicatio of Article of the LT‘ 129 Directive should be guided by both the case law of the ECtHR and the Tampere objective of granting long-term third country nationals a set of uniform rights which are as near as 130 possible to those enjoyed by EU citizens. 126 DIEGO ACOSTA, THE LONG-TERM RESIDENT STATUS AS A SUBSIDIARY FORM OF EU CITIZENSHIP: AN ANALYSIS OF DIRECTIVE 2003/109, at 125 (2011) (arguing that the list in Art. 12(3) LTR Directive is exhaustive). 127 Langeheine, supra note 94, at marginal no. 127. 128 ACOSTA, supra note 126, at 138. 129 See Presidency Conclusions, Tampere European Council (Oct. 15-16, 1999), para. 21, see also LTR Directive, supra note 8, at pmbl. recital 2 (referring to Tampere Presidency Conclusions). Note that the Tampere Presidency Conclusions are not legally binding. 130 LTR Directive, supra note 8, at pmbl. recital 16. The preamble is not legally binding but, Art. 6(3) TEU provides that fundamental rights as guaranteed by the ECHR and as they result from the constitutional traditions common to the Me er “tates co stitute ge eral pri ciples of EU law. Moreo er, Acosta argues that the C EU will always refer to the case law of the ECtH‘ whe i terpreti g the re uire e ts of Art. . ACOSTA, supra note 126, at 122–23. 2013] The Protection of Turkish Citizens Against Expulsion 263 F. Implications of the Ziebell judgment This section first outlines the legal position of Turkish citizens prior to the Ziebell judgment in order to subsequently analyze possible advantages and disadvantages implied by the shift to the LTR Directive. Next, the stand-still clause and the resulting obligations are addressed before summarizing the obligations incumbent upon domestic courts when expelling Turkish citizens and the possible positive consequences this shift could have for other long-term third country nationals who are covered by the LTR Directive. I. Legal Position of Turkish Citizens According to Advocate General Bot, Turkish nationals covered by the Association Agreement enjoy a special status which is halfway between the status of a national of a 131 Member State and a third-country national. Groe e dijk refers to the Court’s judgments and concludes that they moved the status of Turkish citize s fro so ewhere half-way between the status of third country nationals and that of EU citizens to a status 132 si ilar to that of U io citize s i a y respects. In many respects, the position of Turkish workers is special or pri ileged is-à-vis other groups of third country nationals, even vis-à-vis long-term resident third country nationals. Before the Ziebell judgment, some scholars voiced the expectation that the developments regarding Union citizens, especially those triggered by the adoption of the Citizenship Directive, would be reflected in the CJEU´s future case-law on the expulsion of Turkish 133 workers. Other scholars even argued that the protection against expulsion granted to Turkish citizens covered by the Association Agreement was put on equal footing with the 134 protection granted to Union citizens. This statement cannot be maintained after the Court’s ruli g i Ziebell. 131 Opinion of Advocate General Bot, supra note 22, at para. 64. 132 Groenendijk, supra note 91, at 429-431. 133 Alexy, supra note 108, at marginal no. 10; Narin Tezcan-Idriz, Free Movement of Persons Between Turkey and the EU: To Move or Not to Move? The Response of the Judiciary, 49 COMMON MKT. L. REV. 1621, 1657 (2009). 134 Le e t Gü eş Ale a dra “tei e ach, Prekärer Aufenthaltsstatus? Ausweisungsschutz von Unionsbürgern und Drittstaatsangehörigen in der EU–ein Überblick, 2010 ZEITSCHRIFT FÜR AUSLÄNDERRECHT UND AUSLÄNDERPOLITIK 97, 99–101 (2010). 264 German Law Journal [Vol. 14 No. 01 II. The Ziebell Judgment: Stay at the Status Quo and Changes The approximation of rights of Turkish citizens to the status granted to Union citizens came to a halt in the Ziebell judg e t due to the Court’s clarificatio that the Citize ship Directive cannot serve as a reference framework for determining the rights of Turkish nationals. Given that the Court has repeatedly stated that citizenship of the Union is 135 i te ded to e the fu da e tal status of atio als of the Me er “tates, it is likely that ore a d ore C EU judg e ts will e ased o this fu da e tal status a d the Citizenship Directive, thereby creating a set of case law which only applies to Union citizens and which cannot be conferred on Turkish workers. This might deepen the gap between Union citizens and Turkish workers who used to be able to rely on the judgments delivered by the CJEU with regard to the expulsion of Union workers. A positive aspect about the shift to the LTR Directive is that it requires the competent authorities to take the duration of residence into account when expelling a long-term 136 resident third country national, as well as the third cou try atio al’s co ectio s with 137 the country of residence. It is striking that the wording of neither Council Directive 64/221/EEC nor Article 14 of Council Decision 1/80 refers to the solidity of social and cultural ties. In this regard, Article 12 of the LTR Directive stipulates clearer requirements than Article 14 of Decision 1/80 and provides new interpretative possibilities. Moreover, Article 12(3) of the LTR Directive ensures that Union law corresponds to the requirements 138 established by the ECtHR. III. The Stand-Still Clause Future expulsion decisions have to respect the already-acquired rights of Turkish workers which are protected by the stand-still obligation. The Additional Protocol to the Association Agreement and Decisions 1/80 both contain a stand-still clause. The directly 139 applicable stand-still clauses, contained in Article 41(1) of the Additional Protocol and 135 Ruiz Zambrano, supra note 6, at para. 41; Case C-135/08, Rottmann v. Bavaria, 2010 E.C.R. I-1449, para. 43; Case C-200/02, Zhu v. Sec’y of “tate for the Ho e Dep’t, 4 E.C.‘. I-9925, para. 25; Case C-148/02, Garcia Avello v. Belgium, 2003 E.C.R. I-11613, para. 22; Case C-413/99, Baumbast v. Sec’y of “tate for the Ho e Dep’t, 2002 E.C.R. I-7091, para. 82; Case C-184/99, Grzelcyk v. Centre Public d'Aide Sociale d'Ottignies-Louvain-la-Neuve, 2000 E.C.R. I-9453, para. 31. 136 LTR Directive, supra note 8, at art. 12(3)(a). 137 LTR Directive, supra note 8, at art. 12(3)(d). 138 Boultif v. Switzerland, 2001-IX Eur. Ct. H.R. 497, para. 39. 139 Case C-37/98, The Queen v. Sec’y of “tate for the Ho e Dep’t ex parte Savas, 2000 E.C.R. I-2927, para. 48; Sevince, 1990 E.C.R. I-03461, at para. 26. 2013] The Protection of Turkish Citizens Against Expulsion 140 265 141 Article 13 of Decision 1/80, pursue identical objectives, even though they do not have 142 an identical wording. Article 13 of Decision 1/80 prohibits the introduction of new easures ha i g the o jecti e or the effect of aki g the e ercise of the freedo of movement of workers subject to stricter conditions than those which were applicable at the time when Decision 1/80 entered into force with regard to the respective Member 143 State. Article 41(1) of the Additional Protocol stipulates the same prohibition with 144 regard to the freedom of establishment and the freedom to provide services. In Toprak, the Court clarified that this clause does not only apply to measures which are stricter than those applicable at the time the Agreement or Decision 1/80 entered into force. The Court held that the clause also e te ds y a alogy to a y ew restrictio s which ake more 145 stri ge t the co ditio s which e ist at a y gi e ti e. Hence, measures which are stricter than those that were applied when the Agreement or Decision 1/80 entered into 146 force, or at any later point in time, infringe the stand-still obligation. It would be incompatible with the stand-still clauses if it were argued that decisions taken at the domestic level no longer had to comply with the rules which were previously developed and established by the CJEU with regard to the expulsion of Turkish workers. The stand-still obligation is, according to the wording of Article 13 of Decision 1/80, 147 incumbent on the Member States and Turkey to respect. The Member States in turn are 148 obliged to take the necessary measures to comply with the judgments of the CJEU. This implies that they have to implement the rules established in CJEU judgments and that they become part of their legal system. Any reformatio in peius—that is to say, any departure from these rules or any limitation of the rights granted by CJEU judgments—would constitute a restriction and thereby an infringement of the stand-still obligation on the part of a Member State. Moreover, the Court did not revoke its earlier case law and instead 140 This supersedes Association Council Decision 2/76. NICOLA ROGERS, A PRACTIONER’S GUIDE TO THE EC-TURKEY ASSOCIATION AGREEMENT 27–28 (1999). 141 As to the identical purpose of these two standstill clauses, see The Queen, 2000 E.C.R. I-2927, at para. 50. 142 Case C-317/01, Abatay v. Bundesanstalt für Arbeit, 2005 E.C.R. I-12301, para. 69. 143 Case C-242/06, Sahin v. Minister voor Vreemdelingenzaken en Integratie, 2009 E.C.R. I-8465, para. 63; Case C228/06, Soysal v. Germany, 2009 E.C.R. I-1031, para. 47. 144 See Abatay, 2005 E.C.R. I-12301, at paras. 53, 86-117 (noting that the relation between the two provisions is such that they cannot be applied concurrently). 145 Case C-300/09, Staatssecretaris van Justitie v. Toprak, 2010 E.C.R. I-12845, para. 54. Anuscheh Farahat, Von der “tillhaltepflicht zur zeitlichen Meistbegünstigung” i Türkei, NEUE ZEITSCHRIFT FÜR VERWALTUNGSRECHT 343, 344 (2011). 146 Assoziationsrecht 147 See Additio al Protocol art. 4 148 Treaty on the Functioning of the European Union art. 260, Mar. 25, 1957, 2010 O.J. (C83) 47. , No . , 97 , 97 O. . L 9 4 referri g to co tracti g parties . it der 266 German Law Journal [Vol. 14 No. 01 explicitly referred in Ziebell to its previous judgments regarding the expulsion of Turkish 149 workers and the rules established therein. Article 3(3)(a) of the LTR Directive makes clear that the Directive applies without prejudice to the more favorable provisions of bilateral and multilateral agreements between the Community or the Community and its Member States, on the one hand, and third countries, including the EC/Turkey Association 150 151 Agreement, on the other. The Court also alluded to this rule in the Ziebell judgment. Therefore, domestic courts must have regard to the previous CJEU case law and the rights which were established with regard to Turkish workers. They have to incorporate this already-acquired status of Turkish workers when applying the LTR Directive and the national acts implementing this Directive respectively. The Court indeed rejected the analogous application of the Citizenship Directive, but it should also be recognized that Turkish workers already acquired a rather privileged status which cannot, unless otherwise decided by the Court, be withdrawn. Other long-term third country nationals who are not covered by a special legal regime might also profit fro the Court’s shift to the LT‘ Directi e i cases co cer i g Turkish citize s. IV. Conclusion and Perspectives The CJEU rejected an application of Article 28(3) of the Citizenship Directive to Turkish workers and thereby dismissed an equation of Turkish workers and Union citizens with regards to the protection against expulsion. As things currently stand, the provisions applicable to Union citizens will no longer be applicable by way of analogy to Turkish workers. The judgment marks a shift in the interpretative framework from the focus on the rights applicable to Union citizens to the rights applicable to long-term residents. The shift to the LTR Directive opens new perspectives and paths which can and should be used for developing the rights of Turkish citizens in line with the status they have already acquired. First, Article 14 of Decision 1/80 must be read and interpreted in light of Article 12 of the LTR Directive if the requirements established by the Court are met. It is remarkable that even though the CJEU underlined the purely economic purpose of the Association Agreement, the shift to Article 12 of the LTR Directive implies that non-economic factors will be considered: The e pulsio of Turkish i di iduals i Mr. )ie ell’s situatio has to e assessed in light of the links the individual has established with the country of residence, the consequence for the person concerned and family members, and so forth. Second, the 149 Ziebell, supra note 1, at paras. 81–84. 150 John Handoll, Art.3 Council Directive 2003/109/EC, in EU IMMIGRATION AND ASYLUM LAW—COMMENTARY marginal no. 21 (Kay Hailbronner ed., 2010). 151 Ziebell, supra note 1, at para. 79. 2013] The Protection of Turkish Citizens Against Expulsion 267 rights which were already granted to Turkish nationals, either by Decision 1/80 or by CJEU jurisprudence, have to be considered in future judgments regarding Turkish workers and have to be combined with relevant aspects of the new reference framework. Third, fundamental rights, even though CJEU did not explicitly make a reference to Article 8 of the ECHR or Article 7 of the Charter of Fundamental Rights of the European Union, provide the necessary interpretative instruments to take full account of the special situation of Turkish individuals who were often born in the respective Member State and have established multiple ties with the host country. The CJEU passed the ball to domestic courts, and much will depend on the implementation of the new interpretative framework and the guidelines given by the CJEU by national administrations and courts. In Ziebell, the CJEU strongly emphasized the ties Mr. Ziebell had developed in his host country and pointed to his rehabilitation in the time following his therapy. This emphasis will make it more difficult for the referring domestic court to uphold the expulsion decision against Mr. Ziebell. In case all national courts should not sufficiently respect the right to private and family life, the individual concerned still has the possibility to file a complaint with the European Court of Human Rights after the exhaustion of local remedies. Future expulsion decisions against Turkish nationals covered by the Association Agreement might lead to a further development of the case law on Article 12 of the LTR Directive and its national implementation respectively, as administrations and courts must not take only human rights into consideration, but also the rights previously acquired by Turkish workers. Such a development of the case law might spill over to benefit other third country nationals covered by the LTR Directive and will hopefully have a positive impact on their legal position. 268 German Law Journal [Vol. 14 No. 01 Developments Conference Report—U.S. & German Bench and Bar Gathering: A New Bridge Across the Atla tic : The Future of A erica Patent Litigation By David A. Hurst* A. Introduction The U.“. Ger a Be ch a d Bar Gatheri g, A New Bridge Across the Atla tic, held in Washington, DC, in May 2012, was aptly timed to discuss the developments in German and 1 American patent law. The Federal Circuit Bar Association and the Patentanwaltskammer (German Patent Lawyers Association) brought distinguished judges and attorneys from their respective countries to discuss the current state of the two patent systems. This involved consideration of where the two systems might be converging and why the two countries have had dissimilar litigation patterns. Particularly with respect to the latter of these inquiries, much of the debate throughout the conference focused on the differences in litigation discovery and procedural rules. The conference highlighted the fact that, at the most fundamental level, these differences are a product of differing perceptions of how justice should be administered. A brief overview comparing patent litigation in Germany and the United States will help frame this report. Patents in Germany are granted through an application to the German Patent and 2 Trademark Office (DPMA). After an application is granted, patent litigation in Germany 3 proceeds in one of two forms: Invalidation or infringement. Plaintiffs seeking to recover * J.D. Candidate, Washington & Lee University School of Law Class of 4. I’m forever grateful for the love and the support of y fa ily, a d for y father’s edits. I give my sincerest thanks to Prof. Seaman, for his expert feedback and comments; to Prof. Miller, for his guidance and edits; and to my friends and colleagues on the German Law Journal, for their edits and comments. All remaining errors are, of course, mine. Email: [email protected]. The 2012 German & United States Bench and Bar Gathering— A New Bridge Across the Atlantic”, BENCH AND BAR—FEDERAL CIRCUIT BAR ASSOCIATION (May 18, 2012), https://www.signup4.net/public/ap.aspx?EID=20121754E&OID=50. 1 2 See Joachim Feldges & Birgit Kramer, Patent Law, in BUSINESS LAWS OF GERMANY ch. 13, § 13:9 (Thomas Wegerich ed., 2012). 3 See Patentgesetz [PatG] [Patent Law], Dec. 16, 1980, BUNDESGESETZBLATT [BGBL. I] 1, as amended by the Law of July 31, 2009, §§ 81–85a (Ger.). (discussing nullity proceedings); see also id. at §§ 139–142b (discussing patent infringement). 270 German Law Journal [Vol. 14 No. 01 for a other party’s i fri ge e t ay file i a y of Ger a y’s regio al courts, with the possibility of appellate review in the higher regional courts and the Federal Court of 4 Justice. Patent invalidity cannot be used as a defense in infringement hearings, but filing 5 such a claim against an opponent will delay the infringement hearing. Discovery is almost non-e iste t. Traditio ally, it has ee the plai tiff’s urde to collect e ough e ide ce to 6 substantiate a patent claim against another party. In recent years, however, the German 7 legislature has given litigants limited discovery. Opinions are usually issued within two 8 o ths of a case’s fili g with the court. If a defe da t i fri ges o a other’s pate t, 9 German courts presume the act was done negligently. Damages are awarded generally 10 through a calculation of lost profits. Finally, Germany, as a member of the European 11 Patent Convention, may entertain infringement claims arising out of European patents. All invalidation proceedings take place at a centralized court in Munich: The Federal 12 Patent Court. Claims in front of the Federal Patent Court are ruled on by a panel of two 13 legal members and three technical members. Opinions are generally issued the same day 14 as the trial. Appeals from the Federal Patent Court go directly to the Federal Court of 4 EUR. PATENT OFFICE, PATENT LITIGATION IN EUROPE, 24 (2nd ed. 2010). 5 Id. 6 Feldges & Kramer, supra note 2, § 13:91. 7 Id. § 13:87. 8 See FRANK PETERREINS, GLOBAL PATENT ENFORCEMENT STRATEGY: GERMANY 9 (2011), available at http://www.fr.com/files/Uploads/Documents/Patent%20Litigation%20in%20Germany%20-%20July%2020%20%202011FINAL.pdf. 9 Patrick J. Birde et al., The Damages Test, 177 PAT. WORLD 10, 11 (2005). 10 Patentgesetz [PatG] [Patent Act], Dec. 16, 1980, BUNDESGESETZBLATT [BGBL.]1, as amended by § 13 of the Act of Nov. 24, 2011, BGBL. I 2302, § 139(2). 11 Convention on the Grant of European Patents art. 64(3), Oct. 5, 1973, 1065 U.N.T.S. 255. Since 2009, there has been a concerted effort in the EU community to address patent litigation in uniform manner. See generally Recommendation from the Commission to the Council to Authorize the Commission to Open Negotiations for the Adoption of an Agreement Creating a Unified Patent Litigation System, SEC (2009) 330 final (Mar. 20, 2009), available at http://ec.europa.eu/internal_market/indprop/docs/patent/recommendation_sec09-330_en.pdf. Whether the Council will be able to create a Unified Patent Court amidst the political storm surrounding the proposed agreements has yet to be seen. See generally Hiroshi Sheraton & Matthew Jones, Draft Agreement on a Unified Patent Court—Summary and Implications, BLOOMBERG L. REP INTELL. PROP., Sep. 14, 2011, at 1, available at http://www.mwe.com/info/pubs/sheraton0911.pdf. 12 EUR. PATENT OFFICE, supra note 4, at 24. 13 Id. 14 PETERREINS, supra note 8, at 9. 2013] U.S. and German Bench and Bar on U.S. Patent Litigation 271 15 Justice. The Federal Court of ustice’s re iew, howe er, is highly defere tial a d does ot allow for presentation of new facts. The Federal Court of Justice will set aside a judgment 16 of the Federal Patent Court only if the law was misapplied. 17 The Leahy-Smith America Invents Act (AIA) has drastically changed American patent law. The AIA o ed A erica fro a first to i e t regi e, protecti g the rights of the true 18 first i e tor of a ew product or process, to a first i e tor to file regi e. The AIA charges the United States Patent and Trademark Office (USPTO) with administering a more 19 efficient application process. The AIA, however, does little to specifically address some of 20 the major issues surrounding patent litigation. All of the United States federal district 21 courts may hear a patent claim. Proper venue for a particular claim is established where er the defe da t resides or has co itted acts of i fri ge e t a d has a regular 22 a d esta lished place of usi ess. For the purposes of establishing proper venue, 23 corporate defe da ts reside a ywhere they are su ject to perso al jurisdictio . Discovery rules are governed by the Federal Rules of Civil Procedure, allowing for the production of any documents or electronically stored information that could be related to 24 a claim or defense at issue in the case. As will be discussed below, this can lead to parties engaging in abusive behavior by making frivolous discovery requests. And, unless waived, 15 See Feldges & Kramer, supra note 2, § 13:92. 16 Id. 17 Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011). 18 See David W. Trilling, Recognizing a Need for Reform: The Leahy-Smith Invents Act of 2011, 2012 U. ILL. J.L. TECH. & POL’Y 239, 246 (2012); see also Robert A. Armitage, Understanding The American Invents Act and Its Implication for Patenting, 40 AIPLA Q.J. 1, 93–109 (2012) (providing an overview of the changes the AIA made to the i e tor-related pro isio s of A erica pate t law). 19 Sarah Tran, Patent Powers, 25 HARV. J.L. & TECH. 595, 617–26 (2012) (listing the various expansions the AIA akes to the U“PTO’s power, i cludi g the discretion to expedite qualifying patent applications). 20 For a broad perspective of what the industry—including former Chief Judge Paul Michel of the United States Court of Appeals for the Federal Circuit—felt about the enactment of the AIA, see America Invents Becomes Law—But IP Industry Largely Unimpressed, WEALTH OF IDEAS (Gen. Patent Corp.) Sept. 2011, available at http://www.generalpatent.com/america-invents-act-passes-ip-industry-largely-unimpressed. The American panelists at the conference addressed many of the concerns surrounding the AIA, much of which is reported below. 28 U.S.C. § 1400 (2012). See Megan Woodhouse, “hop Til You Drop: I ple enting Federal ‘ules of Patent Litigation Procedure to Wear Out Forum Shopping Patent Plaintiffs, 99 GEO. L.J. 227 (2010) (providing a discussion of forum shopping in patent infringement litigation and proposals of new rules to reign in the behavior). 21 22 28 U.S.C. § 1400(b). 23 28 U.S.C. § 1391(c)(2). 24 FED. R. CIV. PRO. 26. 272 German Law Journal [Vol. 14 No. 01 25 a plaintiff has the right to demand that a patent case be submitted to a jury. Damages for a successful i fri ge e t clai are ge erally calculated y the plai tiff’s lost profits or 26 by the amount of a reasonable royalty. Where the defendant is found to have engaged in 27 28 willful infringement, plaintiffs may recover up to treble damages. Finally, because litigation through the federal courts can be time consuming, the International Trade 29 Commission (ITC) has begun to play a larger role in adjudicating patent claims in America. B. Recent Developments in Patent Law The Conference first addressed how each country is keeping up with changes in the quality of patents. During an opening panel from the American side, Solicitor Ray Chen, USPTO, recognized that the AIA helped harmonize American patent law with the majority of foreign patent systems and provided his office with the opportunity to implement new procedures to help increase the quality of its patent decisions. Judge Pauline Newman of the United States Court of Appeals for the Federal Circuit remarked that the quality of pate ts origi ates fro the pu lic’s or Co gress’s attitude towards pate ts. Before moving on to shape laws and procedures concerning patents, she urged, the nation must naturally have strength and support for patents in the first instance. According to Judge Newman, this is reflected in the choices courts and Congress make about where to draw the line on patent protection. Do they protect everything, including small incremental steps in an invention? Or should patents be reserved for only large, transformative innovations? Only after settling these fundamental issues, Judge Newman explained, can a nation move to addressing stability and clarity of patent rights. Chief Judge Randall Rader of the United States Court of Appeals for the Federal Circuit argued that the focus of patent protection should not be on size or obviousness of the invention, but, rather, should balance protection interests with the market value of a given invention. Small, incremental steps, especially for an invention that is widely used on a regular basis, can 25 The U.“. ay e the o ly country in the world that uses juries to decide pate t cases. Philippe “ig ore, On the Role of Juries in Patent Litigation (Part 1), 83 J. PAT. & TRADEMARK OFF. SOC’Y 791, 794 (2001). 26 35 U.S.C. § 284 (2012). But see Christopher B. Seaman, Reconsidering the Georgia Pacific Standard for Reasonable Royalty Damages for Patent Infringement, 2010 BYU L. REV. 1661, 1673–76 (noting the decline in the use of lost profits due to evidentiary and procedural obstacles courts have imposed upon plaintiffs). 27 See Laurence H. Pretty, Damages and Attorney Fees, in PATENT LITIGATION ch. 9, § 9.10 (Practicing Law Inst., Oct. 2011) (discussing what constitutes willful i fri ge e t . 28 35 U.S.C § 284 (2012). But see Christopher B. Seaman, Willful Patent Infringement and Enhanced Damages after In re Seagate: An Empirical Study, 97 IOWA L. REV. 417, 464–7 oti g that the award of e ha ced da ages is eco i g less fre ue t, e e where willful i fri ge e t is fou d . 29 The ITC gains jurisdiction over patent claims arising out of imports through 19 U.S.C. 1337(a)(1)(B)(i) (2012). See Colleen V. Chien, Patently Protectionist? An Empirical Analysis of Patent Cases at the International Trade Commission, 50 WM. & MARY L. REV. 63, 78–81 (2008) (discussing the rise of the ITC as an alternative forum in patent infringement litigation). 2013] U.S. and German Bench and Bar on U.S. Patent Litigation 273 have a greater market value than a completely new and unobvious invention, especially if that new invention would find little use in the market. The German side of the opening panel focused on the procedures used in invalidation proceedings, which were characterized as different from those in the American system. The bifurcated system featuring streamlined procedures, according to Chief Judge Beate Schmidt of the German Federal Patent Court, has strengths: By limiting the focus of the proceedi gs, she e plai ed, lawyers are gi e li its to what is e pected out of the . These limits help filter the numerous claims that are brought before the court so that only meritorious claims advance to a hearing. This limited focus in court proceedings, Judge Schmidt argued, helps strengthen the quality and clarity of patents. Judge Peter Meir-Beck of the German Federal Court of Justice pointed out that these procedures, and the narrow focus they impose on litigation, help expedite the appeals process, especially in light of the fact that the Federal Court of Justice does not play a very active role in reviewing lower courts’ decisio s. During a plenary discussion of the opening panel, Solicitor Chen mentioned that the PTO seriously considers what the courts say to help examiners do their jobs properly. He voiced his frustration with the fact that American courts provide only ex-post rulings on PTO decisio s. I “olicitor Che ’s iew, a iguous decisions—where the court is not entirely clear on what it would have expected from the PTO in a particular patent decision—can be destabilizing to the patenting processes. He recognized that moving towards the German model, which permits courts to issue opinions ex ante, would help immensely in ensuring the quality of patent decisions. C. Discovery (or Not) Following the opening panel, the conference moved into a lively debate over the role of discovery in patent litigation. Though the German system allows for very little discovery, there is a growing movement calling for more discovery in patent infringement cases. Judge Meir-Beck noted that, without some form of limited discovery, the German system may leave a plaintiff with a legitimate claim unable to obtain justice due to a lack of accessible evidence. The moderators jokingly started their discussion with the American side of the pa el with o ly the words Disco ery. Go. For the ost part, the A erica panelists agreed that patent lawyers know what items are expected from clients during discovery and, therefore, the process should be relatively efficient. This, of course, is far from the reality. Judge Newman took issue with the discovery culture in patent litigation that tolerates abusive behavior. She referred to instances where discovery rules are abused to the point that one obscure and damaging email can destroy a perfectly sound patent. And, with discovery being the main cost associated with patent litigation, she seemed convinced that the United States has much to learn from the German experience of virtually no discovery. 274 German Law Journal [Vol. 14 No. 01 Both Judge Newman and Chief Judge Rader acknowledged that the collaborative efforts of the e ch a d the Federal Circuit Bar Associatio to draft a Model Order for electronic 30 discovery have helped streamline the discovery process. Andrew Culbert, Associate General Counsel at Microsoft Corporation, expressed his preference for litigating patent issues as both a plaintiff and defendant in Germany. Proponents of the German system, including Culbert, point to several factors that ensure that the German courts are accurate and efficient in their rulings. These factors include the narrow focus of proceedings and the absence of a jury,which, in Germany, is replaced with the technical judges that preside over patent litigation. Culbert believes that Microsoft, as a plaintiff and a defendant, has obtained full and fair patent decisions in Germany despite the absence of an American-style discovery process. Further, the panel identified an emerging trend that suggests that plaintiffs are moving their cases to Germany, most likely to take advantage of the expedited process. Frank Zacharias, general patent counsel for Porsche, noted that when a case ends up in American courts, the discussio s a o g a Europea corporatio ’s a age e t are dramatically different than when the company faces a patent claim elsewhere. Instead of discussing litigation strategies, Zacharias said that the issue is sent straight to the marketing department to determine whether it is worth fighting over the patent in the American courts. For all this negative treatment of the American system, the panel nevertheless proposed that, for more difficult patent claims, U.S. courts tend to be the preferred forum. udge Kathlee O’Malley of the U ited “tates Court of Appeals for the Federal Circuit argued that the American discovery process is not as bad as corporate counsel characterizes it. She noted that judges have the ability to control the course of discovery and should exercise that authority more often, especially when confronted with abusive situatio s. udge O’Malley poi ted out that disco ery is ot always a u ridled ra page between two parties. Cooperation in discovery agreements has, in her opinion, been co o whe two large corporatio s are pitted agai st each other. udge O’Malley characterized such cooperati e eha ior as a product of utually assured destructio : Each corporation knows the costs associated with abusive discovery requests and that both sides are fully capable in engaging in such behavior, but both sides choose not to do so. The divergence between American and German discovery processes speaks to broader jurisprudential themes. In German patent litigation, there is a presumption of negligence whe a defe da t is fou d to ha e i fri ged upo a other’s pate t rights. I co trast to 30 An E-Discovery Model Order, UNITED STATES COURT OF APPEALS FOR THE FEDERAL http://www.cafc.uscourts.gov/images/stories/announcements/Ediscovery_ Model_Order.pdf. CIRCUIT , 2013] U.S. and German Bench and Bar on U.S. Patent Litigation 275 the German presumption, the mental state of an infringing party is contested in the course of U.S. patent litigation. The U.S. allows for treble damages where willful infringement can e esta lished. Because of this assess e t of a party’s e tal state, A erica courts play a larger role i truth seeki g to deter i e ot o ly how a party acted, ut why that party engaged in the suspect behavior. D. Juries or Judges The fi al topic su ject to li ely de ate at the co fere ce was the useful ess of Ger a y’s technical judges when compared to the American jury system. The German speakers and most of the American lawyers supported the technical bench in the patent litigation setting. The judges presiding in such a trial are specially trained negating the need for expert witnesses. And, because of the centralization of the patent court in Germany, litigants have an added sense of reassurance that the court will be consistent in its rulings. Despite the advantages of having a centralized, technical court hear patent claims, such a system does not align well with American perceptions of justice. As Judge Evan Wallach of the United States Court of Appeals for the Federal Circuit pointed out, the divergence in the German and American experiences is rooted in the philosophies that drive each of the countries. Besides the glaring distinction of the American adoption of the English common law, Judge Wallach explained that American reliance and belief in the jury system dates 31 back to the trial of William Penn in 1670. Since then, the right to have a trial before a jury of peers has been an essential element of the American court system. Despite the striking differences in the processes of patent litigation, Judge Wallach noted that the ends to those procedural and systemic means reflect a common commitment to improving the uality of the cou try’s pate t law. udge O’Malley affir ed her elief in utilizing the jury system in patent litigation, pointing out that most jurors take their oaths very seriously and perform their duties with due diligence. She recalled a lengthy trial where the jury took twice the trial length to deliberate before reaching a verdict. In her debriefing with the jurors, she learned that they had all agreed to silently read over every exhibit that was placed into evidence before discussing the merits of the case. And, in her long experience on the bench, Judge O’Malley claimed to have been surprised by only one outcome that one particular jury 31 William Penn and William Mead were arrested in 1670 for preaching to a public assembly. Despite significant pressure from the Lord Mayor of London—who presided as judge over the trial—the jury entered a verdict of ot guilty. The Lord Mayor co fi ed a d star ed the jury in an attempt to force a change in the verdict. The jury refused, were found in contempt of court, and imprisoned. WILLIAM PENN & WILLIAM MEAD, THE TRIAL OF WILLIAM PENN AND WILLIAM MEAD AT THE OLD BAILEY, 1670 (Headley Bros. 1908) (providing an account of the trial, from the perspective of the accused). The jurors of Pe ’s trial petitio ed the Court of Co o Pleas for a writ of habeas corpus, which granted the writ and ruled that a jury could not be punished for the decisions it reached. See Bushell’s Case, 124 E.R. 1006 (1671). 276 German Law Journal [Vol. 14 No. 01 reached. At the e d of the day, udge O’Malley co cluded, juries put reaso a le ess into the judicial process. E. Conclusion: Critical Remarks on the Conference and the Future of American Patent Litigation The German litigation system clearly benefits from efficiently handling patent claims. While the U.S. has made steps towards a broader harmonization with international norms, how much should American patent law be reformed to streamline litigation? As a number of the American panelists pointed out, the experience of the American judicial system is driven by fundamental values that, at times, are diametrically opposed to technical efficiency. Calls for adjudication by eliminating juries in favor of technical judges, relying 32 on the German experience, iss the ark for deli eri g the justice e pected fro the 33 American judicial process. The jury plays a fundamental role in the American judicial 34 culture for a variety of reasons. Instead of eviscerating the jury function in patent trials, courts, perhaps under guidelines set by the Federal Circuit, could make more use of special 35 verdict forms to give the juries structure in their role of finders of fact. But even this concession toward a technically efficient judicial process begins to erode the traditional power of the jury by transferring the ultimate responsibility of issuing the verdict from the jury to the judge. Despite the criticisms many have raised regarding the ability of the 36 lay juror to effectively decide complex patent issues, some evidence suggests that the 37 concerns are merely academic arguments. 32 See, e.g., Ian Keeler, Is a Jury Composed of People Having Ordinary Skill in the Art? Reasons Why the United States Should Change Its Approach to the Obviousness Question in Patent Litigation, 21 IND. INT’L & COMP. L. REV. 253, 287–30 (2011). See John R. Alison, The ‘ole of Juries in Managing Patent Enforce ent: Judge Ho ard Markey’s Opinions and Writing, 8 J. MARSHALL REV. INTELL. PROP. L. SP. 41, 44–45 (2009). See also Jeanne C. Fromer, Patentography, 85 N.Y.U. L. REV. 1444, 1449 (2010). 33 34 See, e.g., Catherine P. Wells, Tort Law as Corrective Justice: A Pragmatic Justification for Jury Adjudication, 88 MICH. L. REV. 2348, 2393–410 (1990). 35 See, e.g., Mark S. Brodin, Accuracy, Efficiency, and Accountability in the Litigation Process—The Case for the Fact Verdict, 59 U. CIN. L. REV 15, 90–105 (1990); Indraneel Ghosh, The Road to Transparency: Abolishing BlackBox Verdicts on Patent Obviousness, 26 BERKELEY TECH. L.J. 171, 190–93 (2011); Kimberly A. Moore, Juries, Patent Cases, & a Lack of Transparency, 39 HOUS. L. REV. 779 ,797–801 (2002); 36 37 Whatever that means. See Alison, supra note 33, at 44. Judge Markey conducted informal surveys of all sitting trial judges, asking: The percentage of times the judge agreed with a verdict; the percentage of disagreed upon verdicts the judge fou d plai ly reaso a le; a d the perce tage of ti es judicial actio was take where a erdict was ot plai ly reasonable. As Aliso otes, the results of those i uiries were, roughly and respectively: 90%, 50%, and 50%. These figures imply an unreasonable verdict requiring judicial intervention occurs around 2.5% of the time for all trials. Id. 2013] U.S. and German Bench and Bar on U.S. Patent Litigation 277 Technical judges alone would do little to improve American patent litigation. Certainly, ha i g pate t e perts o the e ch helps refi e pate t law a d the litigatio e perie ce. These e perts ca , a d ofte ha e, shared their k owledge with their colleagues o the 38 bench. But these e perts retai the ge eralist uality that A erica jurists e joy in 39 the federal courts. Such a quality begins to be less pronounced with technical judges. As Chief udge ‘ader’s co e ts ake clear, pate ts are i ti ately related to their fu ctio in the marketplace. Thus, having a judicial system that can appreciate that relationship is esse tial if pate t protectio is to ha e a y real ea i g. A ge eralist judge will ha e fre ue t e posure to co ercial suits a d will ha e a deeper appreciatio of the arket’s 40 interaction with patents. Technical judges will have limited exposure to the broader portrait of the judicial landscape in their judicial experience, running the risk of ruling on pate t clai s i a acuu of tech ical or scie tific accuracy without regard for the ruli g’s 41 impact on the market. Thus, retai i g the ge eralist judge is o e step i pro oti g a judicial system beneficial to patent law. There are, of course, other procedural inefficiencies that increase the cost of patent litigation and serve little purpose in furthering American concepts of justice. To the extent that many of these contributing factors can be controlled through judicial administration, the courts should e, as udge O’Malley ad ocated, ore aggressi e i reig i g i a usi e behavior. Excessive discovery is the perfect candidate for such judicial administration. Most of the panelists at the conference shared the sentiment that sophisticated parties often know exactly what discovery is needed in order to proceed with a patent dispute. Where parties disagree on the subject, either from inexperience or out of strategic 42 motives, judges can and should play a more active role in deterring that behavior. Finally, the broadest concern of harmonization of systems comes down to the ability of patent holders to have a meaningful choice in where they litigate their claims. Forum selection can play a significant role in the overall litigation strategy when a party believes that litigation of its claim in a specific jurisdiction will provide some sort of competitive 43 advantage. To the extent that variations between jurisdictions result in different 38 See Paul R. Gugliuzza, Rethinking Federal Circuit Jurisdiction, 100 GEO. L.J. 1437, 1498 (2012). 39 See Fromer, supra note 33, at 1458 40 See Gugliuzza, supra note 38, at 1459. 41 See Fromer, supra note 33, at 1458 (citing MedImmune, Inc. v. Genetech, Inc., 549 U.S. 118, 126–37 (2007) and eBay Inc. v. MercExchange, LLC, 547 U.S. 388, at 391–94 (2012) as examples of such ruling from the Federal Circuit). 42 43 FED. R. CIV. PRO. 16 (allowing for judicial scheduling and management of proceedings before the court). See Kimberly A. Moore, Forum Shopping in Patent Cases: Does Geographic Choice Affect Innovation?, 79 N.C. L. REV. 889, 930 (2001) (noting that patent holders consider a variety of factors when choosing a litigation forum). 278 German Law Journal [Vol. 14 No. 01 strategic choices being available to claimants, such behavior is entirely rational. As the American system begins to harmonize internally among the federal circuits and with international norms, the opportunity for claimants—and perhaps agreeable defendants— to choose a particular forum based upon litigation strategies that are uniquely available there decreases. When companies are arguing over extensively technical matters that are of relatively little consequence in the larger scheme of their operations, both will likely be agreeable to efficiencies provided by the German system. But not every claimant—or defendant—will want an efficient, relatively mundane proceeding, especially, as Zacharias e phasized i his re ark, whe the issue is a difficult o e. “o e parties ay percei e a 44 greater likelihood of winning in one country or another. Some parties, as Judge MeirBeck’s co e ts allude to, ay ha e legiti ate reaso s to gai access to documents held by the opposing side through American discovery processes that would be unavailable in Germany. And some parties may see litigation—or rather, the dramatic production 45 46 thereof —in the American court system as a marketing opportunity for their product. Regardless of the motive, allowing parties to maximize their chances of achieving a perceived strategy through the selection of meaningfully different forums should be a sufficiently valid consideration to keep harmonization limited to trimming the excesses in American patent litigation. See Xuan-Thao Nguyen, Justice “calia’s ‘enegade Jurisdiction”: Lessons for Patent La ‘efor , 83 TUL. L. REV. 111, 156 (2008); see also Graham E. Taylor, Protecting Innovative Technology: Global Patent Strategies: The Big Picture, 32 CAN.-U.S. L.J. 117, 129 (2006) (describing one strategy of litigating a patent issue in Germany because of perceived advantages that did, indeed, pay off). 44 45 See generally Angelique M. Paul, Turning the Camera on Court TV: Does Televising Trials Teach Us Anything About the Real Law?, 58 OHIO ST. L.J. 655 (1997) (offering comments and critiques of televising courtroom proceedings, including the televised trial of O.J. Simpson). 46 I hold the mildly cynical view that the Apple-Samsung feud is more of a marketing ploy—played out in the drama of a courtroom and motivated by the personalities of the boards of both companies (most notably that of the late co-founder Steve Jobs)—rather than significant legal inquiries. For a summary of the events leading up to litigation and the strategies involved at trial, see Poorrnima Gupta & Dan Levine, Analysis: How Apple Over hel ed “a sung’s Patent Case Tactics, REUTERS (Aug. 27, 2012), http://www.reuters.com/article/2012/08/27/us-apple-samsung-legal-idINBRE87Q02K20120827. Developments The Delicate Equilibrium of EU Trade Measures: The Seals Case By Julinda Beqiraj* A. Premise Regulation EC No. 1007/2009 of the European Parliament and of the Council of 16 September 2009 banned the placement of seal products in the EU market. The measure has been very controversial, triggering a strong reaction, both from neighboring exporting States, in particular Canada and Norway, and from indigenous people living in the Arctic region. Seal hunting represents a traditional practice carried out for the purpose of personal consumption of seal meat, as well as for commercial trade of related by-products by the indigenous communities (mainly Inuit) living in the Northern Pole. The ban enforced by the EU explicitly excludes from its scope of application traditional sealing by Inuit communities; nevertheless, it is expected that the overall demand on seal products will fall as a consequence of the impact of the ban on trading chains directed to Europe. This will likely adversely affect the fundamental economic and social interests of the indigenous communities engaged in sealing as a means to ensure their subsistence. Against the backdrop of EU efforts to develop an integrated policy aimed at coordinating 1 the activities of EU institutions and the policies that may have a bearing on the Arctic, the seals case is an interesting example of the complexity and multi-sector impact of EU trade policy. It raises the issue of the delicate equilibrium to be achieved between (at times) conflicting goals: trade measures related to the effective functioning of the internal market, coherent external trade policy, animal protection and welfare, protection of the rights of indigenous peoples, individual judicial protection at the EU level, and broader environmental issues. * 1 Post-Doctoral Fellow and Lecturer in International Law, University of Trento, Italy. See, e.g., Resolution of 9 October 2008 on Arctic Governance, EUR. PARL. DOC. P6_TA(2008)0474 (2008); Communication from the Commission to the European Parliament and the Council—The European Union and the Arctic Region, COM (2008) 0763 final (Nov. 20, 2008); 2914th Foreign Affairs Council meeting, Council Conclusions on the European Union and the Arctic Region (Dec. 8, 2008), available at http://www.euun.europa.eu/articles/en/article_8359_en.htm; 2985th Foreign Affairs Council Meeting, Council Conclusions on Arctic Issues (Dec. 8, 2009), available at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/111814.pdf; European Parliament Resolution on a Sustainable EU Policy for the High North, EUR. PARL. DOC. 2009/2214 (INI) (Jan. 20, 2011); Joint Communication of the Commission and of the High Representative of the European Union for Foreign Affairs and Security Policy to the European Parliament and to the Council—Developing a European Union Policy towards the Arctic Region: progress since 2008 and next steps, JOIN(2012) 19 final (Jun. 26, 2012). 280 German Law Journal [Vol. 14 No. 01 The article will first provide a brief description of the normative developments that triggered reaction at different levels—EU and World Trade Organization (WTO)—against the ban on seal products. It will then describe and critically analyze the substantial and procedural legal arguments put forward by the parties and the decisions of the judicial organs. Waiting for a definitive judicial solution of the case, the purpose of this analysis is to clarify and try to solve possible conflicts emerging from the interaction among European policy, EU law, and international law. In particular, Part D will deal with the emerging dispute against the EU institutions brought before the European General Court (before the entry into force of the Treaty of Lisbon known as Court of First Instance) by indigenous groups and individuals. Part E will consider the related WTO dispute raised by Canada and Norway. A third profile, that of the alleged iolatio of i dige ous peoples’ cultural identity rights, will be analyzed in Part F. Even though such a dimension of the seals case has not been challenged before any human rights mechanism, Part F will provide an analysis of the international and EU obligations in this regard for States and EU institutions. Some concluding remarks will follow. B. Trade in Seal Products: The Development of EU Legislation Seal hunting takes place both as an organized practice and as a one-man activity. The 2 world’s three largest seal hu ts take place i Ca ada, West Gree la d, a d Na i ia. Seal hunting is mainly carried out for commercial purposes, including by members of indigenous communities, but there is also an important quota of seal hunting carried out by indigenous populations as part of their culture and identity, providing a source of income and contributing to the subsistence of the hunter. Additionally, seal hunting takes place for the purpose of safeguarding fisheries: reducing the number of seals has an 3 impact on the population of fish that seals rely on for food. The first European Community (EC)/EU seal legislation dates back to the early 1980s when broadcasted practices of cruel killing of certain seal pups sparked public clamor in Europe. I respo se to such co cer s, the EC Cou cil adopted Directi e 8 / 9/EEC The “eal Pup 2 Impact Assessment on the Potential Impact of a Ban of Products Derived from Seal Products, Accompanying Document to the Proposal for a Regulation of the European Parliament and of the Council Concerning Trade in Seal Products, at 14, COM (2008) 469 final (July 23, 2008) [hereinafter Impact Assessment]. 3 Id. 2013] The Seals Case and EU Trade Measures 281 4 Directi e . The Seal Pup Directive initially applied only until 1985, but its effects were 5 later extended for an indefinite period by two subsequent directives. The Seal Pup Directive prohibits the import of seal pup fur skins into the EC market, except 6 for products resulti g fro traditio al hu ti g y the I uit people. As explained in its Preamble, the reason for such exception rests partly on the consideration that exploitation of seals, with due respect for the balance of nature, is a natural and legitimate occupation and forms an important part of the traditional way of life and economy in certain areas of 7 the world. The Preamble also acknowledges that seal hunting, as traditionally practiced by the Inuit people, leaves pups unharmed, and therefore the interests of the Inuit people 8 should not be affected. Additionally, from an environmental perspective, issues related to seal hunting are addressed in the so-called Ha itats Directi e as part of EU’s io-diversity conservation 9 policy. While dealing with broader issues of protection and improvement of the quality of the environment, the Habitats Directive prohibits the usage of certain weapons and methods of hunting of seals belonging to specific seal populations. More recently, renewed public pressure on the topic led to the introduction of national bans by some EU Member States (Belgium and the Netherlands in particular) and to the adoption of a European Parliament Resolution proposing a total import ban on seal 10 products. Moreover, almost simultaneously, the Parliamentary Assembly of the Council of Europe (CoE) adopted a Recommendation on the ban of all cruel seal hunting 4 See Council Directive No. 83/129/EEC, of the Council of 28 March 1983 Concerning the Importation into Member States of Skins of Certain Seal Pups and Products Derived Therefrom, 1983 O.J. (L 091) 30 [hereinafter Seal Pup Directive No. 83/129/EEC]. 5 See Council Directive 85/444/EEC, of the Council of 27 September 1985 Amending Council Directive 83/129/EEC Concerning the Importation into Member States of Skins of Certain Seal Pups and Products Derived Therefrom, 1985 O.J. (L 259) 70; see also Council Directive 89/370/EEC, of the Council of 8 June 1989 (Amending Directive 83/129/EEC Concerning the Importation into Member States of Skins of Certain Seal Pups and Products Derived Therefrom, 1989 O.J. (L 163) 37. 6 See Seal Pup Directive No. 83/129/EEC, supra note 4, at art. 3. 7 Id. at pmbl. indent 9. 8 Id. 9 See Council Directive 92/43/EEC, Council of 21 May 1992 on the Conservation of Natural Habitats and of Wild Fauna and Flora, 1992 O.J. (L 206) 7–50 (noting in particular articles 12, 15 and 16). 10 Resolution on a Community Action Plan on the Protection and Welfare of Animals 2006–2010, EUR. PARL. DOC. 2006/2046 (INI), 2006 O.J. (C 308 E) 170. German Law Journal 282 [Vol. 14 No. 01 11 methods. These preliminary steps prompted the adoption of Regulation (EC) No. 12 1007/2009 by the European Parliament and the Council on trade in seal products. Shortly before its entry into force on 20 August 2010, the Commission adopted Regulation No. 737/2010, containing detailed rules necessary for the implementation of the former 13 Regulation. C. Content of the EU Ban and Exceptions Thereto The Regulation on trade in seal products (1007/2009) rests on two pillars. First, it 14 introduces a total ban on placing seal products on the market. Seal products comprise 15 both processed and unprocessed products deriving or obtained from seals. Second, the Regulation allows three types of exceptions: The most important among these stipulates that seal products resulti g fro hu ts traditio ally co ducted y I uit a d other i dige ous co u ities a d which co tri ute to their su siste ce ca e placed o the 16 market. Understanding the exact scope of this exception is crucial, not only because it represents the only possibility for placing seal products on the EU market for commercial purposes, but also because it directly affects the interests and concerns of indigenous peoples engaged in seal hunting. I. Seal Products from Inuit and Other Indigenous Communities With regards to the subjects benefitting from the exception in Article 3.1 of Regulation 1007/2009, Article 2 clarifies that I uit’ means indigenous members of the Inuit homeland, namely those arctic and subarctic areas where, presently or traditionally, Inuit have aboriginal rights and interests, recognized by Inuit as being members of their people 11 Eur. Consult. Ass., Recommendation on Seal Hunting, Doc. No. 1776 (2006) (adopted on Nov. 17, 2006 by the Standing Committee, acting on behalf of the Assembly) [hereinafter Recommendation on Seal Hunting]. 12 Council Regulation No. 1007/2009, of the European Parliament and of the Council of 16 September 2009 on Trade in Seal Products, 2009 O.J. (L 286) 36 (EC) [hereinafter Council Regulation 1007/2009]. 13 Commission Regulation No. 737/2010, of 10 August 2010 Laying Down Detailed Rules for the Implementation of Regulation (EC) No. 1007/2009 of the European Parliament and of the Council on Trade in Seal Products, 2010 O.J. (L 216) 1 (EU) [hereinafter Commission Regulation 737/2010]. 14 Council Regulation 1007/2009, supra note 12, art. 3. 15 Id. at art. 2.2. 16 Id. at art. 3.1. The two remaining derogations concern occasional importation of seal products exclusively for personal use (Art. 3.2(a)), and the placing on the market of seal products on a non-profit basis when hunting has been conducted for the sole purpose of the sustainable management of marine resources, i.e., mainly safeguard of fish stocks consumed by seals (Art. 3.2(b)). 2013] The Seals Case and EU Trade Measures 283 and includes Inupiat, Yupik (Alaska), Inuit, Inuvialuit (Canada), Kalaallit (Greenland), and 17 Yupik ‘ussia . I stead, the defi itio of other i dige ous co implementation Regulation. These include: u ities is pro ided in the communities in independent countries who are regarded as indigenous on account of their descent from the populations which inhabited the country, or a geographical region to which the country belongs, at the time of conquest or colonization or the establishment of present State boundaries and who, irrespective of their legal status, retain some or all of their own social, economic, cultural and political 18 institutions. It should be noted that Article 2 of the implementation Regulation refers to the narrower co cept of co u ities rather tha peoples —the latter being the concept of reference in the 1989 International Labour Organization (ILO) Convention No. 169 concerning Indigenous and Tribal Peoples and in the United Nations (UN) Declaration on 19 the Rights of Indigenous Peoples. Quite interestingly, the definition given in the i ple e tatio ‘egulatio co cer s co u ities, ut its co te t is the e act duplication of Article 1 of the ILO Convention, which applies to peoples. As a corollary, the choice of the wording in the implementation Regulation extends the scope of application of the exception because the products of small communities—that do not ecessarily co stitute a people fro the iewpoi t of the e tity of the group—may be placed on the EU market. Moreover, the use of the ter co u ity is also a welco ed choice o the part of go er e ts that are ge erally relucta t to use the ter peoples because of the rights (in particular self-determination) that may be attached to this 20 concept under international law. 17 Id. at art. 2.4. 18 See Commission Regulation 737/2010, supra note 13, art. 2.1. 19 See International Labour Orgnization Convention No. 169 Concerning Indigenous and Tribal Peoples in Independent Countries, June 27, 1989, 1650 U.N.T.S. 383 [hereinafter ILO C169]; see also United Nations Declaration on the Rights of Indigenous Peoples, G.A. Res. 61/295, U.N. DOC. A/RES/61/295 (Oct. 2, 2007) [hereinafter UNDRIP]. 20 See ILO C169, supra note 19, art. specifyi g that the use of the ter having the implications recognized under international law). peoples shall ot e co strued as 284 German Law Journal [Vol. 14 No. 01 As specified in the implementation Regulation, however, not all products originating from I uit a d other i dige ous co u ities ay e freely placed o the EU arket. The derogation to the ban on seal products is drafted in much narrower terms because three additional requirements must be simultaneously fulfilled. First, products must originate from seal hunts conducted by Inuit or other indigenous co u ities that ha e a seal hu ti g traditio . Thus, for each I uit co u ity a d other i dige ous co u ities within the above-mentioned definition, it should be also assessed whether there has been a tradition of seal hunting in the community in question 21 and in the geographical region, and whether sealing is part of its cultural heritage. Second, only seal products that are partly consumed on the local market or processed 22 within the communities according to their traditions will benefit from the exemption. Third, seal products by Inuit and other indigenous communities may be placed on the EU 23 market only if seal hunts contribute to the subsistence of the community. Although the co crete ea i g of su siste ce hu t is ot clear, the ‘egulatio see s to i troduce a distinction between this and hunts performed for other purposes: Only the former is consistent with the exemption contained in Regulation 1007/2009. A systematic interpretation of Regulations 1007/2009 and 737/2010 (notably the general emphasis on communities, the recognition of both economic and social interests of indigenous communities engaged in seal hunting, and the reference to the UN Declaration on the 24 Rights of Indigenous Peoples) would suggest a broad interpretation of the term su siste ce —one that refers to the maintenance, protection, and development of indigenous communities, culture, and identity rather than to mere economic survival. This interpretation is also suggested i the Co issio ’s study on implementing measures for trade i seal products hereafter COWI ‘eport , i which it is su itted that hu t for su siste ce should e assessed at the community level, not at individual level, and it 25 should not be a large-scale commercial hunt. Considering that the main sealing countries at the global level are Canada, Greenland, and Namibia, a preliminary assessment of the Inuit and other indigenous communities that are likely to fulfill the different conditions of the exemption from the ban on seal products is of 21 See Commission Regulation 737/2010, supra note 13, at pmbl. indent 3, art. 3.1(a). 22 Id. at pmbl. indent 3, art. 3.1(b). 23 Id. at pmbl. indent 3, art. 3.1(c). 24 See Council Regulation 1007/2009, supra note 12, at pmbl. indent 14. 25 COWI, FINAL REPORT OF THE STUDY ON IMPLEMENTING MEASURES FOR TRADE IN SEAL PRODUCTS 13 (March 2010), available at http://ec.europa.eu/environment/biodiversity/animal_welfare/seals/pdf/study_implementing_measures.pdf. This report was drafted by COWI, an international consulting firm, upon request by the European Commission’s Directorate-General Environment. 2013] The Seals Case and EU Trade Measures 285 central importance in relation to the implementation in practice of the EU Regulations. Such an effort has been made in the above mentioned COWI Report, which considers the situation in Alaska, Canada, Greenland, Namibia, Norway, Russia, and in three EU Member States (Finland, Sweden and the United Kingdom). The Report asserts that in Greenland about 90% of the total population is Inuit. Seal products resulting from these communities are likely to comply with the Regulation because sealing has been traditionally an integral part of their culture, and hunting is 26 executed for using the whole animal. Likewise, seal hunting in Alaska by two Inuit 27 communities (Yupik and Inupiat) and by the sub-Arctic indigenous Aleut community living in the Aleutian Islands is also likely to comply with the EU Regulations. These communities have traditionally hunted seals for thousands of years. Hunt products are part of their diet, 28 and seal hunts are seen as a contribution to their social and cultural traditions. Concerning Canada, the COWI Report clarifies that seal hunting is both an organized commercial activity regulated by law on the basis of commercial licenses and a traditional activity performed by Inuit communities and various other aboriginal coastal communities as an essential part of their culture and economy. The latter type of hunt merely constitutes approximately three percent of the total hunting in Canada, and only products 29 therefrom would probably qualify for the exemption. In Russia as well, there are several indigenous groups (both Inuit and other indigenous communities), and it is likely that part 30 of these communities will also pass the test stipulated in the EU Regulations. In Sweden and Norway, traditional seal hunting is carried out by some coastal Sami communities and serves as a complementary income source. To the extent that hunting activities do not involve large-scale trade for the sole purpose of placing seal products on the market, such 31 products would potentially fulfill the conditions set out in the Regulations. Finally, the COWI Report concludes that seal hunt conducted in Namibia, UK, and Finland will probably not qualify for the exemption in Article 3.1 of Regulation 1007/2009 because the hunt is 32 not undertaken by Inuit and other indigenous communities or for subsistence purposes. 26 See id. at 28–30. 27 See Council Regulation 1007/2009, supra note 12, at art. 2.4 (mentioning these two communities specifically). 28 COWI, supra note 25, at 23–24. 29 See id. at 24–27, 42. 30 See id. at 32. 31 See id. at 30–31, 33. 32 See id. at 27, 30, 33. 286 German Law Journal [Vol. 14 No. 01 II. Placing on the Market of “eal Products” and Beyond The ban contai ed i ‘egulatio 7/ 9 refers to the placi g o the arket of seal 33 products. It is also specified that the co ditio s for placi g o the arket shall apply at 34 the ti e or poi t of i ports for i ported products. However, the Regulations do not clarify whether seal products not complying with the conditions set out in Article 3 shall be denied access into Union territory, even if the purpose is not their placement on the market but simple transit through Union territory towards the market of a third country. While the EU ban certainly concerns (1) the placing on the market of seal products that do not comply with the requirements for exemption (mainly in relation to seal products originating in EU Member States) and (2) the import of such incompatible products in the EU for the purpose of placing them on the market, it is not clear whether it will also have an impact on products in transit. I pri ciple, the a should ot co er goods i tra sit: Article is e titled co ditio s for placing o the arket a d ot co ditio s for e try i to the EU arket. As a corollary, such conditions should not be applied separately from the purpose for which they were 35 i troduced, a ely place e t o the arket of seal products. However, considering the road defi itio of i port i ‘egulatio 7/ 9— any 36 e try of goods i the custo s territory of the Co u ity (emphasis added)—and that conditions for exemption are enforced at the EU border, the COWI Report reaches partly a different conclusion. It assumes a distinction between a mere transit scenario and a transit 37 and processing scenario. The first co cer s tra sit i the for of tra sport u der customs supervision through the customs territory of the [Union] with a final destination in 38 a third cou try , and activities of auction houses serving as intermediaries between nonEU sellers and non-EU uyers with o physical place e t o the EU arket: These 39 should not be covered by the Regulations. 33 Council Regulation 1007/2009, supra note 12, at art. 3.1. 34 Id. 35 See Vienna Convention of the Law of Treaties art. 31, May 23, 1969, 1155 U.N.T.S. 331 ( A treaty shall e interpreted in good faith, in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose (emphasis added). However, the Council Regulation is not properly a treaty, but rather a secondary source based on a treaty. 36 Council Regulation 1007/2009, supra note 13, at art. 2.5. 37 COWI, supra note 25, at 62. 38 Id. at 12. 39 Id. at 62. 2013] The Seals Case and EU Trade Measures 287 The second scenario involves products originating outside the EU, which are processed within the EU and are intended for non-EU consumers. In such cases, the COWI Report 40 submits that compliance with Article 3 would be compulsory. Nevertheless, the COWI Report also acknowledges the likelihood of challenges to the implementation in practice and cites the example of a German tannery that processes third party (non-EU) sealskins that are later exported to non-EU States without any change of ownership of the products 41 during processing. Even though processing is a value-adding activity that takes place within the EU in exchange for payment, comprising such a case within the scope of applicatio of the ‘egulatio s would re uire a road i terpretatio of the otio placi g 42 o the arket [ y] aki g a aila le to third parties i e cha ge for pay e t —i.e., also making physically available without changes in ownership rights. Finally, concerning the geographical scope of application, the two Regulations have Europea Eco o ic Area EEA rele a ce. This u derscores the special situatio of Norway, which is part of the European Economic Area. Homogeneity within the EEA implies that EU secondary legislation has to be timely incorporated in the EEA Agreement through appropriate amendments. However, the EEA Joint Committee has not taken any decision in this regard until now. Depending on whether Norway will be included in the regulation as an EEA Member is expected to have consequences on the shift of seal-related activities (for instance, processing and auctioning) from EU Member States, such as 43 Denmark and Germany, to Norway, due to geographic proximity. As earlier anticipated, the adoption of the Regulation triggered a strong reaction both from the Inuit communities and their representative organizations, as well as from some of the States—Canada and Norway—in which such communities live and are more broadly involved in trade in seal products for commercial purposes. This reaction was voiced 44 before EU judicial organs by individuals and groups directly concerned by the ban and by non EU-States before the WTO dispute settlement organs. The issues raised in these different forums will be analyzed in turn. 40 Id. 41 Id. at 45. 42 Council Regulation 1007/2009, supra note 12, at art. 2.3. 43 COWI, supra note 25, at 70. 44 See Consolidated Version of the Treaty on the Functioning of the European Union, art. 263, May 9, 2008, 2008 O.J. (C 115) 47 (granting jurisdiction at first instance to the General Court, previously known as the Court of First Instance (CFI), for actions for annulment brought by individuals) [hereinafter TFEU]. 288 German Law Journal [Vol. 14 No. 01 D. The Dispute at the EU Level A group of private applicants—including Inuit seal hunters and trappers associations; individuals in other ways engaged in activities involving the seal products; organizations representing the interests of Inuit; as well as other individuals and companies engaged in the processing of seal products—brought the case against the EU ban on seal products before EU judicial organs. The case is a multi-layered one. It consists of two actions for 45 annulment before the General Court (GC) concerning Regulation 1007/2009 and 46 Regulation 737/2010, respectively: The first action for annulment is currently under 47 appeal before the European Court of Justice (ECJ). In relation to the first action for annulment, the applicants also submitted to the President of the GC two requests for provisional suspension of the application of the disputed Regulations until the decision on 48 annulment had been rendered. 49 In the main actions for annulment, the applicants contended that the European Parliament (EP) and the Council had not adequately demonstrated why intervention at the EU level was necessary. Given that only two Member States (Belgium and the Netherlands) had already introduced a ban on seal products, the applicants argued that 50 the EU institutions had infringed the subsidiarity principle. The principle of proportionality had also been violated because less intrusive measures (e.g., labeling 51 requirements) would have been sufficient to meet the stated goals of the Regulation. 45 Case T-18/10, Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union (2011) (unpublished), available at http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62010TO0018(04):EN:HTML. 46 Case T-526/10, Inuit Tapiriit Kanatami and Others v. Comm’n, 2011 O.J. (C 13/66) 34 (action pending). 47 Case C-583/11 P, Inuit Tapiriit Kanatami and Others v. European Parliament, Council of the European Union, Netherlands, and European Comm’n, O.J. (C 58) 3 (appealing the Order of the General Court delivered Sept. 6, 2011, in Case T-18/10, Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union) (action pending). 48 See Case T-18/10 R, Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union, 2010 E.C.R. II-00075; see also Case T-18/10 R II, Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union, 2010 E.C.R. II 00235. 49 See Case T-18/10, Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union (2011) (unpublished), available at http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62010TO0018(04):EN:HTML.; see also Case T-526/10, Inuit Tapiriit Kanatami and Others v. Comm’n, 2011 O.J. (C 13/66) 34 (action pending). 50 See cases cited supra note 49. 51 See cases cited supra note 49. 2013] The Seals Case and EU Trade Measures 289 From a substantive point of view, the applicants contested that the Regulation introduced 52 undue limits to their subsistence possibilities. They claimed that the EU institutions failed to weigh the surviving interests of the Arctic Inuit Community against the moral convictions of some citizens in the Union concerning animal welfare, thereby violating 53 Article 1 of Protocol I to the European Convention of Human Rights (ECHR) and Article 8 54 55 56 57 ECHR, read in light of Articles 9 and 10 as well as the fundamental right to be heard. The GC has until now eluded the analysis of these issues by declaring the application inadmissible for lack of locus standi, i particular for lack of direct a d i di idual co cer 58 under Article 263(4) Treaty on the Functioning of the European Union (TFEU). Its restrictive interpretation of the conditions upon which natural or legal persons may contest EU acts, although justifiable to some extent, has an important impact on the substantial protection of their rights and raises a delicate issue of compatibility of the EU judicial system with the right to effective access to judicial remedies stipulated in both the ECHR and the EU Charter of Fundamental Rights. The appeal case before the ECJ against 59 the order of inadmissibility of the GC is still in progress. 52 See Case T-18/10, Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union (2011) (unpublished), available at http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62010TO0018(04):EN:HTML. 53 Convention for the Protection of Human Rights and Fundamental Freedoms, Protocol I, art. 1, Nov. 4, 1950, 213 U.N.T.S. 221 (establishing the right to property)[hereinafter ECHR]. 54 See id. at art. 8 (establishing the right to private and family life). 55 See id. at art. 9 (announcing the freedom of thought, conscience and religion). 56 See id. art. 10 (announcing the freedom of expression). 57 Case T-18/10, Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union (2011) (unpublished), available at http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62010TO0018(04):EN:HTML. 58 59 See TFEU, supra note 44, at art. 263(4). Case C-583/11 P, Inuit Tapiriit Kanatami and Others v. European Parliament, Council of the European Union, Netherlands, and European Comm’n, O.J. (C 58) 3 (appealing the Order of the General Court delivered Sept. 6, 2011, in Case T-18/10, Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union) (action pending). 290 German Law Journal [Vol. 14 No. 01 I. The First Request for Interim Suspension of Regulation 1007/2009 Awaiti g the Court’s judg e t o the a ul e t actio , the applica ts also re uested the provisional suspension of the operation of Regulation 1007/2009 by the President of the 60 GC. Although the President found the request to be prima facie admissible, he finally 61 dismissed the application for interim suspension on the basis of lack of urgency. The applicants argued that as a result of the ban introduced by Regulation 1007/2009 they would suffer serious a d irrepara le har , ecause the e e ptio i fa or of Inuit and 62 other i dige ous co u ities is a sort of e pty o . They underlined that Inuit people do not export products themselves, but rely on bigger exportation chains that are 63 also used for seal products obtained from commercial hunts. Since the latter would be denied access to the Union market after the Regulation went into effect, Inuit and indigenous exempted products would also, in practice, lose access to the EU market, which 64 has been very important for the Inuit economy. Moreover, the applicants stressed that, similar to the Seal Pups Directive, the Regulation would have an adverse impact on the image of seal products in general, which would cause the collapse of the market for seal 65 products. The President thus had to decide whether the concerns highlighted by the applicants fulfilled the urge cy re uire e t i relatio to the adoptio of i teri easures, 66 a ely the eed to a oid serious a d irrepara le da age to the party seeki g relief. In this regard, he underlined that the damage should be certain or at least shown with a sufficient degree of probability and that damage of purely pecuniary nature cannot be 67 regarded as irreparable since it can be subject of financial reparation. The President affirmed that the grant of an interim measure would be justified if the applicants could prove their impossibility of continuing to live according to their culture and traditions on 68 account of the regime laid down by the Regulation. 60 See Case T-18/10 R, Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union, 2010 E.C.R. II-00075. 61 See id. 62 See id. at para. 103. 63 See id. at paras. 102–03. 64 See id. at paras. 99–103. 65 See id. at paras. 101, 103. 66 See id. at para. 105. 67 See id. at para. 107. 68 See id. at paras. 106, 107, 109. 2013] The Seals Case and EU Trade Measures 291 However, the President summarily dismissed the concerns of the applicants, affirming, on the o e ha d, that the e pty o argu e t was raised too early: It could ha e ee adequately addressed only after the adoption of the implementing measures by the 69 Commission. On the other hand, in contrast with the clear conclusions contained in the 70 impact assessment, the President rejected a comparison with the adverse effects of the “eal Pup Directi e a d esta lished that the applica ts had ot pro ed the e iste ce of 71 circumstances giving rise to urgency such as to justify the gra t of i teri easures. II. The Second Request for Interim Suspension of Regulation 1007/2009 Later the same year, the applicants lodged a second request for interim suspension of 72 Regulation 1007/2009 on the basis of new facts. They substantially renewed the argu e t o the I uit e ceptio ei g a e pty o i light of the Co issio ’s draft regulation spelling out the measures for the implementation of the exception in favor of 73 Inuit and indigenous communities. The day before the anticipated effective date of Regulation 1007/2009 (20 August 2010), the President of the Court ordered, so far as concerns the applicants, a temporary suspension of the restrictive conditions introduced by the Regulation until the adoption of a final decision on the second request for interim 74 measures. The suspension was received with enthusiasm from Inuit groups and commercial sealers; however, it is worth noting that its practical effects were of little or no relevance. First, the suspension only applied to the limited group of applicants in the Inuit Tapiriit Kanatami 75 and Others case. Second, it only applied until the second request for interim measures was decided, not the main annulment issue. Indeed, the suspension was removed a few months later when the President of the General Court dismissed the application for interim 69 See id. at para. 112. 70 See Impact Assessment, supra note 2. 71 See Case T-18/10 R, Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union, 2010 E.C.R. II-00075. paras. 112, 114, 116. 72 See Case T-18/10 R II, Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union, 2010 E.C.R. II 00235. 73 See id. at paras. 20–23. 74 Id. 75 Id. 292 German Law Journal [Vol. 14 No. 01 measures for the second time, holding that the petitioners had not produced sufficient 76 evidence of actual individual injury. Different arguments in this second order of dismissal are prone to criticism. In particular, the President discharged in a forced way the solid claim raised by the applicants according to which a ti ely a d correct i ple e tatio of the I uit e ceptio was u realistic y reason of the very short period (just ten days) given to States for complying with the 77 Co issio ’s i ple e ti g easures efore the e try i to force of the ‘egulatio . In this regard, despite acknowledging that delay may damage Inuit economy, the order sets a high burden of proof for the applica ts who were re uested a d failed to esta lish that 78 the i ple e ti g regulatio is o jecti ely i practica le. Moreover, the President of the GC takes the view that the responsibility for protecting general economic, social, and cultural interests rests with States or local intra-State bodies; since no entity of this kind was among the applicants, the latter could not rely on the 79 general interests of the Inuit population in those proceedings for interim measures. Accordingly, the order established that each of the applicants taken individually had to adduce pertinent evidence to show that the Regulation would have caused him personally 80 serious and irreparable harm if no suspension were granted. 76 See id. In December 2010, Inuit Tapiriit Kanatami and others brought an appeal against the Order of the President before the General Court (Case C-605/10 P(R)) but there was no need to adjudicate because, in the meantime, the General Court had adopted its decision on the main action for annulment. Case C-605/10 P(R), Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union, 2011 E.C.R. II-____. 77 The President took the view that: [I]t is admittedly conceivable that the relatively late official publication of the implementing regulation could delay the implementation of the Inuit exception in so far as concerns the marketing on the European Union market of seal products deriving from hunting by Greenlandic Inuit. However, although that delay may damage the Inuit economy’ of Greenland, the applicants do not establish that the implementing regulation is objectively impracticable, the arguments put forward to that effect being mere unsubstantiated general assertions, whereas they should have provided specific evidence and proved the facts alleged to form the basis of the likelihood of the impracticability alleged, since damage of a purely hypothetical nature cannot justify the ordering of the suspension of operation sought. Id. at para 86. 78 See id. 79 See id. at para. 52. 80 See id. at para. 54. 2013] The Seals Case and EU Trade Measures 293 The approach adopted in the order cripples the position of the applicants. First, it quashed the collective argument of the harm to the surviving interests of the Arctic Inuit Community in general. Second, the frag e tatio of applica ts’ re uests i to a u er of individual positions amounts to a higher test for successfully establishing the seriousness of the damage alleged. Third, the order puts forward the argument that States and their regional bodies bear the responsibility for protecting general economic, social, and cultural interests; it thus suggests that group rights—in the case at issue, i dige ous peoples’ rights—can only be voiced through States or intra-State bodies and that non-governmental organizations or associations set up for the purpose of promoting and strengthening the 81 rights of such groups have no power in this regard. This interpretation points out the problematic issue of the scope and purpose of EU judicial review—whether and to what extent it also has the function of protecting diffuse public interests against legislative or 82 administrative abuse. By overlooking the important presence among the applicants of the Inuit Circumpolar Council (ICC) Greenland, the order obviously rejects a broader 83 reading of the purposes of EU judicial review. III. The Actions for Annulment: A Mirage of New Opportunities for Private Applicants? 84 In the main action for annulment, the GC tackles the case only from a procedural perspective of admissibility under the fourth paragraph of Article 263 TFEU (previously, Art. 230 Treaty Establishing the European Community (TEC)) which establishes the conditions under which natural or legal persons may contest the legitimacy of EU acts. The 81 Individual and group standing to challenge EU measures directly before the EU Court(s) is, and has been, extremely restrictive. By definition, the individual concern test is hardly satisfied by groups or associations representing public interests. See Case T-38/98, Associazione Nazionale Bieticltori v. Council, 1998 E.C.R. II-4191, paras. 25–29; Case T-447–9/93, AITEC v. Comm’n, 1995 E.C.R. II-1971; Case C-309/89, Codorníu v. Council, 1994 E.C.R. I-1853; Case C-358/89, Extramet Industrie v. Council, 1991 E.C.R. I-2501. However, in relation to applicants claiming non-purely economic interests, the ECJ has constantly denied locus standi. See Case T-91/07, WWF-UK Ltd. v. Council, 2008 E.C.R. II-81; Joined Cases T-236/04 & T-241/04, Eur. Envtl Bureau & Stichting Natuur en Milieu v. Comm’n, 2005 E.C.R. II-4945; Case T-585/93, Greenpeace v. Comm’n, 1995 E.C.R. II-2205, paras. 59–62. 82 See Adam Cygan, Protecting the Interests of Civil Society in Community Decision-Making: The Limits of Article 230 EC, 52 INT’L & COMP. L.Q. 995 (2003); Carol Harlow, Access to Justice as a Human Right: The European Convention and the EU, in THE EU AND HUMAN RIGHTS 187, 194 (Philip Alston ed., 1999); DAMIAN CHALMERS, GARETH DAVIES & GIORGIO MONTI, EUROPEAN UNION LAW 4 ; os Ma uel Cort s Mart , Ubi ius, Ibi Remedium?— Locus Standi of Private Applicants Under Article 230(4) EC at a European Constitutional Crossroads, 11 MAASTRICHT J. EUR. & COMP. L. 233 (2004). 83 ICC Greenland is a member of the Inuit Circumpolar Council, an Indigenous Peoples’ NGO representing approximately 160,000 Inuit living in the Arctic regions of Alaska, Canada, Greenland, and Chukotka, Russia. The ICC holds consultative status to the United Nations Economic and Social Council (ECOSOC). 84 See Case T-18/10, Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union (2011) (unpublished), available at http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62010TO0018(04):EN:HTML. 294 German Law Journal [Vol. 14 No. 01 85 GC found that the applicants lacked locus standi and declared the case inadmissible. An important corollary of this decision is that the GC sidestepped the discussion on the merits of the claims of the applicants concerning the appropriateness of the balance struck in the Regulations between the rights of indigenous peoples and concerns for animal welfare in the light of human rights principles. . Individual Applicants Challenging EU General Acts: ECJ’s Traditional ‘estrictive ‘eading 86 Traditionally, the ECJ has adopted a most restrictive interpretation of Art. 230(4) TEC in regards to the possibility for private individuals and groups to challenge the legality of a measure of general application (such as a regulation) addressed to one or more Member 87 States. Under Article 230 TEC, natural or legal persons could challenge either acts (mainly Decisions) addressed to them or measures of general application (i.e., Regulations) by 88 pro idi g e ide ce that the act was of direct a d i di idual co cer for the . To that e d, the EC set a ery high threshold for the fulfill e t of the criterio of individual co cer the so-called Plaumann formula), requiring proof that the measure affected the applica ts y reaso of certai attri utes which are peculiar to the or y reaso of 89 circumstances in which they are differentiated from all other persons. 85 See id. at para. 56. 86 Consolidated Version of the Treaty Establishing the European Community, art. 230(4), Dec. 24, 2002, 2002 O.J. C [herei after TEC] A y atural or legal perso ay, u der the sa e co ditio s, i stitute proceedi gs against a decision addressed to that person or against a decision which, although in the form of a regulation or a decision addressed to another person, is of direct and individual concern to the for er. e phasis added . 87 For a critical commentary on the issue of individual locus standi before EU courts, see ANGELA WARD, JUDICIAL REVIEW AND THE RIGHTS OF PRIVATE PARTIES IN EU LAW (2000); ALBERTINA ALBORS-LLORENS, PRIVATE PARTIES IN EUROPEAN COMMUNITY LAW: CHALLENGING COMMUNITY MEASURES (1996); Anthony Arnull, Private Applicants and the Action for Annulment Under Art. 173 of the EC Treaty, 32 COMMON MKT. L. REV. 7 (1995); Anthony Arnull, Private Applicants and the Action for Annulment Since Codorníu, 38 COMMON MKT. L. REV. 7 (2001); Stefan Enchelmaier, No-One Slips Through the Net? Latest Developments, and Non-Developments in the European Court of Justice’s Jurisprudence on Art. 230(4) EC, 24 Y.B. EUR. L. 173 (2005); Carol Harlow, Towards a Theory of Access to the European Court of Justice, 12 Y.B. EUR. L. 213 (1992); Francis Geoffrey Jacobs, Access to Justice as a Fundamental Right in European Law, in MÉLANGES EN HOMMAGE À FERNAND SCHOCKWEILER 197 (Gil Carlos Rodríguez Iglesias et al eds., 1999); Koen Lenaerts, The Legal Protection of Private Parties Under the EC Treaty: A Coherent and Complete System of Judicial Review?, in 2 SCRITTI IN ONORE DI GIUSEPPE FEDERICO MANCINI 591, 617 (1998); Giuseppe Federico Mancini, The Role of the Supreme Courts at the National and International Level: A Case Study of the Court of Justice of the European Communities, in THE ROLE OF THE SUPREME COURTS AT THE NATIONAL AND INTERNATIONAL LEVEL 421, 437 (Pelayia YessiouFaltsi ed., 1998); Filip Ragolle, Access to Justice for Private Applicants in the Community Legal Order: Recent (R)evolutions, 28 EUR. L. REV. 90 (2003); John Usher, Direct and Individual Concern—An Effective Remedy or a Conventional Solution?, 28 EUR. L. REV. 575 (2003). 88 See TEC, supra note 86, at art. 230(4). 89 Case 25/62, Plaumann & Co. v. Comm’n, 1963 E.C.R. 95; see also cases cited supra note 81. 2013] The Seals Case and EU Trade Measures 295 The de a di g fulfill e t of the i di idual co cer test left i practice o other possibility for private parties than to challenge the general measure indirectly, via the preliminary review procedure (Art. 234 TEC); however, within certain limits, this path and the exact content of the issue that is referred to European judges is upon the discretion of national judicial organs. As such, the mechanism under Article 230 TEC was undermined by important protection gaps. In particular, in cases in which the acts of general application did not entail implementing measures (and therefore individuals could not challenge the domestic implementing measure before domestic courts), the option left to applicants that could ot presu a ly fulfill the direct a d i di idual co cer test was to iolate the rules laid down by the regulation. They could thus obtain a sanction and rely on the invalidity of the regulation as a defense in the proceedings before national courts with the aim of possibly having the case referred to the ECJ. These loopholes in the EU system of judicial remedies for individuals were addressed in 90 two cases: UPA v. Council and Jégo-Quéré v. Commission in 2002 and 2004, respectively. Notwithsta di g the proposal to rela the i di idual co cer test y taki g i to accou t the su sta tial ad erse effects of the easure o the i terests of the applica t y 91 reason of his particular circumstances, the ECJ reconfirmed in such cases its traditional restrictive reading of the conditions under Article 230 TEC. The ECJ added, however, that any change of that approach had to be introduced through legislative reform of the 92 Treaties. . Challenging ‘egulatory Acts”: The Change Introduced by the Lisbon Treaty Taking into account the debate on these issues, the Lisbon Treaty inserts in Article 263(4) TFEU an additional possibility of judicial review of the legality of EU measures by 93 individuals. The new provision maintains in place the old test (and consequently the case law developed in that regard) but also adds a third limb stipulating that private parties may 90 See Case C-50/00 P, Unión de Pequeños Agricultores v. Council, 2002 E.C.R. I-6677 [hereinafter UPA]; Case C263/02 P, Comm’ . go-Quéré, 2004 E.C.R. I-3425 [hereinafter Jégo-Quéré]. 91 This solution was suggested in an Opinion of AG Jacobs and in a decision by the Tribunal of First Instance. See UPA (opinion of Advocate Gen. Jacobs), supra note 90, at para. 60; Case T-177/01, Jégo-Quéré v. Comm’n, 2002 E.C.R. II-2365. 92 93 See UPA, supra note 90, at para. 45; Jégo-Quéré, supra note 90, at para. 36. See TFEU, supra note 44, at art. 263(4) A y atural or legal perso ay, u der the co ditio s laid dow i the first and second paragraphs, institute proceedings against an act addressed to that person or which is of direct and individual concern to them, and against a regulatory act which is of direct concern to them and does not e tail i ple e ti g easures. . 296 [Vol. 14 No. 01 German Law Journal challe ge a regulatory act which is of direct concern to them and does not entail i ple e ti g easures. I other words, with respect to regulatory acts that do ot entail imple e ti g easures, pri ate parties o lo ger eed to esta lish i di idual co cer . In principle, the novelty introduced by Article 263(4) TFEU constitutes a relaxation of the rules o sta di g ecause i di iduals would o ly ha e to eet the direct co cer test— namely, show that the measure directly affects their legal situation and that no discretion 94 is left to the addressees of the measure. However, the Lisbon Treaty contains no 95 defi itio of what is a regulatory act. 96 As the first case to be decided under Article 263(4) TFEU, Inuit Tapiriit Kanatami and Others is of great interest because the GC had the opportunity to offer some clarification as well as its own interpretation in relation to the possibility for natural or legal persons to 97 review the legality of EU regulatory acts. 3. The “cope of Application of Art. 63 TFEU: The GC’s ‘eading ‘egardi g the defi itio of a regulatory act, the GC adopted a arrow approach, taki g the iew that it ust e u derstood as co eri g all acts of general application apart from legislative acts. Consequently, a legislative act may form the subject-matter of an action for annulment brought by natural or legal persons only if it is of direct and individual 98 co cer to the . 94 It has been authoritatively highlighted that there may be a possible overlap between the two requirements in Art. 263(4), namely, direct concern and absence of implementing measures. See Massimo Condinanzi, Il singolo e la comunità di diritto’ nel nuovo testo di Trattato che adotta una Costituzione per l’Europa, 12 IL CORRIERE GIURIDICO 1545, 1549 (2004). 95 For a comment to art. 263(4) TFEU, see Stephan Balthasar, Locus Standi Rules for Challenges to Regulatory Acts by Private Applicants: The New Article 263(4) TFEU, 35 EUR. L. REV. 4 ; oha es Traut, Christoph Werk eister “tepha P tters, Regulatory Acts within Article 263(4) TFEU: A Dissonant Extension of Locus Standi for Private Applicants, 13 CAMBRIDGE Y.B EUR. LEGAL STUD. 311 (2012). 96 Less than a month later, an applicant fulfilled for the first time the admissibility requirements under the third limb of Art. 263(4). See Case T-262/10, Microban Int’l Ltd. v. Comm’n, 2011 E.C.R. ____, available at http://curia.europa.eu/juris/document/document.jsf?text=&docid=111762&pageIndex=0&doclang=en&mode=lst &dir=&occ=first&part=1&cid=3205953. 97 In light of the principle tempus regit actum, the GC had ruled in precedent cases that the admissibility issue had to be solved under the rules in force at the date of the submission of the application. See Case T-539/08, Etimine v. Comm’n, 2010 E.C.R. II-4017 paras. 76, 78; Case T-532/08, Norilsk Nickel Harjavalta v. Comm’n, 2010 E.C.R. II3959 para. 70. 98 See Case T-18/10, Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union, para. 56 (2011) (unpublished), available at http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62010TO0018(04):EN:HTML. 2013] The Seals Case and EU Trade Measures 297 The rationale behind this approach is that if acts are adopted through a legislative procedure, the concerns of citizens have already been taken into account through their representatives in the EU institutions (such as the Council and the EP). Instead, if the procedure for the adoption of EU acts has not involved representative institutions, such acts should be subject to greater scrutiny precisely because of a lower level of legitimacy. The GC grounds its interpretation, mainly, in the drafting history of Article 263, which, however, is known to be the result of a legislative oversight during the process of switchi g fro the Treaty esta lishi g a Co stitutio for Europe Co stitutio al Treaty 99 to the Lisbon Treaty. The appeal of the order of the GC currently pending before the ECJ will provide it with the opportunity to reconsider the overall coherence of the EU system of judicial review of EU acts in a post-Lisbon context. Additionally, the tangible effects of the new provision in Article 263(4) will depend on how strictly the Court will i terpret the direct co cer test 100 a d the repetiti e re uire e t that the act does ot e tail i ple e ti g easures. In this regard, it also remains to be seen how the GC will solve the admissibility issue in the second annulment action brought by Inuit Tapiriit Kanatami and others against the Co issio ’s i ple e ti g ‘egulatio 7 7/ , which was adopted with a o 101 legislative procedure. The new possibility introduced in the Lisbon Treaty certainly broadens the chances for individuals and groups to challenge the legitimacy of EU acts by comparison to the 102 protection available under the Nice Treaty. However, there are some arguments that may be invoked as an alternative to the narrow interpretation of Article 263(4) espoused by the GC, grounded on a strict link between the Constitutional Treaty and the Lisbon Treaty. First, under Article 32 of the Vienna Convention on the Law of Treaties, the travaux 103 preparatoires represent a subsidiary means of interpretation. Instead, the general rule 99 See id. at para. 49. The Constitutional Treaty contained an identical provision to that of Article 263(4) TFEU, but it also introduced new categories of legal instruments: a European regulation was defined as a non-legislative act, traditio al regulatio s were re a ed European laws. 100 See Condinanzi, supra note 9494. 101 Given, however, that Reg. 737/2010 requires Member States to designate the competent authorities for the verification of attesting documents for imported seal products (Art. 9), the Court will presumably conclude that Art. 263(4) TFEU does not apply to the petitioners in Inuit Tapiriit Kanatami. 102 103 See supra text accompanying note 93. Vienna Convention on the Law of Treaties, supra note 35, at art. 32. The Vienna Convention on the Law of Treaties states that Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the 298 [Vol. 14 No. 01 German Law Journal of interpretation in Article 31(1) stipulates that the interpreter should first refer to the 104 ordi ary ea i g to e gi e to the ter s of the treaty i their co te t (textual interpretation) in the light of the object and purpose of the treaty (teleological i terpretatio . Pro ided that the ter regulatory act ca ot e fou d elsewhere i the Treaty, its ordinary meaning in the context of Article 263 and in the context of the Lisbon Treaty more broadly could be established on the basis of its affinity with the term regulatio . 105 The GC argues that regulatory acts are acts of ge eral applicatio . This is correct; however, the following step of the reasoning—namely that they are non-legislative acts— is not necessarily supported by textual interpretation. Indeed, alternative to the Constitutional Treaty, the Lisbon Treaty maintains in place existing legal instruments, including regulations, and the distinction between legislative and non-legislative acts is not based on the function of the different categories of acts but rather on the type of 106 procedure employed for their adoption. Therefore, the specification that the acts considered in Article are legislati e acts, ay also suggest that regulatory acts 107 mentioned in Article 263(4) comprise both legislative and non-legislative acts. Second, a broader interpretation of Article 263(4) is welcomed because the one currently provided by the GC does not adequately address the practical problems concerning the right of access to a court underlined in the UPA and Jégo-Quéré cases. In this regard, it should be recalled that the purpose of the introduction of the third limb was precisely to address the above-mentioned problem of lack of remedies for individuals in the absence of national implementing measures to be challenged before domestic courts. A narrow reading of Article 263 would still fail to offer a solution in the case of legislative acts of general application (typically the UPA case . I deed, the GC’s for alistic reading—i.e., regulatory acts defined on the basis of the procedure employed for their adoption—of the more relaxed locus standi conditions leaves no room for discretion aimed at filling in the application of article 31, or to determine the meaning when the interpretation according to Article 31: (a) leaves the meaning ambiguous or obscure; or (b) leads to a result which is manifestly absurd or u reaso a le. . Id. 104 See id. at art. A treaty shall e i terpreted i good faith i accorda ce with the ordi ary gi e to the ter s of the treaty i their co te t a d i the light of its o ject a d purpose. . ea i g to e 105 See Case T-18/10, Inuit Tapiriit Kanatami and Others v. European Parliament and Council of the European Union, para. 56 (2011) (unpublished), available at http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62010TO0018(04):EN:HTML. 106 See TFEU, supra note 44, at art. 89 acts. . 107 Legal acts adopted by legislative procedure shall constitute legislative Steve Peers & Marios Costa, Case Note: Court of Justice of the European Union (General Chamber), Judicial Review of EU Acts After the Treaty of Lisbon; Order of 6 September 2011, Case T-18/10 Inuit Tapiriit Kanatami and Others v. Commission & Judgment of 25 October 2011, Case T-262/10 Microban v. Commission, 8 EUR. CONST. L. REV. 82, 92 (2012). 2013] The Seals Case and EU Trade Measures 299 loopholes in the EU judicial system in cases of substantial adverse effects on the interests of the applicant by reason of his particular circumstances. 108 In any case, it is desirable that the ECJ will not extend the Textilwerke Deggendorf (TWD) case law o o e way e clusi ity etwee the annulment action and the preliminary 109 reference on validity to the third limb of Article 263(4) TFEU. Third, a narrow interpretation of Article 263 is also problematic under the perspective of the distinct, but strictly related, issue of the right of access to an effective remedy under Article 47 of the EU Charter of Fundamental Rights, which is invoked in case of violation of 110 the rights and freedoms guaranteed by the law of the Union. The right to effective judicial protection was already recognized by the ECJ as a general principle of community 111 law stemming from the constitutional traditions common to Member States. After the entry into force of the Lisbon Treaty the provision of Article 47 of the Charter of 112 Fundamental Rights enshrining such principle achieved the same value of the Treaties. Moreover, Article 9 TEU esta lishes that Me er “tates shall pro ide re edies sufficie t to e sure effecti e legal protectio i the fields co ered y U io law. Concerning the right of access to an effective remedy, in the UPA case, Advocate General aco s uestio s whether i the a se ce of the i di idual i terest re uire e t the 113 preliminary ruling procedure before national courts provides an effective remedy. He first highlights the circumstance that applicants before domestic courts do not have an automatic right to the preliminary review procedure nor can they decide which measures 114 will be referred to the ECJ or the grounds of invalidity. Second, he underlines the 108 Case C-188/92, TWD Textilwerke Deggendorf v. Germany, 1994 E.C.R. I-833 [hereinafter TWD]. 109 In the TWD case the European Court of Justice (ECJ) clarified that whoever undoubtedly had the right to challenge the validity of a Union act, but failed to do so within the two-month time limit established in Art. 230(5) EC (now Art. 263(6) TFEU), may not seek to challenge the legality of this act in proceedings before national judges. For some preliminary considerations on the applicability of such case law to the revised Art. 263(4) TFEU, see Roland Schwensfeier, The TWD Principle Post-Lisbon, 37 EUR. L. REV. 156 (2012). 110 Europea U io Charter of Fu da e tal ‘ights, art. 47, Dec. 8, , O. . C 4/ E eryo e whose rights and freedoms guaranteed by the law of the Union are violated has the right to an effective remedy before a tri u al i co plia ce with the co ditio s laid dow i this Article. . 111 See Case C-222/84, Johnston v. Chief Constable of the Royal Ulster Constabulary, 1986 E.C.R. 1651, para. 18. 112 See TFEU, supra note 44, at art. 6. 113 See Case T-173/98, Unión de Pequeños Agricultores v. Council, 1999 E.C.R. II-3357; see also UPA (opinion of Advocate Gen. Jacobs), supra note 90, at para. 35. 114 UPA (opinion of Advocate Gen. Jacobs), supra note 90, at para. 42.. 300 German Law Journal [Vol. 14 No. 01 115 impossibility for national courts to declare the invalidity of EU acts on their own. Third, it is objected that legal certainty necessitates immediate review of the act—not after the 116 adoption of implementing measures. Moreover, indirect challenges of EU acts through the preliminary review procedure may involve important delays and additional costs, which could be reduced in the case of direct challenges under the annulment procedure. Fourth, the delays involved in the preliminary review procedure may require the adoption of interim measures. However, the criteria for awarding such measures change from State to State, and this may, in practice, cause contradictory or discriminatory results for the applicants. Moreover, interim measures awarded by a domestic court are confined to the 117 Member State in question. E. The Dispute at the WTO Level The EU ban on seal products is currently also the subject of a dispute brought by Canada 118 and Norway before the WTO. The WTO approach to this dispute is fundamentally different from the EU approach for two primary reasons. First, it is a government-togovernment dispute. Under WTO rules, individuals and groups, including both indigenous communities and firms operating in the seal products industry, do not have the right to be heard or the right to participate in the proceedings, except for the limited possibility that written briefs are accepted to be considered by the panels or the Appellate Body, which is 119 Second, the WTO approaches the disputed issue from a technical at their discretion. trade law perspective, and as WTO case law shows, in principle, non-trade considerations have limited room for application. Therefore, the problem of the impact of the EU Id. at paras. 41, 102. See also Dorota Leczykiewicz, Effective Judicial Protection” of Hu an ‘ights After Lisbon: Should National Courts Be Empowered to Review EU Secondary Law?, 35 EUR. L. REV. 326 (2010). 115 116 UPA (opinion of Advocate Gen. Jacobs), supra note 90, at para. 102. 117 Id. at para. 44. 118 See Request for the Establishment of a Panel by Norway, European Communities—Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS401/5 (Mar. 15, 2011); Request for the Establishment of a Panel by Canada, European Communities—Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400/4 (Feb. 14, 2011). Argentina, China, Colombia, Ecuador, Iceland, Japan, Mexico, Norway, and the United States have joined as third parties. At its meeting on 25 March 2011, the Dispute Settlement Body established a panel. China, Colombia, Iceland, Japan, Mexico, Norway, and the United States, and subsequently Argentina, Ecuador and the Russian Federation, reserved their third party rights. The two requests will be addressed by a single panel. On 4 October 2012, the Director-General composed the panel. 119 The issue of the admissibility of amicus curiae submissions in WTO dispute settlement proceedings is highly contentious. However, the Appellate Body has confirmed the panels’ discretion as well as its own authority to accept or reject information and advice from interested entities, which are neither parties nor third parties to the dispute. See Appellate Body Report, United States—Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom, para. 43, WT/DS138/AB/R (June 7, 2000); Appellate Body Report, United States—Import Prohibition of Certain Shrimp and Shrimp Products, paras. 105–108, WT/DS58/AB/R (Oct. 12, 1998) [hereinafter US-Shrimp]. 2013] The Seals Case and EU Trade Measures 301 easure o i dige ous peoples’ rights is ot e plicitly addressed i the WTO dispute because the complainants have framed their requests from the perspective of restrictions on trade. In their requests for the establishment of a panel, Canada and Norway claim the violation of several provisions of the General Agreement on Tariffs and Trade (GATT), of the Agreement on Technical Barriers to Trade (TBT) and of the Agreement on Agriculture (AoA). More specifically, they assert that the EU easure discri i ates a o g like products (seal products and non-seal products; Inuit seal products and seal products in general) originating in different countries in violation of the most favored nation treatment rule enshrined in GATT Article I(1) and Article 2.1 of the TBT Agreement. The EU regime allegedly further violates the national treatment rule established in Article III(4) of the GATT and in Article 2.1 of the TBT Agreement as it apparently discriminates between i ported products a d like products origi ati g i the EU. Alter ati ely, the EU a ay be perceived as a quantitative restriction on trade violating Article XI(1) of the GATT or as an introduction of a non-tariff measure on agricultural products in contrast with AoA Article 4.2. Canada and Norway claim as well a violation of Article 2.2. of the TBT Agreement, which provides that the adoption of technical regulations should not pose an u ecessary o stacle to i ter atio al trade. The following sections will address some of the problematic issues on which the WTO Panel will presumably focus in order to decide on the compatibility of the EU measures with WTO obligations. I. The Relationship Between the GATT and the TBT Agreement Concerning the alleged violation of the most favored nation and national treatment rules, it is worth clarifying that despite being drafted in similar terms in the GATT and in the TBT Agreement, the conditions upon which such provisions apply differ. The approach of the two agreements is also quite different. The GATT contains a general prohibition of restrictive trade measures unless they are justified, for instance, under GATT Article XX. The TBT Agreement, instead, sets out the requirements that legitimate technical regulations and standards must fulfill; it thus assumes their legality in principle, provided 120 that they fulfill the requirements established in the Agreement. Consequently, the WTO Panel will have to decide first which agreement applies in the case at issue. 120 The sixth recital of the Preamble of the TBT Agreement clarifies this point: Recognizing that no country should be prevented from taking measures necessary to ensure the quality of its exports, or for the protection of human, animal or plant life or health, of the environment, or for the prevention of deceptive practices, at the 302 German Law Journal [Vol. 14 No. 01 In EC-Asbestos, the Panel addressed the issue of the relationship between the GATT and the TBT Agreement and clarified that, while the applicability of one or of the other cannot be excluded a priori, as both are part of Annex 1A to the WTO Agreement, the order in which they apply should prioritize the agree e t that deals specifically a d i detail with 121 the measure in question. Accordingly, provided that the TBT agreement is the more specific one, the Panel will have to ascertain first whether the EU ban on seal products co stitutes a tech ical regulatio pursua t to paragraph of A e I of the TBT 122 Agreement. II. The EU Measure: Compliance with the TBT Agreement A e I of the TBT Agree e t defi es a tech ical regulatio as a [d]ocu e t which lays down product characteristics or their related processes and production methods . . . with 123 which co plia ce is a datory. The EU Regulation lays down in a mandatory form the process and production methods (i.e., traditional indigenous hunt) for the marketing of 124 seal products in the EU. However, it is not clear whether the EU measure would match the defi itio of tech ical regulatio ecause there is high legal uncertainty on whether the TBT Agree e t co ers tech ical regulatio s relati g to process a d productio ethods PPMs that are ot strictly associated to the productio of a specific good a d that are not detectable in the final product. Indeed, non-product related PPMs are 125 generally considered to fall outside of the scope of the TBT Agreement. levels it considers appropriate, subject to the requirement that they are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade, and are otherwise in accordance with the provisions of this Agreement. World Trade Organization Agreement on Technical Barriers to Trade, pmbl., Apr. 15, 1994, 1994 O.J. (L 336) [hereinafter TBT]. 121 Report of the Panel, European Communities—Measures Affecting Asbestos and Asbestos Containing Products, 400, WT/DS135/R (Sept. 18, 2000). 122 The TBT Agreement also applies to standards, but these consist of rules compliance with which is not mandatory. 123 TBT, supra note 120, at annex 1, para. 1. 124 Regulation 1007/09, supra note 12, art. 3. 125 The text of the TBT does not suggest any interpretation of PPMs, but the view generally held on this issue is to interpret the word relate i the defi itio of tech ical regulatio s as ea i g ha i g a physical i pact o the e d product. See Note by the Secretariat, Negotiating History of the Coverage of the Agreement on Technical Barriers to Trade with Regard to Labeling Requirements, Voluntary Standards, and Processes and Production Methods Unrelated to Product Characteristics, paras. 103–51, WT/CTE/W/10, G/TBT/W/11 (Aug. 29, 1995). 2013] The Seals Case and EU Trade Measures 303 Nevertheless, it could also happen that if neither party wants to exclude the applicability of 126 the TBT on this ground, the Panel may not address this point. Further, to establish a violation of Article 2.1 TBT, Canada and Norway will have to provide e ide ce of a pri a facie case that i ported products are treated less fa ora ly tha foreig or do estic like products. The Appellate Body AB has clarified that this should be assessed by examining whether the measure modifies the conditions of competition in the relevant market, whether de jure or de facto, to the detriment of imported products a d that a ge ui e relatio ship should e ist etween the measure itself and its adverse 127 impact on competitive opportunities. Additionally, under Article . . TBT [ ]e ers shall e sure that tech ical regulatio s are not prepared, adopted or applied with a view to or with the effect of creating unnecessary o stacles to i ter atio al trade. I other words, tech ical regulatio s ust ot e ore trade-restrictive than necessary to fulfill a legitimate objective, taking account of the risks 128 non-fulfill e t would create. (emphasis added). The EU measure could in principle satisfy the legiti ate o jecti e test ecause the o -exhaustive list in TBT Article 2.2. e plicitly e tio s the protectio of a i al life or health. By co trast, the ecessity test may not be fulfilled because it could be argued that a general certification and labeling regi e would ha e ee a less trade restricti e reaso a ly a aila le alter ati e for the 129 EU in relation to the objective pursued. In this regard, the AB has clarified that a Nevertheless, some WTO members have actually notified technical regulations relating to non-product-related PPMs to the TBT Committee. Notably, Belgium has notified its prohibition on production and marketing of seal pup skins unless obtained from Inuit traditional hunt. See Notification of Belgium, G/TBT/N/BEL39 (Mar. 8, 2008); see also United Nations Conference on Trade and Development, Dispute Settlement, World Trade Organization, 3.10 Technical Barriers to Trade, 2003, 10, available at http://unctad.org/en/docs/edmmisc232add18_en.pdf; CHRISTIANE CONRAD, PROCESSES AND PRODUCTION METHODS (PPMS) IN WTO LAW: INTERFACING TRADE AND SOCIAL GOALS 378 (2011). Moreover, in the recent reports on Tuna Dolphin II, the Panel and the Appellate Body considered certain la eli g re uire e ts ased o fishi g ethods as tech ical regulatio although they did ot specifically address this issue. See Appellate Body Report, United States—Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products, paras. 190–99, WT/DS381/AB/R (May 16, 2012) [hereinafter Tuna Dolphin II]. 126 This is what happened in the Tuna Dolphin II case. See Elizabeth Trujillo, The Tuna-Dolphin Encore—WTO Rules on Environmental Labeling, 16 ASIL INSIGHTS, 7 March (2012). 127 Tuna Dolphin II, supra note 125, paras. 214–16, 221, 224–25. 128 TBT, supra note 120, at art. 2.2. 129 This is also further confirmed. See Commission Staff Working Document, Accompanying document to the Proposal for a Regulation Concerning Trade in Seal Products: Impact Assessment on the Potential Impact of a Ban of Products Derived from Seal Species, SEC (2008) 2290, (July 23, 2008) [hereinafter Impact Assessment]. Moreover, it should be noted that the original proposal of the Commission concerned the introduction of a certification, labeling and marking regime guara teei g that seals were killed a d ski ed without causi g a oida le pai , distress a d a y other for of sufferi g. See Commission Proposal for a Regulation of the 304 [Vol. 14 No. 01 German Law Journal easure does ot cease to e reaso a ly a aila le 130 administrative difficulties for a Member. si ply ecause it i ol es If the applicability of the TBT Agreement is excluded, the legitimacy of the EU measure will have to be assessed under the GATT. III. The EU Measure: Compliance with the GATT Articles I a d III of the GATT prohi it discri i atio etwee like products origi ati g i 131 differe t cou tries a d etwee do estic a d foreig like products. The latter is a key concept (the same applies to TBT Article 2.1) because, if products are ot like products, “tates ay su ject the to differe t regimes without incurring a violation. Thus, the first issue to be assessed will be whether the seal products covered by the EU a should e co sidered like products y co parison to products not covered by the ban, such as: (1) products not originating from seals (e.g., pelts from other animals, Omega-3 capsules not obtained from seals) and (2) seal products originating from indigenous traditional hunt. The decision as to what products are comparable will have an 132 important impact on the final solution of the case. I the a se ce of a legal defi itio of the otio of like ess, the jurisprude ce of the WTO adjudicatory bodies on this topic provides some clarification. First, the assessment of the like ess etwee two or ore products is to e ade o a case-by-case basis. Second, the notion of likeness is not uniform across or within the WTO agreements but has to be interpreted in the specific context of the provisions which make use of it. In this regard, the AB uses the i age of a accordio [that] stretches a d s ueezes i differe t places as different provisions of the WTO Agreement are applied . . . as well as by the European Parliament and of the Council Concerning Trade in Seal Products, art. 4, COM (2008) 469 final (July 23, 2008). 130 Appellate Body Report, European Communities—Measures Affecting Asbestos and Asbestos-Containing Products, para. 169, WT/DS135/AB/R (Mar. 12, 2001) [hereinafter Asbestos]. 131 See General Agreement on Tariffs and Trade, art. I(1), Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194 [hereinafter GATT] [A] y ad a tage, fa our, pri ilege or i u ity gra ted y a y co tracti g party to a y product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other co tracti g parties. ; see also id. at art. III(4) The products of the territory of a y co tracti g party i ported i to the territory of a y other co tracti g party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distri utio or use. ). Peter L. Fitzgerald, Morality” May Not Be Enough to Justify the EU “eal Products Ban: Ani al Welfare Meets International Trade Law, 14 J. INT’L WILDLIFE L. & POL’Y 85, 99 (2011). 132 2013] The Seals Case and EU Trade Measures 305 133 context and the circumstances that prevail in any gi e case. Third, and quite i porta tly, the AB e plai s that the co cept i ol es a deter i atio a out the ature 134 a d e te t of a co petiti e relatio ship etwee a d a o g products and identifies four general criteria: (i) the physical properties of the products; (ii) the extent to which the products are capable of serving the same or similar end-uses; (iii) the extent to which consumers perceive and treat the products as alternative means of performing particular functions in order to satisfy a particular want or demand; and (iv) the international classification of the products for tariff 135 purposes. U der the third criterio , co su ers’ co cer s o a i al welfare could, i pri ciple, become relevant for excluding the likeness between seal products and either products not originating from seals or indigenous seal products. The EU measure would thus be safe ecause GATT rules allow “tates to su ject o -like products to differe t regi es. However, there is no clear favorable WTO jurisprudence in relation to the relevance of 136 PPMs co cer i g the assess e t of like ess etwee products. Rather, the AB has specified that an overall determination of the evidence relating to each of the four criteria 137 has to be made. In other terms, physical properties, end uses and tariff classification of products will also e co sidered i deter i i g the issue of like ess. Moreo er, whe considering the issue of a possible violation of GATT Article I, it should be recalled that the EU measure substantially (and de facto) affects Canada and Norway since exports of seal 138 products from these countries to the EU are quite significant. As an alternative to a violation of GATT Articles I and III, Canada and Norway also claim a violation of Article XI, which prohibits all non-tariff barriers that are applied at the border 133 Appellate Body Report, Japan—Taxes on Alcoholic Beverages, para. 21, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R (Oct. 4, 1996). 134 Asbestos, supra note 130, para. 99. Although the considerations here made reference to the assessment of a likeness of products under Article III(4) of the GATT 1994, they nevertheless provide guidance for a general approach to the issue. 135 See id. at para. 101. 136 In Asbestos, for instance, the Appellate Body took into consideration consumer tastes for the purpose of distinguishing products containing asbestos from other fungible products. It is questionable, however, whether in assessing likeness consumer preferences as to animal welfare are equivalent to their perception of the health risks posed by asbestos. 137 Asbestos, supra note 130, at para. 109. 138 Impact Assessment, supra note 129, at 46–47, 53. 306 German Law Journal [Vol. 14 No. 01 139 (including bans) and limit market access. On the one hand, violation of Article XI is easier to demonstrate. Differently from the case of an alleged violation of Articles I and III, the applicants do not have to show any discriminatory intent or effect. On the other hand, however, Articles III and XI pursue different objectives: Unlike Article III, Article XI 140 concerns border measures rather than internal regulations. Even though in principle the EU measure applies to both internal and imported products, the portion of the Regulation pro idi g that the co ditio s for placi g o the arket seal products shall apply at the 141 ti e or poi t of i port for i ported products raises an issue of compatibility with Article XI and may be considered as a quantitative restriction. In any case, if the measure is found to violate GATT Article I, Article III, both Articles I and III (because the likeness test is fulfilled and the measure is discriminatory) or Article XI, the Regulation can nevertheless be saved by resorting to the general exceptions provision under GATT Article XX. This Article provides that States may derogate from the general principles by adopting or enforcing measures necessary to pursue one of the policy objectives listed therein and upon fulfillment of the conditions set out in the opening 142 provisions of the Article (chapeau requirements). 143 144 The purpose to safeguard pu lic orals a d to protect a i al life or health could, in theory, justify the EU measure, but it is doubtful whether the necessity test and the chapeau requirements, as interpreted by the Panels and the AB, would be satisfied. As 139 Similarly, Art. 4.2 of the AoA stipulates that Members must convert non-tariff barriers on agricultural products into ordinary customs duties. 140 GATT, supra note 131, at art. III. Art I states: Any internal tax or other internal charge, or any law, regulation or requirement of the kind referred to in paragraph 1 which applies to an imported product and to the like domestic product and is collected or enforced in the case of the imported product at the time or point of importation, is nevertheless to be regarded as an internal tax or other internal charge, or a law, regulation or requirement of the kind referred to in paragraph 1, and is accordingly subject to the pro isio s of Article III. . Id. at art. I. 141 Regulation 1007/09, supra note 12, at art. 3.1. 142 GATT art. XX “u ject to the re uire e t that such easures are ot applied i a a er which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures . . . . ). 143 Id. art. XX(a). 144 Id. art. XX(b). 2013] The Seals Case and EU Trade Measures 307 earlier noted, the preliminary works of the EU regulation, as well as the assessment report made by the Commission, confirm that there were less trade restrictive available options for the EU to adopt (for instance, banning only products for which inhumane killing occurred by introducing a certification regime). Moreover, WTO case law does not clearly establish whether or to what extent unilateral import bans imposed as a reaction to events occurring beyond the jurisdiction of the enacting State can be justified under GATT Art. 145 XX. Further, if the purpose of the regulation is to respond to a general European concern over cruel killing methods that do not guarantee the death of animals without suffering, the choice of the EU institutions to address this problem only in relation to seals is not easily defendable under the chapeau conditions in Art. XX. In sum, one of the general questions underlying the seals dispute concerns the extent to which WTO rules should limit the domestic policies of its members. However, it must be stressed that the object of the examination by WTO dispute settlement organs is not the choice of policy as such, but rather the way it is implemented and whether it respects the rights of other States under the WTO multilateral regime. Accordingly, the interpretation a d applicatio of the ecessity test i the context of the TBT and GATT Article XX and the chapeau requirements in Article XX will settle such threshold. Additionally, in the light of the considerations noted and from a wider perspective, the decision of the Panel will necessarily have an impact on the broader issue of the openness 146 of the WTO system to morally based concerns enforced through trade bans. Despite the occasional accommodation of non-trade interests in the application of WTO law, several provisions under the different WTO Agreements may exclude the compatibility of the EU 145 Concerning the general exception under GATT Art. XX(g) on the conservation of exhaustible natural resources, the Panel in US-Tuna II asserted that [i]t could not therefore be said that the General Agreement proscribe[s] in an absolute manner measures that relate to things or actions outside the territorial jurisdiction of the party taking the measure. See Panel Report, United States—Restrictions on the Imports of Tuna, para. 5.16, DS29/R (June 16, 1994). However, in the US-Shrimp Appellate Body report, it is clarified that in pursuing fundamental social policies “tates are ou d to to ha e prior co siste t recourse to diplo acy; failure to do so ay produce a discriminatory impact. See US-Shrimp, supra note 119, at para. 187. 146 For a detailed defense of the EU measures, see Robert Howse & Joanna Langille, Permitting Pluralism: The Seal Products Dispute and Why the WTO Should Accept Trade Restrictions Justified by Noninstrumental Moral Values, 7 Yale . I t’l L. 7 . Paragraph (a) of GATT Art. XX has been directly addressed in the recent decision China-Audio Visual Products, and in the context of the GATS containing a similar provision in the U.S.-Gambling decision. See Appellate Body Report, China—Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/DS363/AB/R (Dec. 21, 2009); Panel Report, China—Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/DS363/R (Aug. 12, 2009); Appellate Body Report, United States—Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/AB/R (Apr. 7, 2005); Panel Report, United States—Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/R (Nov. 10, 2004). In both cases the decision organs failed to justify State measures under Art. XX. As this concerns the seals case, it has been authoritatively suggested that this case may not be the most appropriate one for establishing a precedent under Art. XX(a). See Fitzgerald, supra note 132, at 86. 308 German Law Journal [Vol. 14 No. 01 regulations with WTO obligations, concerning in particular the way measures are applied in practice. Further, case law shows that reconciliation between trade and other policy objectives is more difficult when the policy aim (e.g., animal welfare) is not explicitly included in the WTO agreements or in the general exceptions or if it reflects local ethical 147 a d oral positio s rather tha u i ersally agreed sta dards. Indeed, it should be noted that the specific issue in the disputed case concerns animal welfare and not animal protection for preservation and environmental purposes. There are very few animal welfare international agreements concerned specifically with the physical and emotional 148 well-being of animals —with the exception of acts of extreme cruelty, animal welfare still 149 remains at the level of personal preferences and cultural choices. F. The (Possible) Human Rights Path Besides animal welfare concerns and the pure trade dimension, the seals case can also be read from the viewpoint of the protection of the rights of indigenous peoples and in particular of their right to culture. Even though the EU ban has not been challenged on such grounds before any human rights mechanism, it is important to clarify the existing 150 obligations under international law for States and for EU Members. I. Specific Instruments on the Rights of Indigenous Peoples At the international level, the only binding instrument that specifically denotes the rights of indigenous people is the ILO Indigenous and Tribal Peoples Convention of 1989 (ILO 151 C169). Among the EU Member States, Denmark, the Netherlands, Norway, and Spain have ratified the Convention. A more recent, broader but non-binding document has been adopted by the UN General Assembly in 2007, the Declaration on the Rights of Indigenous 152 Peoples (UNDRIP). 147 See US-Shrimp, supra note 119, para. 187; see also Fitzgerald, supra note 132, at 122–23. 148 See Recommendation on Seal Hunting, supra note 11; see also Convention for the Conservation of Antarctic Seals, annex, art. 7, Feb. 11, 1972, 29 U.S.T. 441, 11 I.L.M. 251. 149 By contrast, standards that relate to concerns on the survival of species rely on, and are subject to, scientific determination. 150 As earlier noted, in the annulment actions before the ECJ, the applicants also raised the issue of the alleged violation of the rights of indigenous peoples including: the right to property, the right to private and family life read in light of the freedom of thought, conscience and religion, and freedom of expression, and the right to be heard. 151 See ILO C169, supra note 19. 152 See UNDRIP, supra note 19. 2013] The Seals Case and EU Trade Measures 309 These instruments establish, first, that States shall recognize, respect, protect and promote the full realizatio of the social, eco o ic a d cultural rights of [i digenous] peoples with respect for their social and cultural identity, their customs and traditions and their 153 i stitutio s. More specifically, Article 8 of ILO C169 clearly establishes the right of 154 indigenous peoples to retain their own customs and institutions. UNDRIP Article 11 further stipulates that i dige ous peoples ha e the right to practice a d re italize their cultural traditio s a d custo s i cludi g through the right to ai tai , protect a d develop the past, present and future manifestatio s of their cultures. Additio ally, i dige ous peoples ha e the right to e secure i the e joy e t of their ow ea s of subsistence and development, and to engage freely in all their traditional and other 155 eco o ic acti ities as well as the right to the enjoyment of the highest attainable sta dard of physical a d e tal health, i relatio to which “tates shall take the 156 ecessary steps with a iew to achie i g progressi ely the full realizatio of this right. Quite importantly, Article 23 of ILO C169 affirms that: Handicrafts, rural and community based industries and subsistence economy and traditional activities of the peoples concerned, such as hunting, fishing, trapping and gathering, shall be recognized as important factors in the maintenance of their cultures and in their economic self-reliance and development. Governments shall . . . ensure that these activities are strengthened and promoted. Second, the UN Declaration and the ILO Convention make clear that indigenous peoples have the right to participate and to be consulted in relation to decision making in matters 157 which would affect their rights. Third, a common thread in these two instruments is the right to effective remedies and to an effective legal protection of the individual and of the 158 collective rights of indigenous peoples. 153 ILO C169, supra note 19, at arts. 2, 4, 5; see also id. at arts. 24, 31, 41. 154 ILO C169, supra note 19, at art. 8. These peoples shall ha e the right to retai their ow custo s a d institutions, where these are not incompatible with fundamental rights defined by the national legal system and with i ter atio ally recog ized hu a rights. . 155 UNDRIP, supra note 19, at art. 20. 156 See id. at art. 24. 157 See id. at arts. 18, 19; ILO C169, supra note 19, at arts. 6, 7. 158 See UNDRIP, supra note 19, at art. 40; ILO C169, supra note 19 art. 12. German Law Journal 310 [Vol. 14 No. 01 II. General International Human Rights Supervisory Mechanisms As earlier noted, the UN Declaration is not legally binding and only a small number of EU member States have ratified the ILO Convention. Nevertheless, alleged violations of the abovementioned rights can be—and have been—assessed in the judicial and quasi-judicial practice of general human rights supervisory mechanisms. 159 The Human Rights Committee (HRC), for instance, has addressed indigenous peoples’ rights under the International Covenant on Civil and Political Rights (ICCPR) in the context 160 of i orities’ right to enjoy their own culture (Article 27). In the early case, Kitok v. Sweden, the HRC affirmed that economic activities may come within the scope of application of Article 7 where that acti ity is a esse tial ele e t i 161 the culture of a eth ic co u ity. This approach is also confirmed in Ominayak v. Canada, i which the Co ittee recog ize[d] that the rights protected y Article 27, include the right of persons, in community with others, to engage in economic and social 162 acti ities which are part of the culture of the co u ity to which they elo g. The principles developed in these early cases were further clarified in the Co ittee’s Ge eral Comment No. 23 on the rights of minorities. With regard to cultural rights it observes that: [C]ulture manifests itself in many forms, including a particular way of life associated with the use of land resources, especially in the case of indigenous peoples. That right may include such traditional activities as fishing or hunting . . . . The enjoyment of those rights 159 The first Optional Protocol to the International Covenant on Civil and Political Rights invests the Committee with the competence to receive and consider individual complaints concerning alleged violation of State obligations under the Covenant; with the exception of the UK, all EU member States have ratified the Optional Protocol. See Optional Protocol to the International Covenant on Civil and Political Rights, G.A. Res. 2200A (XXI), U.N. GAOR, 21st Sess., Supp. No. 16, U.N. Doc A/6316. 160 For further references on the relevant jurisprudence, see generally S. JAMES ANAYA, INTERNATIONAL HUMAN RIGHTS (2009); S. JAMES ANAYA, INDIGENOUS PEOPLES IN INTERNATIONAL LAW (2d ed. 2004); Alessandro Fodella, Indigenous Peoples, the Environment and International Jurisprudence, in INTERNATIONAL COURTS AND THE DEVELOPMENT OF INTERNATIONAL LAW: ESSAYS IN HONOUR OF TULLIO TREVES 347–62 (Nerina Boschiero et al eds., 2012) (forthcoming); Kamroul Hossain, Globalization, Climate Change and Indigenous Peoples in the Arctic: An Interface Between Free Trade and the Right to Culture, in GLOBALIZATION, INTERNATIONAL LAW AND HUMAN RIGHTS 34 (Jeffrey F. Addicott, Md. Jahid Hossain Bhuiyan & Tareq M.R. Chowdhury eds., 2012); INTERNATIONAL LAW AND INDIGENOUS PEOPLES (Joshua Castellino & Niamh Walsh eds., 2005); PATRICK THORNBERRY, INDIGENOUS PEOPLES AND HUMAN RIGHTS (2002); ALEXANDRA XANTHAKI, INDIGENOUS RIGHTS AND UNITED NATIONS STANDARDS: SELF-DETERMINATION, CULTURE AND LAND (2007). AND INDIGENOUS PEOPLES 161 U.N. Hu a ‘ights Co 162 U.N. Hu a ‘ights Co , Kitok v. Sweden, para. 9.2, U.N. Doc. CCPR/C/33/D/197/1985 (1988). ’ , Ominayak v. Canada, para. 32.2, U.N. Doc. CCPR/C/38/D/167/1984 (1990). 2013] The Seals Case and EU Trade Measures 311 may require positive legal measures of protection and measures to ensure the effective participation of members of minority communities in decisions which 163 affect them. The Committee also explains the relationship between Article 27 (rights of minorities) and Article 1 (self-determination) of the ICCPR when applied to indigenous peoples. It maintains that the right to self-determination belongs to all peoples (not to minorities) and is not a cognizable right under Protocol I of the ICCPR; however, provided that members of indigenous communities constitute a minority within a State party, their rights are 164 protected under Article 27 of the Covenant. Notably, several years later, while reconfirming the non-justiciable character of Article 1, the HRC also acknowledged that the 165 provisions of Article 1 may be relevant in the interpretation of Article 27. It thus provides broader space for the protectio of i dige ous peoples’ rights u der the Covenant. HRC jurisprudence also clarifies the scope of State duties concerning the protection of i dige ous co u ity e ers’ rights a d the co ditio s upo which i terfere ce with such rights is permissible under the ICCPR. In a series of cases concerning alleged governmental interference with traditional activities carried out by indigenous communities, the HRC has concluded that the freedom of States 166 to encourage economic activities has to be assessed by reference to the obligation in Article 27 requiring that members of minorities shall ot e de ied, de jure or de facto, the right to e joy their ow culture; accordi gly, easures whose i pact is so su sta tial 167 that it does effecti ely de y the rights in Article 27 are incompatible with the Covenant. Moreover, in taking steps affecting the rights under Article 27, States must bear in mind that although certain individual activities may not breach Article 27, when taken together they may have the effect of eroding the possibility for members of indigenous communities to continue to carry out their cultural traditional practices, thus threatening 163 General Comment No. 23: The Rights of Minorities (Art. 27), Doc. CCPR/C/21/Rev.1/Add.5 (4 August 1994) para. 7. 164 Id. at paras. 3.1, 3.2. 165 See, e.g., U.N. Hu a ‘ights Co ’ , Mahiuka v. New Zealand, para. 9.2, U.N. Doc. CCPR/C/70/D/547/1993 (2000) [hereinafter Mahiuka v. New Zealand]. 166 It should be recalled that the EU Regulation was justified as a measure of harmonization beneficial to the internal market as well as a measure concerning animal welfare. 167 See U.N. Human Rights Comm’ , Howard v. Canada, para. 12.7, U.N. Doc. CCPR/C/84/D/879/1999 (2005); U.N. Hu a ‘ights Co ’ , Länsman v. Finland, paras. 9.4, 9.5, U.N. Doc. CCPR/C/52/D/511/1992 (1994) [hereinafter Länsman v. Finland I]. 312 German Law Journal [Vol. 14 No. 01 168 the very survival of such communities. In this latter regard, the HRC has also observed that Article 7 does ot o ly protect traditio al ea s of li elihood, but it can additio ally e i oked i cases where e ers of i dige ous co u ities ay ha e adapted their methods . . . over the years and practice [the activities] with the help of 169 oder tech ology. In a case concerning fishing activities carried out by the Maori people, the HRC confirmed the broad reading of Article 27 and addressed the issue of the alleged interference by the State with the possibilities for Maori to engage in both 170 commercial and non-commercial fishing. Finally, from a procedural perspective, the HRC has clarified that Article 27 implies an obligation for the State to consult with the communities whom the measure is expected to have an impact on and to ensure the 171 co u ities’ effecti e participatio i the decisio aki g process. Even though the HRC has found a violation of Article 27 in very few cases, its considerations elucidate important aspects of the limits on State interference with the cultural rights of the members of indigenous communities and may serve as a source from 172 which other regimes can draw interpretative and supportive arguments. The same may be said with regard to the work of other relevant human rights monitoring bodies, such as the Committee of Economic Social and Cultural Rights (CESCR) or the Committee on the Elimination of Racial Discrimination (CERD). The CESCR has addressed the protection of the members of indigenous communities while interpreting and monitoring the compatibility of State measures with the obligations enshrined in ICESCR Article 15 on the right to cultural life and ICESCR Article 11 on the right 173 to an adequate standard of living. The CE‘D has addressed i dige ous peoples’ issues 168 See U.N. Hu a ‘ights Co ’ , Poma Poma v. Peru, para. 7.6, U.N. Doc. CCPR/C/95/D/1457/2006 (2009) [hereinafter Poma Poma v. Peru]; U.N. Human Rights Co ’ , Länsman v. Finland, para. 10.2, U.N. Doc. CCPR/C/83/D/1023/2001 (2005) [hereinafter Länsman v. Finland III]; Mahiuka v. New Zealand, supra note 165, at para. 9.5; U.N. Human Rights Co ’ , Länsman v. Finland, para. 10.7, U.N. Doc CCPR/C/58/D/671/1995 (1996) [hereinafter Länsman v. Finland II]; Länsman v. Finland I, supra note 167, at para. 9.8. 169 Länsman v. Finland I, supra note 167, at para. 9.3. 170 See Mahiuka v. New Zealand, supra note 165, at para. 9.4. 171 See id. at para. 9.5; Poma Poma v. Peru, supra note 168, at para. 7.6; U.N. Hu a ‘ights Co ’ , Äärelä v. Finland, para. 7.6, U.N. Doc. CCPR/C/73/D/779/1997 (2001); Länsman v. Finland I, supra note 167, at para. 9.6. O the e act scope of the o ligatio to co sult, see also I t’l Labor Org. Comm’ of Experts on the Application of Conventions and Recommendations, General Observation Concerning Indigenous and Tribal Peoples Convention, ILO Doc. 052011GENS20 (2011). 172 173 See Fodella, supra note 160. See Rep. on the Forty-Sixth and Forty-“e e th “essio s of the Co on Econ., Soc. & Cultural Rights, May 2– 20, Nov. 14–Dec. 2, 2009, paras. 194, U.N. Doc. E/2012/22; ESCOR, Supp. No. 2 (2012) (concluding observations on Cambodia); Rep. on the Forty-Second and Forty-Third Sessions of the Co ’ on Econ., Soc. & Cultural Rights, May 4–22, Nov. 2–20, 2009, paras. 194, U.N. Doc. E/2010/22; ESCOR, Supp. No. 2 (2010) (concluding observations on Cambodia); id. para. 311 (concluding observations on the Democratic Republic of Congo); id. para. 330 2013] The Seals Case and EU Trade Measures 313 174 not only in its general recommendations and concluding observations but also in the co te t of the early war i g a d urge t actio procedure, which ay e acti ated directly by indigenous communities and is aimed at preventing serious and irremovable (concluding observations on Chad); U.N. Co ’ on Econ., Soc. & Cultural Rights, General Comment no. 21: Right of Everyone to Take Part in Cultural Life (Art. 15, para. 1a of the Covenant on Economic, Social and Cultural Rights), paras. 36–37, 49, 55, U.N. Doc. E/C.12/GC/21 (2009); Rep. on the Thirty-Eighth and Thirty-Ninth Sessions of the Co ’ on Econ., Soc. & Cultural Rights, Apr. 30–May 16, Nov. 5–23, 2007, paras. 391, U.N. Doc. E/2008/22; ESCOR, Supp. No. 2 (2008) (concluding observations on Costa Rica); Rep. on the Thirty-Second and Thirty-Third Sessions of the Co ’ on Econ., Soc. & Cultural Rights, Apr. 26–May 14, Nov. 8–26, 2004, paras. 278, 301, U.N. Doc. E/2005/22; ESCOR, Supp. No. 2 (2005) (concluding observations on Ecuador); Rep. on the Thirtieth and Thirty-First Sessions of the Co ’ on Econ., Soc. & Cultural Rights, May 5–23, Nov. 10–28, 2003, paras. 142–43, 165–66, U.N. Doc. E/2004/22; ESCOR, Supp. No. 2 (2004) (concluding observations on Brazil); Rep. on the Twenty-Fifth, Twenty-Sixth, Twenty-Seventh Sessions of the Co ’ on Econ., Soc. & Cultural Rights, Apr. 23–May 11, Aug. 13–31, Nov. 12–30, 2001, paras. 121, 132, 151, U.N. Doc. E/2002/22; ESCOR, Supp. No. 2 (2002) (concluding observations on Honduras); id. paras. 450, 466 (concluding observations on Panama); id. paras. 761 (concluding observations on Colombia); Rep. on the Twentieth and Twenty-First Sessions of the Co ’ on Econ., Soc. & Cultural Rights, Apr. 26–May 14, Nov. 15–Dec. 3, 1999, para. 337, U.N. Doc. E/2000/22; ESCOR, Supp. No. 2 (2000) (concluding observations on Cameroon); Rep. on the Sixteenth and Seventeenth Sessions of the Co ’ on Econ., Soc. & Cultural Rights, Apr. 28–May 16, Nov. 17–Dec. 5, 1997, paras. 100, 109, 116, U.N. Doc. E/1998/22; ESCOR, Supp. No. 2 (1998) (concluding observations on the Russian Federation); Rep. on the Eighth and Ninth Sessions of the Co ’ on Econ., Soc. & Cultural Rights, May 10–28, Nov. 22–Dec. 10, 1993, paras. 231, 234, 236, U.N. Doc. E/1994/23; ESCOR, Supp. No. 2 (1994) (concluding observations Mexico). 174 See Rep. of the Co ’ on the Elimination of Racial Discrimination, 51st Sess., Aug. 4–22, 1997, annex V para. 4, U.N. Doc. A/52/18; GAOR, 52d Sess., Supp. No. 18 (1997). See also Rep. of the Co ’ on the Elimination of Racial Discrimination, 66th Sess., Feb. 21–Mar. 11, 2005, 67th Sess., Aug. 2–19, 2005, para. 294, U.N. Doc. A/60/18; GAOR, 60th Sess., Supp. No. 18 (2005) (concluding observations on Nigeria); Rep. of the Co ’ on the Elimination of Racial Discrimination, 64th Sess., Feb. 23–Mar. 12, 2004, 65th Sess., Aug. 2–20, 2004, para. 60, U.N. Doc. A/59/18; GAOR, 59th Sess., Supp. No. 18 (2004) (concluding observations on Brazil); id. paras. 190–94; Rep. of the Co ’ on the Elimination of Racial Discrimination, 62d Sess., Mar. 3–21, 2003, 63d Sess., Aug. 4–22, 2003, paras. 59–62, U.N. Doc. A/58/18; GAOR, 58th Sess., Supp. No. 18 (2003) (concluding observations on Ecuador); id. paras. 335, 339 (concluding observations on Bolivia); id. para. 405 (concluding observations on Finland); Rep. of the Co ’ on the Elimination of Racial Discrimination, 60th Sess., Mar. 4–22, 2002, 61st Sess., Aug. 5–23, 2002, paras. 330–31, U.N. Doc. A/57/18; GAOR, 57th Sess., Supp. No. 18 (2002) (concluding observations on Canada); Rep. of the Co ’ on the Elimination of Racial Discrimination, 58th Sess., Mar. 6–23, 2001, 59th Sess., July 30–Aug. 17, 2001, para. 400, U.N. Doc. A/56/18; GAOR, 56th Sess., Supp. No. 18 (2001) (concluding observations on the United States); Rep. of the Co ’ on the Elimination of Racial Discrimination, 56th Sess., Mar. 6–24, 2000, 57th Sess., July 31–Aug. 25, 2000, para. 32, U.N. Doc. A/55/18; GAOR, 55th Sess., Supp. No. 18 (2000) (concluding observations on Australia); Rep. of the Co ’ on the Elimination of Racial Discrimination, 54th Sess., Mar. 1–19, 1999, 55th Sess., Aug. 2–27, 1999, paras. 194, 202, U.N. Doc. A/54/18; GAOR, 54th Sess., Supp. No. 18 (1999) (concluding observations on Costa Rica); id. paras. 469, 473 (concluding observations on Colombia); Rep. of the Co ’ on the Elimination of Racial Discrimination, 52d Sess., Mar. 2–20, 1998, 53d Sess., Aug. 3–21, 1998, paras. 293, 299, U.N. Doc. A/53/18; GAOR, 53d Sess., Supp. No. 18 (1998) (concluding observations on Cambodia); Rep. of the Co ’ on the Elimination of Racial Discrimination, 50th Sess., Mar. 3–21, 1997, 51st Sess., Aug. 4–22, 1997, paras. 338, 350, U.N. Doc. A/52/18; GAOR, 52d Sess., Supp. No. 18 (1997) (concluding observations on Panama); Rep. of the Co ’ on the Elimination of Racial Discrimination, 48th Sess., Feb. 26–Mar. 15, 1996, 49th Sess., Aug. 5–23, 1996, paras. 139, 148, U.N. Doc. A/51/18; GAOR, 51st Sess., Supp. No. 18 (1996) (concluding observations on Russian Federation); id. paras. 177, 189 (concluding observations on Finland); id. paras. 299, 303, 309 (concluding observations on Brazil); Rep. of the Co ’ on the Elimination of Racial Discrimination, paras. 535–36, U.N. Doc. A/50/18; GAOR, 50th Sess., Supp. No. 18 (1995) (concluding observations on Nicaragua). 314 German Law Journal [Vol. 14 No. 01 175 violations of the Convention. The CERD has clearly established that States must recog ize a d respect i dige ous disti ct culture, that they ust pro ide i dige ous peoples with conditions allowing for a sustainable economic and social development compatible with their cultural characteristics a d that they ust e sure that i dige ous communities can exercise their rights to practice and revitalize their cultural traditions and 176 custo s. III. The European Convention of Human Rights By comparison to international human rights supervisory mechanisms, regional human rights courts are generally endowed with broader and more penetrating judicial powers regarding the legal impact of their decisions on States. Their rulings and judgments are legally binding for the State party specifically concerned, and the execution of the final judgment is subject to further supervision under different political, quasi-judicial 177 procedures or both. The disputed measures originating from the two EU regulations have to be enacted in the single Member States, which are also parties to the ECHR. It follows that the European Court of Human Rights (ECtHR) would have been the competent regional court for dealing with the Inuit case from a human rights perspective. However, it should be noted that ECtHR jurisprudence has dedicated little attention to indigenous human rights issues and has recognized an even smaller importance to the 175 The mechanism has been developed by the CERD itself to respond to problems requiring immediate attention and to prevent or limit the scale or number of serious violations of the Convention. See Rep. of the Co ’ on the Elimination of Racial Discrimination, 42d Sess., Mar. 1–19, 1993, 43d Sess., Aug. 2–20, 1993, annex III, U.N. Doc. A/48/18; GAOR, 48th Sess., Supp. No. 18 (1993). For an example, concerning in particular the refusal to consult Suriname’s indigenous peoples about granting forestry and mining concessions to foreign companies and the fact that the mining companies’ activities, especially the dumping of mercury, constituted a threat to their health and the environment, see Com ’ on the Elimination of Racial Discrimination Dec. 1/69, U.N. Doc. CERD/C/DEC/SUR/5 (Aug. 18, 2006); Co ’ on the Elimination of Racial Discrimination Dec. 1/67, U.N. Doc. CERD/C/DEC/SUR/2 (Aug. 18, 2005); Co ’ on the Elimination of Racial Discrimination Dec. 3/62, U.N. Doc. CERD/C/62/Dec.3 (June 3, 2003). See also Co ’ on the Elimination of Racial Discrimination Dec. 1/68, U.N. Doc. CERD/C/USA/DEC/1 (Mar. 07, 2006) (concerning Shoshone indigenous peoples’ denial of their traditional rights to land through legislative efforts directed at privatizing Western Shoshone ancestral lands for transfer to multinational extractive industries and energy developers). Letters to the Russian Federation dated 11 March 2011 and 2 September 2011 express concern over the small number of indigenous peoples from the Nanai District in relation to the new draft law on traditional fishing activities, which would reportedly negatively affect traditional economic activities by preventing them from selling fish for their livelihood. See Rep. of the Co ’ on the Elimination of Racial Discrimination, 78th Sess., Feb. 14–Mar. 11, 2011, 79th Sess., Aug. 8–Sept. 2, 2011, 10, para. 28, U.N. Doc. A/66/18; GAOR, 66th Sess., Supp. No. 18 (2011). 176 Rep. of the Co ’ on the Elimination of Racial Discrimination, 51st Sess., Aug. 4–22, 1997, annex V para. 4, U.N. Doc. A/52/18; GAOR, 52d Sess., Supp. No. 18 (1997). 177 See, e.g., ECHR, supra note 53, at art. 46 (naming the functions of the Committee of Ministers). 2013] The Seals Case and EU Trade Measures 315 collective dimension of the rights of these groups. One possible explanation may be that at the European level, indige ous peoples’ rights ha e traditio ally ee of lesser social and political concern in comparison to the issue of the protection of the rights of 178 individuals belonging to national, ethnic, or linguistic minorities. In a few cases involving indigenous peoples the ECtHR (and formerly the Commission) has addressed the situation of the Sami indigenous population and examined the issue of alleged State interference with their traditional hunting, reindeer herding and fishing rights under the perspective of the length of proceedings (ECHR Article 6), the right to peaceful enjoyment of possessions (ECHR Protocol I, Article 1) and the right to respect for private 179 and family life (ECHR Article 8). An additional case concerned an application made by members of the Inuit community of the Thule district in Denmark, complaining that they had been deprived of their natural resources and cultural heritage (as part of their right to peaceful enjoyment of their possessions, ECHR Protocol I Article I) as a consequence of an agreement between Denmark and the United States after WWII for the establishment of a 180 U.S. air base which had forced them to relocate. In these cases, despite clarifying some of the possible rights (e.g., protection of natural heritage and resources), the ECtHR has almost always failed to identify a State breach of the obligations arising from the ECHR. I stead, so e li ited ut ore co crete protectio sig als ca e detected i the ECtH‘’s case law concerning the right to cultural identity of members belonging to minorities. The fact that the ECHR enshrines mainly civil and political rights has not been an obstacle, as the ECtHR has repeatedly extended and stretched by way of interpretation the scope of those rights to the economic and social domain as well. For instance, in the Chapman case, the Grand Chamber had to examine the issue raised by a Gypsy applicant under Article 8 of the Convention (right to respect for private and family 181 life), namely, that measures threatening her occupation of her land in caravans affected 178 The latter topic has prompted the adoption of several Council of Europe instruments. See European Charter for Regional or Minority Languages, Nov. 5, 1992, CETS No. 148; Framework Convention for the Protection of National Minorities, Feb. 1, 1995, CETS No. 157, 2151 U.N.T.S. 243. Protection of national minorities is also at the core of the mandate of the OSCE High Commissioner on National Minorities. 179 Handölsdalen v. Sweden, App. No. 39013/04 (2010), available at http://hudoc.echr.coe.int/sites/eng/pages/search.aspx?i=001-97993 (violation of Art. 6, length of proceedings); Johtti Sapmelaccat Ry v. Finland, App. No. 42969/98 (2005), available at http://hudoc.echr.coe.int/sites/eng/pages/search.aspx?i=001-68136 (inadmissible); Könkämä v. Sweden, App. No. 27033/95 (1996), available at http://hudoc.echr.coe.int/sites/eng/pages/search.aspx?i=001-3390 (inadmissible); O.B. v. Norway, App. No. 15997/90 (1993), available at http://hudoc.echr.coe.i t/sites/e g/pages/search.asp ?i - 4 i ad issi le ; stergre . “wede , App. No. 13572/88, 69 Eur. Comm’n H.R. Dec. & Rep. 198 (1991) (inadmissible). 180 See Hingitaq v. Denmark, 2006-I Eur. Ct. H.R. (inadmissible). 181 ECHR, supra note 53, at art. 8. Article 8 states: 316 German Law Journal [Vol. 14 No. 01 ot o ly her ho e a d property ut also her pri ate a d fa ily life as a Gypsy with a 182 traditio al lifestyle of li i g i o ile ho es which allow tra elli g. Despite finding no effective violation in the concrete case, the ECtHR recognized that ECHR Article 8 protects the right to ai tai a i ority ide tity a d to lead o e’s pri ate a d fa ily life i 183 accordance with the traditions forming an integral part of such identity. It further acknowledged an emerging international consensus amongst the CoE members in recog izi g the special eeds of i orities a d a o ligatio to protect their security, identity and lifestyle . . . not only for the purpose of safeguarding the interests of the minorities themselves but to preserve a cultural diversity of value to the whole 184 co u ity a d i plicitly accredited the applica ts’ suggestio of a reduced argi of appreciation for States. Moreover, the ECtHR recognized that Article 8 entails positive o ligatio s for the “tate to facilitate i orities’ way of life, especially as co cer s 185 ul era le i orities. These principles could have applied to the seals case, involving interference through national measures (related to the EU import ban) with the right to cultural identity of Inuit people; howe er, the hu a rights’ path would ha e ee u certai , co plicated a d incomplete for at least three reasons. First, as just discussed, the ECHR lacks a well-established case law that strongly and extensively protects the cultural, social and economic values of members belonging to minorities and indigenous peoples. In contrast, other regional courts have been proactive 186 and creative in this regard. Second, the procedure would have addressed the situation (1) Everyone has the right to respect for his private and family life, his home and his correspondence. (2) There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others. Id. 182 Chapman v. United Kingdom, 2001-I Eur. Ct. H.R. 183 See id. at para. 73. 184 See id. at para. 93. 185 See id. at para. 96. 186 See, e.g., Xákmok Kásek Indigenous Community v. Paraguay, Merits, Reparations, and Costs, Judgment, InterAm. Ct. H.R. (ser. C) No. 214, paras. 85–89, 183–217, 242–44 (Aug. 24, 2010); Saramaka People v. Suriname, Preliminary Objections, Merits, Reparations, and Costs, Judgment, Inter-Am. Ct. H.R. (ser. C) No.172, paras. 82– 96, 115, 124–40 (Nov. 28, 2007); Mayagana (Sumo) Awas Tingni Cmty v. Nicaragua, Merits, Reparations, and Costs, Judgment, Inter-Am. Ct. H.R. (ser. C) No. 79, paras. 148–55 (Aug. 31, 2001); African Comm’n on Human & 2013] The Seals Case and EU Trade Measures 317 in single States, not the overall effects of the EU Regulations because the EU has not yet acceded to the ECHR. Moreover, applicants can bring claims in relation to violations occurred under the jurisdiction of one of the member States, and this would have left out part of the applicants in Inuit Tapiriit Kanatami and Others, such as the Inuit indigenous communities of Canada. Third, individual applications to the ECtHR are admissible upon previous exhaustion of effective domestic remedies. This requirement is already quite burdensome for individual applicants by reason of the often unreasonable length of national procedures, but as earlier discussed, the seals case presented an additional layer of complexity because of the intricate combination of domestic and EU legitimacy review procedures. IV. Human Rights Protection Under EU Law Apart from the formal locus standi issues discussed in Part D, from a human rights perspective the protectio of i dige ous peoples’ rights ay e grou ded o differe t provisions of the EU treaties and of the Charter of Fundamental Rights of the European Union (the Charter). Notwithstanding the absence of a specific reference to indigenous peoples in the Charter, the Prea le affir s that the U io respects the di ersity of the cultures a d traditions 187 of the peoples of Europe. Article 22 of the Charter reiterates that [t]he Union shall respect cultural, religious and linguistic di ersity. Lastly, Article 7 declares the right to 188 respect for private and family life. Moreover, Article 2 TEU stipulates that the U io is founded on the values of respect for human dignity . . . respect for human rights, including the rights of persons belo gi g to i orities, a d Article 167(4) TFEU establishes that [t]he U io shall take cultural aspects i to account in its action under other provisions of the Treaties, i particular i order to respect a d to pro ote the di ersity of its cultures. An obligation to consult interested communities before the adoption of EU legislation may derive from this last provision. Peoples’ Rights, Soc. & Econ. Rights Action Ctr v. Nigeria, paras. 55–58, 64–66, Case No. ACHPR/COMM/A044/1 (Oct. 27, 2001), available at http://www.cesr.org/downloads/AfricanCommissionDecision.pdf; African Comm’n on Human & Peoples’ Rights, Ctr. for Minority Rights Dev. v. Kenya, 276/2003 (Feb. 4, 2010), available at http://www.unhcr.org/refworld/docid/4b8275a12.html. For a detailed analysis of the case law, see S. James Anaya & Robert Williams, The Protection of Indigenous Peoples’ Rights over Lands and Natural Resources Under the Inter-American Human Rights System, 14 HARVARD HUM. RTS J. 33 (2001); Fodella, supra note 160; Lucas Lixinski, Treaty Interpretation by the Inter-American Court of Human Rights: Expansionism at the Service of the Unity of International Law, 21 EUR. J. INT’L L. 585 (2010); Gerald Neuman, Import, Export and Regional Consent in the Inter-American Court of Human Rights, 19 EUR. J. INT’L L. 101 (2008); Gaetano Pentassuglia, Towards a Jurisprudential Articulation of Indigenous Land Rights, 22 EUR. J. INT’L L. 165 (2011). 187 188 co European Union Charter of Fundamental Rights, pmbl., Dec. 18, 2000, 2000 O.J. (C 364/01). See id. at art. 7 u icatio s. . E eryo e has the right to respect for his or her private and family life, home and 318 German Law Journal [Vol. 14 No. 01 At a minimum, these provisions imply an obligation not to interfere in a detrimental way with the cultural and economic interests of indigenous peoples. But what if the Union sets the threshold of interference with such rights too high for the purpose of pre e ti g the distur a ce of the i ter al arket or i the a e of o -economic values, such as animal welfare? On the one hand, this raises an issue of compatibility of the obligations established in the EU Charter with the international human rights obligations of EU 189 Member States, including those established in the ECHR. On the other hand, there is a problem of likely competence contrasts between the two European Courts. While the EU has not yet acceded to the ECHR, the Lisbon Treaty has endowed the Charter 190 with binding force. It should, however, be underlined that the Charter is a peculiar human rights instrument because it is an instrument of Union law that operates within Union law. The Preamble of the Charter stipulates that it is the Union that recognizes the rights, freedoms and principles set out in that instrument, not the Member States in their own right. Indeed, the scope of application of the provisions of the Charter is circumscribed to the areas of State activity ruled by Union law. Article 51 of the Charter e phasizes that: The pro isio s of th[e] Charter are addressed to the i stitutio s a d bodies of the Union . . . and to the Member States only when they are implementing Union law. Concerning EU institutions, compliance with the Charter will be a requirement for the validity and legality of EU Directives and Regulations, but Member States remain responsible (for instance under the ECHR or the ICCPR) for potential violations of human rights whether they are implementing Union law or not. G. Final Considerations The seals case is a paradigmatic example of the complexity and interrelatedness of different sectors and subject areas of international law, which inevitably have a bearing on the ability of States to freely pursue policies of their choice based on ethical, social or See Philip Alston & J. H. H. Weiler, An Ever Closer Union” in Need of a Hu an ‘ights Policy: The European Union and Human Rights, in THE EU AND HUMAN RIGHTS 3 (Philip Alston ed., 1999); Armin von Bogdandy, The European Union as a Human Rights Organization? Human Rights at the Core of the European Union, 37 COMMON MKT. L. REV. 1307 (2000); Piet Eeckhout, The EU Charter of Fundamental Rights and the Federal Question, 39 COMMON MKT. L. REV. 945 (2002); Francis Geoffrey Jacobs, The European Convention on Human Rights, the EU Charter of Fundamental Rights and the European Court of Justice: The Impact of European Union Accession to the European Convention on Human Rights, in THE FUTURE OF THE EUROPEAN JUDICIAL SYSTEM IN A COMPARATIVE PERSPECTIVE 291 (Ingolf Pernice, Juliane Kokott & Cheryl Saunders eds., 2006). 189 190 See TFEU art. 218. The Lisbon Treaty foresees the accession of the EU to the ECHR, but subordinates it to a unanimous decision, which may in practice prove to be problematic. See Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the European Communities, Dec. 13, 2007, 2007 O.J. (C 306) art. 6, 218, protocol 8, declaration 2. 2013] The Seals Case and EU Trade Measures 319 environmental concerns while being compliant with their international obligations. Such complexity can be perceived at least at three levels. At the EU level, this complexity is apparent i the U io ’s efforts to de elop a i tegrated policy for the Arctic aimed at coordinating the activities of EU institutions and the different policies that may have an impact on this area. The analysis of the seals case shows that the Union has embarked upon a very narrow path leading to a difficult and delicate reco ciliatio etwee the de a ds for a i al welfare, protectio of i dige ous peoples’ rights and measures directed at the elimination of barriers to trade in the internal market. However, the EU is ot a syste i a acuu : its Member States, and to a certain extent the EU itself, must comply with international obligations—for instance, in the field of trade and human rights. The latter consideration leads to a second, broader viewpoint on the seals case, namely, that of the twofold issue of intra-system effectiveness and coherence, on the one hand, and inter-system communication in international law, on the other, as highlighted by the seals case. Under the first perspective, the analysis of the seals case has shed light on substantive and procedural gaps within the single systems: The important weaknesses of the review procedure taking place before the ECJ, in particular the requirements for individual standing, the failure to take into adequate consideration the collective dimension of the human rights of indigenous peoples at both EU and COE levels and the self-co tai ed character of the WTO syste a d o ere phasis o trade i terests. Under the second perspective, because of its multi-sector impact, the seals case raises the problem of the unity of international law, exemplified in the question of how to reconcile the conflicting interests pursued by State policies with different but contextually applicable obligations under international law. The general picture that emerges is a fragmented one, in which different systems operate on the basis of their own rules with occasional consideration of external sources. These concerns become rather evident if the seals case is considered from a third viewpoint—the proliferation of judicial courts and bodies as a consequence of the expansion of international law. The lack of circulation of legal solutions and the absence of judicial cross-fertilization between sectors intensifies the above mentioned intra-system weaknesses. Different outcomes are to be expected depending on the focus of each system, which in turn stimulates considerations of opportunity and forum shopping logics and increases the unpredictability of disputes’ final outcome. Such loopholes are exploited by single actors, whether individuals or States, and quite often this occurs to the detriment of hu a rights protectio . I the seals case, it is y fortuitous circu sta ce that Ca ada’s a d Norway’s eco o ic i terests coi cide with those of the indigenous populations of the Arctic. 320 German Law Journal [Vol. 14 No. 01 Articles International Trade and Human Rights: An Unfinished Debate By Abadir M. Ibrahim  A. Introduction We are living in a world in which the moral legitimacy of cultures, religions, ideologies, and the practices of states, international organizations, and even corporations is being measured against human rights norms. The moral significance of and practical respect for human rights has grown so much that human rights have been described as a global 1 2 religion, and a new standard for civilization. International trade, a popular and much debated issue of our time, is one of those phenomena that is currently being measured against the standards of human rights. Leading experts remain divided about whether global trade is good or bad for human rights. There are those who are utterly convinced that the world trade regime has a mutual basis with human rights and see potential in the 3 growth of one as a positive sign for the other. There are also those who, on the other hand, are equally convinced that human rights and international trade regimes are in a 4 relationship of enmity.  J.S.D. Candidate at St. Thomas University School of Law L.L.M./J.S.D. Program in Intercultural Human Rights, L.L.M. in Intercultural Human Rights (St. Thomas University), L.L.M. in International Law (Addis Ababa University); L.L.B. (Addis Ababa University). Email: [email protected] 1 Andrew Heard, Human Rights: Chimeras in Sheep’s Clothing?, SIMON FRASER UNIV. ONLINE (1997), http://www.sfu.ca/~aheard/intro.html. 2 See Jack Donnelly, Human Rights: A New Standard of Civilization?, 74 INT’L AFF. 1, 1 (1998). 3 See Ernst-Ulrich Petersmann, Human Rights and International Trade law: Defining and Connecting the Two Fields, in HUMAN RIGHTS AND INTERNATIONAL TRADE 29, 31–34 (Thomas Cottier, Joost Pauwelyn & Elisabeth Bürgi eds., 2005) (attempting to prove that, and explain how, the values informing human rights and the general principles of international trade are similar); GAO, Pengcheng, Rethinking the Relationship Between the WTO and International Human Rights, 8 RICH. J. OF GLOBAL L. & BUS. 397, 398–99 (2009) (arguing that the value of non-discrimination underlie both regimes); Ernst-Ulrich Petersmann, The WTO Constitution and Human Rights, 3 J. INT’L ECON. L. 19, 22–23 (2000); Ernst-Ulrich Petersmann, Time for a United Nations Global Compact’ for Integrating Human Rights into the Law of Worldwide Organizations: Lessons from European Integration, 13 EUR. J. INT’L L. 621, 621 (2002) [hereinafter Petersmann, Lessons from European Integration]; Ernst-Ulrich Petersmann, Human Rights, International Economic law and Constitutional Justice: A Rejoinder, 19 EUR. J. INT’L L. 955, 955 (2008) [hereinafter Petersmann, A Rejoinder]. 4 See Philip Alston, Resisting the Merger and Acquisition of Human Rights by Trade Law: A Reply to Petersmann, 13 EUR. J. INT’L L. 815, 815 (2002); Robert Howse & Makau Mutua, Protecting Human Rights in a Global Economy: Challenges for the World Trade Organization, in HUMAN RIGHTS IN DEVELOPMENT: YEARBOOK 1999/2000 51, 51 (Hugo Stokke & Arne Tostensen eds., The Millennium Ed. 2001); Robert Howse, Human Rights in the WTO: Whose 322 [Vol. 14 No. 01 German Law Journal One should, however, conceive of the relationship between world trade and human rights as, fundamentally, a relationship in tension, but also as a relationship in which that tension can be significantly minimized through accommodation, convergence, and interpenetration. It is conceivable that solutions that are acceptable to the majority of political participants in the international community can be reached even where the two regimes— human rights and free trade—clash. This comment argues that the relationship between human rights and international trade is not, and should not be viewed as, a zero-sum game i which o e’s gai is ecessarily the other’s loss. The co e t egi s with an explanation of the core tension between the two regimes and goes on to explain, or at least make a proposal for, how this tension could be negotiated for optimum outcomes for both regimes. B. The Tension I. Theoretical Considerations (Issue of Approach) 5 Human rights and international trade diverge at the theoretical level. While the world trade regime has at its base the free movement of goods, services, capital, and persons, the human rights regime deals with the wellbeing and welfare of the individual human being and, sometimes, groups of human beings. When we talk about non-discrimination, free and fair trade, and transparency in the context of international trade, we are advocating these principles in a way that is at least neutral and at worst detrimental to human rights. This difference in approach has ramifications in that, while the human rights regime looks into the quality of life of individual human beings, the trade regime primarily focuses on equal opportunity of trading partners and not on what effects that equality has on human beings outside the purely economic realm. Although it may be true that trade liberalization eventually benefits individuals because it provides a choice of products and qualities and stimulates economic growth, we should remember that governments represent their industries (or capital) when they negotiate in the World Trade Organization (WTO) or similar fora. This means that human rights are not being directly or purposefully represented as such during these negotiations. Even if the economic interest represented is not necessarily and always opposed to human rights, it Rights, What Humanity? Comment on Petersmann, 13 EUR. J. INT’L L. 651, 651 (2002); Frank J. Garcia, Symposium: The Universal Declaration of Human Rights at 50 and the Challenge of Global Markets: Trading Away the Human Rights Principle, 25 BROOK. J. INT’L L. 51, 51 (1999); Jagdish Bhagwati, Afterword: The Question of Linkage, 96 AM. J. INT’L L. 126, 126 (2002); Andrew T.F. Lang, Re-Thinking Trade and Human Rights, 15 TUL. J. INT’L & COMP. L. 335, 335 (2007). 5 See Dan Seymour & Jonathan Pincus, Human Rights and Economics: The Conceptual Basis for their Complementarity, 26 DEV. POL’Y REV. 387, 387–89 (2008) (pointing out that they have differences in their theoretical approach and even in their lexicon). 2013] International Trade and Human Rights: An Unfinished Debate 323 nevertheless creates a vulnerable situation for human rights where there is a conflict between the two. Thus, it is easy for the international trade regime to achieve well intended results that are manifestly harmful from the perspective of human rights. Whenever the effects of international trade are a point of contention in trade law (or economics), the arguments are always about some utilitarian calculation such as efficiency, i crease i Gross Do estic Product GDP , Gross Natio al Product GNP , e suri g a large a d steadily growi g olu e of real i co e a d effecti e de a d , or other material 6 indicators. The homo economicus approach is far from the concrete moral/ethical 7 approach of human rights. The point of departure in human rights is always the setting of minimum standards for the protection and wellbeing of human beings, whether the 8 protection is from trade, investment, politics, or war. In practice, this means that the positive achievements of international trade can hurt human rights as the later are not considered in the calculation of economic success or are mere externalities to the 9 economic process. 6 See General Agreement on Tariffs And Trade, preamble, Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194 [hereinafter GATT]; Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, 1867 U.N.T.S. 154 [hereinafter the Marrakesh Agreement], available at http://www.wto.org/english/docs_e/legal_e/04-wto_e.htm. For works capturing the gist of these debates, see PETER VAN DEN BOSSCHE, THE LAW AND POLICY OF THE WORLD TRADE ORGANIZATION: TEXT, CASES AND MATERIALS 19–22 (2005); Alan O. Sykes, International Trade and Human Rights: An Economic Perspective, in INTERNATIONAL TRADE AND HUMAN RIGHTS: FOUNDATIONS AND CONCEPTUAL ISSUES 69, 69–72 (Frederick M. Abbott, Christine BreiningKaufmann & Thomas Cottier eds., 2006); GRAHAM DUNKLEY, FREE TRADE: MYTHS, REALITY AND ALTERNATIVES 12–17, passim (2004) (providing a summary of critiques and alternative paradigms). 7 See Seymour & Pincus, supra note Error! Bookmark not defined., at 389–92 (stating that economics’ focus on utility does not give much attention to moral rectitude of economic decisions); KAREN HO, LIQUIDATED : A N E THNOGRAPHY OF W ALL S TREET 36, 122–29 (2009) (noting that from the perspective of economics, rational human action—the assumption of homo economicus”—leads to the practical principles of maximizing shareholder value and maximizing profits which take precedence over all other considerations including moral ones, based upon economic grounds); William Lazonick & Mary O’Sullivan, Maximizing Shareholder Value: A New Ideology for Corporate Governance, 29 ECON. & SOC’Y 13, 13 (2000); Herbert Gintis & Rakesh Khurana, Corporate Honesty and Business Education: A Behavioral Model, in MORAL MARKETS: THE CRITICAL ROLE OF VALUES IN THE ECONOMY 300, 300 (Paul J. Zak ed., 2008); DAVID CROWTHER & LEZ RAYMAN-BACCHUS, PERSPECTIVES ON CORPORATE SOCIAL RESPONSIBILITY (2004) (providing an alternative model to this view that emphasizes corporate social responsibility and stakeholder,’ not shareholder, value); SYBILLE SACHS & EDWIN RÜHLI, STAKEHOLDERS MATTER: A NEW PARADIGM FOR STRATEGY IN SOCIETY (2011); Joseph F. Johnston, Jr., Natural Law and the Fiduciary Duties of Business Managers, in BUSINESS AND RELIGION: A CLASH OF CIVILIZATIONS? 279, 292–95 (Nicholas Capaldi ed., 2005); DAVID E. HAWKINS, CORPORATE SOCIAL RESPONSIBILITY: BALANCING TOMORROW’S SUSTAINABILITY AND TODAY’S PROFITABILITY (2006) (providing the environmental aspect of the same view). 8 9 See generally GERHARD ERNST & JAN-CHRISTOPH HEILINGER, THE PHILOSOPHY OF HUMAN RIGHTS (2012). See generally Sykes, supra note 6, at 74–76; JoonBeom Pae, Sovereignty, Power, and Human Rights Treaties: An Economic Analysis, 5 NW. J. INT’L HUM. RTS. 71, 71 (2006); Tarek F. Maassarani, WTO-GATT, Economic Growth, and the Human Rights Trade-Off, 28 ENVTL. L. & POL’Y J. 269, 269 (2005). 324 German Law Journal [Vol. 14 No. 01 II. Practical Considerations and Specific Areas of Conflict An important practical and normative result of the world trade regime is that it restricts the state in relation to human rights. First, it limits the prerogative of states to impose economic sanctions on other states so as to force them to comply with human rights 10 standards. Second, it restricts the ability of states, especially less developed ones, to improve their labor standards by legislation. Due to competition to achieve comparative ad a tage, states race to the otto with la or sta dards to attract capital a d foreig direct investment. Third, trade rules limit the ability of states to take action to protect, ensure, and promote the exercise of rights within their territories where these actions infringe upon rules of international trade. Thus, the tension between international trade and human rights is not just a theoretical conflict. As it has been practically demonstrated, this conflict can and does occur. The following looks at some of the specific ways in which international trade may frustrate the attainment of international and domestic human rights standards. 1. The Right to Health A right to an adequate standard of health was introduced into the normative world of international human rights immediately following the formation of the United Nations and 11 has been affirmed by the Universal Declaration of Human Rights and numerous treaties. 10 We first need to clarify a set of related words used in relation to sanctions that may cause confusion if left for the reader to define at will. Literature on the subject use different, but related, words such as embargo, sanction, action, trade measures, trade restrictions, trade related action, human rights related sanctions, and similar words and expressions to describe one common phenomenon. In the context of this comment these usages are meant to describe any actions or steps taken by members of the WTO which might conflict with their obligations under the agreements of the WTO. For different usages of the word, see Gudrun Monika Zagel, WTO & Human Rights: Examining Linkages and Suggesting Convergence 6–9 (Int’l Dev. L. Org., Voices of Dev. Jurists Paper Ser. vol. 2, no. 2, 2005), available at http://www.worldtradelaw.net/articles/zagelhumanrights.pdf; Sarah H. Cleveland, Human Rights Sanctions and International Trade: A Theory of Compatibility, 5 J. INT’L ECON. L. 133, 189 (2002); Carlos Manuel Vászquez, Trade Sanctions and Human Rights—Past, Present, and Future, 6 J. INT’L ECON. L. 797 passim (2003) (distinguishing between general trade sanctions and tailored sanctions). 11 See Universal Declaration of Human Rights, art. 25(1), G.A. Res 217 (III) A, U.N. Doc. A/RES/217(III) (Dec. 10, 1948) [hereinafter UDHR] (stating [e]veryone has the right to a standard of living adequate for the health and well-being of himself and of his family ); World Health Organization, Constitution of the World Health Organization, preamble, Official Record World Health Org. 2, 100 (July 22, 1946), available at http://apps.who.int/gb/bd/PDF/bd47/EN/constitution-en.pdf ( The enjoyment of the highest attainable standard of health is one of the fundamental rights of every human being . . . . ); International Covenant on Economic, Social and Cultural Rights, art. 12(1), G.A. Res. 2200A (XXI) A, U.N. Doc. A/RES/2200A(XXI) (Jan. 3, 1976); Organization of American States, American Declaration on the Rights and Duties of Man, art. XI (1948); The International Convention on the Elimination of All Forms of Racial Discrimination, art. 5(e), (iv), G.A. Res. 2106 (XX) A, U.N. Doc. A/RES/2106(XX) (Dec. 21, 1965); Convention on the Elimination of all Forms of Discrimination Against Women, art. 11.1(f), G.A. Res. 34/180, 12, U.N. Doc. A/RES/34/180 (Dec. 18, 1979); The Convention on the Rights of the Child, arts. 17, 23–25, 32, G.A. Res. 44/25, U.N. Doc. A/RES/44/25 (Nov. 20, 1989); African Charter on Human and Peoples’ Rights, art. 16, June 27, 1981, OAU Doc. CAB/LEG/67/3, 21 I.L.M. 58 ( 1. Every 2013] International Trade and Human Rights: An Unfinished Debate 325 In the last two decades, both international and constitutional bodies have fleshed out in 12 greater detail the substance and implications of the right to health. Conflict between the trade and human rights regimes arises where states are not able to protect, ensure, or promote the right to health of their citizens without having to violate rules of international trade such as those preventing states from banning certain imports that they deem harmful to health or those preventing the production of patented medicines. Potential for conflict between international trade and the right to health has been highlighted in two situations. First, as the Hor o e-Beef a d As estos cases ha e illustrated, aside from the issue of protectionism and culture, measures taken for the protection of public health can be stricken down because they conflict with free trade 13 rules. Second, and more blatant, is the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) that makes it more difficult for developing states to 14 provide free or cheaper—or generic—versions of patented medicines. It should be noted that the human rights aspect may not be immediately apparent from the lexicon of international trade law since it sees the right to health, or any other human right, as no different from the general public interest exceptions to the rules (e.g. GATT Art. XX). individual shall have the right to enjoy the best attainable state of physical and mental health. 2. States Parties to the present Charter shall take the necessary measures to protect the health of their people and to ensure that they receive medical attention when they are sick. ); ANDREW CLAPHAM & MARY ROBINSON, REALIZING THE RIGHT TO HEALTH (2009); Eleanor D. Kinney, The International Human Right to Health: What Does This Mean for Our Nation and World?, 34 IND. L. REV. 1457, 1457 (2001); Steven D. Jamar, The International Human Right to Health, 22 S.U. L. REV. 1, 1 (1994–1995); ANDREW CLAPHAM & MARY ROBINSON, REALIZING THE RIGHT TO HEALTH (2009). 12 See Ge eral Co e t No. 4, Co ’ on Economic, Social and Cultural Rights, Apr. 25, 2000–May 12, 2000, E/C.12/2000/4, 22 Sess. (Aug. , ; Africa Co ’ on Human and Peoples’ Rights [ACmHPR], Soc. & Econ. Rights Action Ctr. & the Ctr. for Econ. & Soc. Rights v. Nigeria, Comm. 155/96, Oct. 2001, 15th AAR 2001-2002 Annex V, (2001); Resolution on Access to Health and Needed Medicines i Africa, Africa Co ’ on Human and Peoples’ Rights Res. 44/141 (Nov. 24, 2008); D v. United Kingdom, 24 Eur. Ct. H.R. at 423 (1997); Ostra v. Spain, 303-C Eur. Ct. H.R. (ser. A) (1994). For a brief review of both international and constitutional jurisprudence on the right to health, see Iain Byrne, Enforcing the Right to Health: Innovative Lessons from Domestic Courts, in REALIZING THE RIGHT TO HEALTH 525, 525 (Andrew Clapham & Mary Robinson eds., 2009); Vincent Chetail & Gilles Giacca, Who Cares? The Right to Health of Migrants, in REALIZING THE RIGHT TO HEALTH 224, 224 (Andrew Clapham & Mary Robinson eds., 2009). 13 See Appellate Body Report, European Communities—Measures Concerning Meat and Meat Products, WT/DS26/AB/R, WT/DS48/AB/R (Jan. 16, 1998) (adopted Feb. 13, 1998); Appellate Body Report, European Communities—Measures Affecting Asbestos and Products Containing Asbestos, WT/DS135/AB/R, (Mar. 12, 2001) (adopted Apr. 5, 2001); TRACEY EPPS, INTERNATIONAL TRADE AND HEALTH PROTECTION: A CRITICAL ASSESSMENT OF THE WTO’S SPS AGREEMENT 10–15; Frederick M. Abbott, Editorial. The Enduring Enigma of TRIPS: A Challenge for the World Economic System, 1 J. INT’L ECON. L. 497, 501, 505 (2008). 14 Caroline Dommen, Raising Human Rights Concerns in the World Trade Organization: Actors, Processes and Possible Strategies 24 HUM. RTS. Q. 1, 24–30 (2002). 326 German Law Journal [Vol. 14 No. 01 However, these examples not only show an overlap between the two regimes, but also 15 that such o erlaps for gaps i the trade regi e’s ar or. 2. The Right to Food Similar to the right to health, the right to food is also recognized in numerous binding and non- i di g i ter atio al i stru e ts. By Pe y O er y’s cou t, there are ore tha o e 16 hundred such documents. The right to food has also found expression in international 17 and constitutional jurisprudence. Ying Chen makes an interesting case for the right to food to be considered a customary rule of international law by citing to state practice with 18 the requisite opinio juris. The risk international trade poses to the right to food is that, because of trade liberalization, small-scale farmers might not be able to compete internationally and may be forced to abandon their land to sectors other than food production. This, according to the Office of the United Nations High Commissioner for Human Rights (UNHCHR) and the Food and Agriculture Organization of the United Nations (FAO), will eventually lead to the loss of 19 a livelihood for these farmers who will then be unable to feed themselves. 15 See generally Frederick M. Abbott, The Rule of Reason’ and the Right to Health: Integrating Human Rights and Competition Principles in the Context of TRIPS, in HUMAN RIGHTS AND INTERNATIONAL TRADE 279, 279 (Thomas Cottier, Joost Pauwelyn & Elisabeth Bürgi eds., 2005); Gudrun Monika Zagel, The WTO and Trade-Related Human Rights Measures: Trade Sanctions vs. Trade Incentives, 9 AUSTRIAN REV. OF INT’L AND EUR. L. 119, 119 (2004); Sarah Joseph, Trade and the Right to Health, in REALIZING THE RIGHT TO HEALTH 359, 359 (Andrew Clapham & Mary Robinson eds., 2009); Phillip Countryman, International Trade and World Health Policy: Helping People Reach Their Full Potential, 21 PACE INT’L L. REV. 241 passim (2009). 16 PHILIP ALSTON & KATARINA TOMAŠEV“KI, THE RIGHT TO FOOD (1984); Penny Overby, The Right to Food, 54 SASK. L. REV. 19, 19 (1990). 17 See African Commission on Human and Peoples’ Rights, Soc. & Econ. Rights Action Ctr. & the Ctr. for Econ. & Soc. Rights v. Nigeria, Comm’ 155/96, Oct. 2001, 15th AAR 2001-2002 Annex V, (2001); Supreme Court of Nepal, Prakash Mani Sharma v. His Majesty’s Gov’t Cabinet Secretariat, Mar. 11, 2003, WP 2237/1990 (2003); People’s Union for Civil Liberties v. Union of India & Ors, (2007) 2001 S.C.C. 196 (India); The Equality Court held at the High Court of South Africa, Kenneth George et al. v. Minister of Envtl. Aff. & Tourism, May, 02, 2007, EC 1/2005 (2007); CHRISTOPHE GOLAY, THE RIGHT TO FOOD AND ACCESS TO JUSTICE: EXAMPLES AT THE NATIONAL, REGIONAL AND INTERNATIONAL LEVELS (2009) (providing a discussion of the domestic and international developments). 18 Ying Chen, The Right to Food, 12 EUR. J.L. REF. 158, 158 (2010). 19 See OFFICE OF THE UNITED NATIONS HIGH COMMISSIONER FOR HUMAN RIGHTS, HUMAN RIGHTS AND WORLD TRADE AGREEMENTS: USING GENERAL EXCEPTION CLAUSES TO PROTECT HUMAN RIGHTS (2005), available at http://www.ohchr.org/Documents/Publications/WTOen.pdf; FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS, 2 FOOD AND AGRIC. ORG. OF THE UNITED NATIONS, AGRICULTURE, TRADE AND FOOD SECURITY: ISSUES AND OPTIONS IN THE WTO NEGOTIATIONS FROM THE PERSPECTIVE OF DEVELOPING COUNTRIES: COUNTRY CASE STUDIES (2000) (providing descriptions of specific food security issues that farm workers in developing countries face in the context of liberalization); ANTHONY CASSIMATIS, HUMAN RIGHTS RELATED TRADE MEASURES UNDER INTERNATIONAL LAW: THE LEGALITY OF TRADE MEASURES IMPOSED IN RESPONSE TO VIOLATIONS OF HUMAN RIGHTS OBLIGATIONS UNDER GENERAL INTERNATIONAL LAW 429–30 (2007); Caitlin Firer, Free Trade Area of the Americas and the Right to Food in International Law, 1 U. ST. 2013] International Trade and Human Rights: An Unfinished Debate 327 Conflict between international trade and the right to food can also occur where populations, usually indigenous peoples, are uprooted from their ancestral lands to make way for (often foreign) agro-industry—a phenomenon that is commonly referred to as 20 la d-gra i g. Although this is not a typical clash between the two legal-normative regimes, such a clash could occur because the trade regime prohibits third states from imposing trade related sanctions on, or discriminating against, agro-products that are produced i this way. The trade syste ’s co parati e ad a tage orie ted a alysis is, 21 generally, morally aloof from the human cost of these phenomena at the individual level. 3. Labor Standards Labor rights are one of the few human rights that were internationally recognized by the world community of states before the formation of the UN and were strengthened by post 22 war treaties. The linkage between labor rights and international trade had also been recognized when the international community came together to form the failed International Trade Organization and, subsequently, the General Agreement on Tariffs and 23 Trade (GATT). The international trading system limits the ability of states to try to impose trade restrictions, for example by a generalized system of preferences, on foreign states to make them comply with labor standards, such as those proscribing child labor. Additionally, the international trading system curtails the negotiating ability of states to whom capital investment flows—host states—to regulate multinational corporations due THOMAS L.J. 1054, 1054 (2004); Chris Downes, Must the Losers of free Trade go Hungry? Reconciling WTO Obligations and the Right to food, 47 VA. J. INT’L L. 619, 636–640 (2007). 20 In recognition of this problem, the UN Special Rapporteur on the Right to Food has proposed ways in which to deal with the human rights consequences of land grabs. Olivier de Schutter, Special Rapporteur on the Right to food, Large-Scale Land Acquisitions and Leases: A Set of Core Principles and Measures to Address the Human Rights Challenge (June 11, 2009), available at http://www.oecd.org/site/swacmali2010/44031283.pdf. 21 Part of the problem is that the scientific and statistical method prevalent in economics does account for the micro-level effects on trade liberalization on families and individuals. See L. Alan Winters, Neil McCulloch & Andrew McKay, Trade Liberalization and Poverty: The Evidence So Far, 42 J. ECON. LIT. 72, 89–97 (2004). 22 JEAN-MICHEL SERVAIS, I NTERNATIONAL LABOUR LAW 24 (2d ed. 2009). International labor law is one of the more complex international regimes, especially since the International Labour Organization (ILO) had sustained an intensive effort in its development. See Nicolas Valticos, The Sources of International Labour Law: Recent Trends, in I NTERNATIONAL LAW AND I TS S OURCES : LIBER A MICORUM MAARTEN B OS 179, 179 (Wybo P. Heere ed., 1989); Shareen Hertel, Human Rights and the Global Economy: Bringing Labor Rights Back In, 24 MD. J. INT’L L. 283, 283 (2009). 23 See Sandra Polaski, Protecting Labor Rights Through Trade Agreements: An Analytical Guide, 10 U.C. DAVIS J. INT’L L. & POL’Y 13, 13 (2003). 328 German Law Journal [Vol. 14 No. 01 to the competition for investment from such companies, —which must consider labor 24 costs when deciding whether and where to invest. The argu e t agai st such a race to the otto is that, i the e d, e e the la orer who keeps her jo ecause her cou try wo the race does ot recei e as much income on the 25 margin as a result of competitive bidding to reduce labor costs. Although economists are still debating the conclusiveness of the evidence, a number of empirical studies have discovered a positive correlation between lower labor standards and international 26 competitiveness in states exporting labor-intensive goods. Another way in which the two regimes interact is the possibility of violations of the rights of employees who migrate across international borders in accordance with the General Agreement on Trade in 27 Services (GATS) (Mode 4). Both of the previously detailed examples illustrate how trade liberalization exposes human rights to new, or elevated, danger rather than a normative conflict sensu stricto. 4. Democratic Rights Although the right to vote and to be elected—i.e., the right to democratic participation— was affirmed by the Universal Declaration of Human Rights, it was only after the Cold War that the assertion of this right became more concrete. In addition to citing human rights 28 treaties that support this conclusion, proponents of a human right to democracy argue that state practice justifies democratic governance to be a binding norm of international 24 See Steven R. Ratner, Corporations and Human Rights: A Theory of Legal Responsibility, 111 YALE L.J. 443, 478– 479 (2001) (discussing how labor standards are affected and proposing responsibility of multi-national corporations, on top of nation-states, for upholding these standards). 25 See Anita Chan & Robert J. S. Ross, Racing to the Bottom: International Trade Without a Social Clause, 24 THIRD WORLD Q. 1011, 1011 (2003); Drusilla K. Brown, Labor Standards: Where Do They Belong on the International Trade Agenda?, 15 J. ECON. PERSP. 89, 89 (2001). 26 See Cees van Beers, Labour Standards and Trade Flows of OECD Countries, 21 THE WORLD ECON. 57, 57 (1998); Jai S. Mah, Core Labour Standards and Export Performance in Developing Countries, 20 THE WORLD ECON. 773, 773 (1997); Matthias Busse, Do Labor Standards Affect Comparative Advantage in Developing Countries?, 30 WORLD DEV. 1921, 1921 (2002); Brown, supra note 25, at 89; Layna Mosley & Saika Uno, Racing to the Bottom or Climbing to the Top? Economic Globalization and Collective Labor Rights, 40 COMP. POL. STUD. 923, 923 (2007). 27 See Marion Panizzon, How Close Will GATS Get to Human Rights? 6 (N.C.C.R. Trade Reg., Working Paper No. 2006/14, 2006). 28 See UDHR, supra note 11, at art. 21, 29(2); Convention for the Protection of Human Rights and Fundamental Freedoms, protocol I, art. 3, Sept. 3, 1953, Council of Europe Treaty Series (CETS) No. 005; Arts. of the International Covenant on Civil and Political Rights, arts. 14(1), 21(2), 22(2) & 25, G.A. Res. 2200A (XXI) A, U.N. Doc. A/RES/2200A(XXI) (Dec. 16, 1966); Organization of American States, American Convention on Human Rights, art. 23, Nov. 22, 1969, B-32; African Charter on Human and Peoples’ Rights, art. 13(1), June 27, 1981, OAU Doc. CAB/LEG/67/3, 21 I.L.M. 58. 2013] International Trade and Human Rights: An Unfinished Debate 329 29 human rights law. Some have gone so far as to claim that there is a right to humanitarian 30 intervention to install or restore democracy where it does not exist. The World Trade Orga izatio ’s WTO lack of de ocratic legiti acy a d tra spare cy ca e posited as iolati e of citize s’ right to take part i the direction of public and state 31 affairs. There are two ways in which the WTO is said to lack democratic legitimacy. The lack of i put legiti acy is a clear case i which citize s are depri ed of the right to decide on public affairs. Imagine how much a parliamentarian (call her X) represents her electorate o issues o which she did o ca paig i g duri g electio s let’s say that the main campaign rallying point for the candidate was withdrawal from Iraq). Parliamentarian X on the first day of the opening of the parliament votes for the appointment of Mr. Y as the Minister of Foreign Affairs because, among other things, he supports withdrawal from Iraq. The next day Mr. Y nominates, or appoints, his diplomatic staff a d appoi ts Mrs. ) as the a assador for WTO affairs ecause, i additio to her credentials and qualifications, Mrs. Z supported Mr. Y in his ascent through their party for the last 10 years. Mrs. Z appoints two former students, whose negotiation style and political view she likes, as negotiators i WTO proceedi gs. Tryi g to trace the legiti acy chai fro these egotiators to the electorate who oted for X is illusory. This shows us how far the WTO processes are from the deliberation process of democratic societies. Additionally, the processes of the WTO, including all the technical matters that it handles, 29 See HENRY J. STEINER & PHILIP ALSTON, INTERNATIONAL H UMAN RIGHTS IN C ONTEXT: LAW P OLITICS AND MORALS 904–18 (2d ed. 2000); SUSAN MARKS, T HE RIDDLE OF ALL C ONSTITUTIONS : I NTERNATIONAL LAW, DEMOCRACY , AND THE C RITIQUE OF I DEOLOGY 30 (2000); BRAD R. ROTH, G OVERNMENTAL I LLEGITIMACY IN I NTERNATIONAL L AW 253 (2000); Reginald Ezetah, The Right to Democracy: A Qualitative Inquiry, 22 BROOK. J. INT’L L. 495, 495 (1997); Henry J. Steiner, Political Participation as a Human Right, 1 HARV. HUM. RTS. Y.B. 77, 77 (1988); Thomas M. Franck, The Emerging Right to Democratic Governance, 86 AM. J. INT’L L. 46, 46 (1992); Henry J. Steiner, Do Human Rights Require a Particular Form of Democracy?, in DEMOCRACY , THE RULE OF L AW AND I SLAM 193, 193 (Eugene Cotran & Adel Omar Sherif eds., 1999); Same Varayudej, A Right to Democracy in International Law: Its Implications for Asia, 12 ANN. SURV. OF INT’L & COMP. L. 1, 1 (2006). 30 Lois E. Fielding, Taking the Next Step in the Development of New Human Rights: The Emerging Right of Humanitarian Assistance to Restore Democracy, 5 DUKE J. COMP. & INT’L L. 329, 329 (1995); Malvina Halberstam, The Copenhagen Document: Intervention in Support of Democracy, 3 HARV. INT’L L.J. 143, 143 (1993); W. Michael Reisman, Sovereignty and Human Rights in Contemporary International Law, 84 AM. J. INT’L L. 866, 866 (1990); Anthony D’Amato, The Invasion of Panama Was a Lawful Response to Tyranny, 84 AM. J. INT’L L. 516, 516 (1990); David Wippman, Treaty-Based Intervention: Who Can Say No?, 62 U. CHI. L. REV. 607, 607 (1995). For an argument criticizing these views, see Sarah A. Rumage, Panama and the Myth of Humanitarian Intervention in U.S. Foreign Policy: Neither Legal Nor Moral, Neither Just Nor Right, 10 ARIZ. J. INT’L & COMP. L. 1, 1 (1993); W. Michael Reisman, Coercion and Self-Determination: Constructing Charter Article 2(4), 78 AM. J. INT’L L. 642, 642 (1984). 31 See generally ALFRED C. AMAN, JR., THE DEMOCRACY DEFICIT: TAMING GLOBALIZATION THROUGH LAW REFORM, 75–86 (2004); ROBERT HOWSE, T HE WTO S YSTEM: LAW P OLITICS AND L EGITIMACY 57–73 (2007) (providing a critique of the democratic deficiency’ thesis); Gregory Shaffer, The World Trade Organization Under Challenge: Democracy and the Law and Politics of the WTO’s Treatment of Trade and Environment Matters, 25 HARV. ENVTL. L. REV. 1, 1 (2001). 330 German Law Journal [Vol. 14 No. 01 are far too technical and complex to be a possible point of deliberation in society at large. Thus, it is only on important and politically controversial matters that the WTO process could have input legitimacy in democratic societies. If the input legitimacy of the WTO can be criticized in this way, in the context of democratic states, one can be assured of the lack of a y sort of legiti acy chai i o -democratic and authoritarian states. Even if we assumed a legitimacy chain in both democratic and non-democratic countries, the disproportionate power wielded by the most developed states in trade negotiation dispels hope that WTO decisions can have i put legiti acy . These is evinced by how the most powerful trading nations have been dictating the results of WTO negotiations by deciding on outcomes among themselves and later impose their decisions on all the other 32 members. This process has co e to e descri ed as the Gree ‘oo Phe o e o i refere ce to a co fere ce roo i GATT Director Ge eral’s office i which these states 33 meet separate from other WTO members. Given that no more than four WTO members, k ow as the Quad , decide who sits with the i the Gree ‘oo a d what the likely 34 outcomes of the meetings are, the question is how can we say that there is a legitimacy chai etwee the decisio s ade i the gree roo , a d the populatio of, say, Madagascar or Tu alu? The gree roo a d Quad phe o e a are, therefore, indicators of the fact that there is no input legitimacy in the WTO in as far as citizens of a large majority of WTO members are concerned. Least de eloped cou tries that house the ajority of the world’s populatio ot o ly do not participate in gree roo discussio s, ut a y of the do ot ha e sufficie tly trained personnel to allow them to send experts, who are of their nationality, to the negotiating tables of the WTO. Additionally, the prohibitive cost of attending the forty or fifty meetings held in Geneva each year, inevitably result in missed meetings, which can leave the countries ill-prepared for negotiations. The same applies to dispute settlement mechanisms for which developing states do not have the requisite skilled personnel. Even if they wanted to employ qualified experts, the expense of retaining such specific expertise 35 is extremely costly. The WTO’s output legiti acy, where y its decisio s are disliked y 32 Bernard Hoekman, The WTO: Functions and Basic Principles, in DEVELOPMENT, TRADE, AND THE WTO: A HANDBOOK 41, 41 (Bernard Hoekman, Aaditya Mattoo & Philip English eds., 2002); Nicola Bullard & Chanida Chanyapate, Ten Years of the WTO: Subordinating Development to Free Trade, in 2 INTERNATIONALE POLITIK UND GESELLSCHAFT 21, 24 (2005). 33 Id. 34 Pieter Jan Kuijper, WTO Institutional Aspects, in THE OXFORD HANDBOOK OF INTERNATIONAL TRADE LAW 79, 113–14 (Daniel Bethlehem et al. eds., 2009). 35 See Hector R. Torres, Reforming the International Monetary Fund—Why Its Legitimacy Is at Stake, 10 J. INT’L ECON. L. 434, 434 (2007) (providing similar democratic-deficit criticisms raised against the IMF). 2013] International Trade and Human Rights: An Unfinished Debate 331 the citize s of e er states who do ’t ha e a choice ut to e ou d y the WTO’s 36 decisions, has also provoked criticism. C. Towards a Moderated Future Despite the fact that there is tension between the human rights and trade regimes they are not mutually exclusive or completely contradictory. For the most part, the two regimes operate separately without affecting each other. When they do intersect, their interaction is not necessarily antagonistic. The two regimes do conflict, however, and such conflicts can and should be identified and moderated. Although there are various mechanisms to moderate intra-regime conflicts of values, there has not evolved a sound inter-regime mechanism to moderate and negotiate such conflicts between the two 37 regimes. As it stands now, nation-states are subject to the normative rules of both regimes, and when the regimes clash, states attempt to respect both, which may prove impossible. While this approach could be maintained and refined, the best-case scenario would be one in which the states have an integrated, normative, and institutional approach to apply towards such inter-regime conflicts. I. Theoretical Considerations (Issue of Approach) There is some foundational substance in international trade law that can be interpreted to support the protection of human rights. The preamble of the Marrakesh Agreement Establishing the WTO states that raising the living standards of individuals and ensuring full 38 employment and sustainable development are among the objectives of the organization. One could argue that this concept is useful to the extent that there is, in the objectives of the WTO, a concern for human beings which could be interpreted, or reinterpreted, to justify human rights concerns at the WTO. The GATS (Mode 4) also expresses concern for what can be interpreted as a human right as it defends the freedom of individual 39 movement beyond national borders. From this, we can at least see that trade and 36 SARAH JOSEPH, BLAME IT ON THE WTO? A HUMAN RIGHTS CRITIQUE 53 (2011); Manfred Elsing, The World Trade Organization’s Legitimacy Crisis: What does the Beast look like?, 41 J. WORLD TRADE 75, 86–89 (2007); Elizabeth Smythe & Peter J. Smith, Legitimacy, Transparency, and Information Technology: The World Trade Organization in an era of Contentious Trade Politics, 12 GLOBAL GOVERNANCE 31, 31 (2006). 37 The human rights regime constantly balances conflict between human rights. See Abadir Mohamed, The Human Rights Provisions of the FDRE Constitution in Light of the Theoretical Foundations of Human Rights 80–81 (Ethiopian Hum. Rts. L. Ser. vol. 1, 2008); Theodor Meron, On a Hierarchy of International Human Rights, 80 AM. J. INT’L L. 1, 1 (1986); Tom Farer, The Hierarchy of Human Rights, 8 AM. U. J. INT’L L. & POL’Y 115, 115 (1992). 38 See the Marrakesh Agreement, supra http://www.wto.org/english/docs_e/legal_e/04-wto_e.htm. 39 note 6, para. 1, available at Vincent Chetail, Freedom of Movement and Transnational Migrations: A Human Rights Perspective, in MIGRATION AND INTERNATIONAL LEGAL NORMS 47, 47 (T. Alexander Aleinikoff & Vincent Chetail eds., 2003). 332 German Law Journal [Vol. 14 No. 01 human rights issues are not fundamentally and mutually irreconcilable and there is, therefore, potential for the international trade regime to consider human rights concerns, and vice versa. Human rights law also has some positive conceptual assertions with regards to 40 international trade law. First, as pointed out by Petersmann, the right to trade is itself 41 partly justified by human rights, as it is an extension of the right to property. Likewise, 42 the protection of intellectual property can also be based on the human right to property. The protection of commercial speech employed by traders and corporate entities is also an extension of the freedom of expression, and therefore, is another example where human 43 rights ideals and mechanisms protect free trade. Recently, in Citizens United v. Federal Election Commission, the United States Supreme Court took this right further by indirectly 44 extending the freedom of political expression to corporate bodies. Second, the promise of world trade—economic growth, full employment, and a rising standard of living—produces social circumstances that are conducive to human rights and democratization. This point can be proven, on the one hand, by the positive correlation between economic success and the growth of a middle class, and on the other, by respect 45 for human rights and democracy. Rather than conflicting, human rights and trade seem 40 See Petersmann, supra note 3; see also Steve Charnovitz, Triangulating the World Trade Organization, 96 AM. J. INT’L L. 28–55 (2002). 41 John Locke, a man who has earned a name for fathering human rights had: life, liberty, and property, in his mind when he wrote his theories on natural rights. See JOHN LOCKE, SECOND TREATISE OF GOVERNMENT 118 (1962). 42 See Peter K. Yu, Reconceptualizing Intellectual Property Interests in a Human Rights Framework, 40 U.C. DAVIS L. REV. 1039, 1039 (2007); UNESCO, Approaching Intellectual Property as a Human Right, 35 Copyright Bulletin No. 3 (2001), http://unesdoc.unesco.org/images/0012/001255/125505e.pdf; PAUL L.C. TORREMANS, INTELLECTUAL PROPERTY AND HUMAN RIGHTS: ENHANCED EDITION OF COPYRIGHT AND HUMAN RIGHTS (2008); Laurence R. Helfer, Toward a Human Rights Framework for Intellectual Property, 40 U.C. DAVIS L. REV. 971, 971 (2007). 43 See generally CHRISTOPHER HARDING, UTA KOHL & NAOMI SALMON, HUMAN RIGHTS IN THE MARKET PLACE: THE EXPLOITATION OF RIGHTS PROTECTION BY ECONOMIC ACTORS 200 (2008); Maya Hertig Randall, Commercial Speech Under the European Convention on Human Rights: Subordinate or Equal?, 6 HUM. RTS. L. REV. 53, 53 (2006); A. Kamperman Sanders, Unfair Competition Law and the European Court of Human Rights: The Case of Hertel v. Switzerland and Beyond, 10 FORDHAM INTELL. PROP. MEDIA & ENT. L.J. 305, 305 (1999); Karl A. Boedecker, Fred W. Morgan & Linda Berns Wright, The Evolution of First Amendment Protection for Commercial Speech, 59 J. MKT. 38, 38 (1995). 44 Citizens United v. Fed. Election Comm’n, 558 U.S. 310, 310, (2010); see also Richard L. Hasen, Citizens United and the Illusion of Coherence, 109 MICH. L. REV. 581, 581 (2011); Woody R. Clermont, Business Associations Reign Supreme: The Corporatist Underpinnings of Citizens United v. Federal Election Commission, 27 T.M. COOLEY L. REV. 477, 477 (2010); James Bopp, Jr., Joseph E. La Rue & Elizabeth M. Kosel, The Game Changer: Citizens United’s Impact on Campaign Finance Law in General and Corporate Political Speech in Particular, 9 FIRST AMEND. L. REV. 251, 260–63 (2011). 45 See Seymour Martin Lipset, Some Social Requisites of Democracy: Economic Development and Political Legitimacy, 53 AM. POL. SCI. REV. 69, 75 (1959); Phillips Cutright, National Political Development: Measurement 2013] International Trade and Human Rights: An Unfinished Debate 333 to overlap with, and sometimes complement, each other. Thus, even if there is a tension between the two regimes, the relationship is complex. Trade can be harmful or useful to human rights depending on the circumstances. II. Practical Considerations At a practical level, there is hope that the WTO has the potential to become infused with human rights issues and for the linkage between the international trade and human rights regimes to become stronger in the future. Despite the general restriction on state prerogatives, the existence of provisions in the international trade regime, such as the one in Article XX of GATT (1947), demonstrates that the international trade regime is, and/or 46 can be, sensitive to domestic social objectives. The framework of exceptions to trade li eralizatio shows us that: First, states ca , through rei terpretatio of li kage i dicators, use the rules i Articles XX a d XXI to acco odate hu a rights co cer s i the short-run; and, second, they can expand those kinds of linkages and eventually incorporate human rights considerations as part of the exceptions regime in the long run. An interpretative shift is already underway in the WTO dispute settlement process where the Panel and Dispute Settlement U dersta di g decided, particularly i the Ge etically Modified Orga is s GMOs Pa el, to use precepts of ge eral i ter atio al law, i cludi g 47 the Vienna Convention on the Law of Treaties, to interpret WTO norms. EU practice, for instance, is a good example of how states concerned with both the protection of human 48 rights and the promotion of trade can effectively utilize these exceptions. This indicates and Analysis, 28 AM. SOC. REV. 253–64 (1965) (providing empirical evidence to prove that economic development causes political development implying that the latter is synonymous with democratization); Arthur K. Smith, Socio-Economic Development and Political Democracy: A Causal Analysis, 13 MIDWEST J. POL. SCI. 95–125 (1969); Donald J. McCrone & Charles F. Cnudde, Toward a Communications Theory of Democratic Political Development: A Causal Model, 61 AM. POL. SCI. REV. 72–79 (1967); GABRIEL A. ALMOND & SIDNEY VERBA, THE CIVIC CULTURE: POLITICAL ATTITUDES AND DEMOCRACY IN FIVE NATIONS 2–4 (1963); Mick Moor, Is Democracy Rooted in Material Prosperity?, in DEMOCRATIZATION IN THE SOUTH: THE JAGGED WAVE 37, 42 (Robin Luckham & Gordon White eds., 1996) (concluding that, although there is a lot of research showing a correlation between economic development and democratization, GNP and per-capita energy consumption show the strongest correlation). 46 See Gabrielle Marceau, WTO Dispute Settlement and Human Rights, 13 EUR. J. INT’L L. 753, 753 (2002); see also Frank J. Garcia, Building a Just Trade Order for a New Millennium, 33 GEO. WASH. INT’L L. REV. 1015, 1056–1058 (2001); Elissa Alben, Note, GATT and the Fair Wage: A Historical Perspective on the Labor-Trade link, 101 COLUM. L. REV. 1410, 1422 (2001); Robert Howse & Michael J. Trebilcock, Trade Policy and Labor Standards, 14 MINN. J. GLOBAL TRADE 261, 289 (2005). 47 See Joost Pauwelyn, The Role of Public International Law in the WTO: How Far Can We Go?, 95 AM. J. INT’L L. 535, 542 (2001); Stephen Joseph Powell, The Place of Human Rights Law in World Trade Organization Rules, 16 FLA. J. INT’L L. 219, 224 (2004). 48 See Olufemi O. Amao, Trade Sanctions, Human Rights and Multinational Corporations: The EU-ACP Context,32 HASTINGS INT’L & COMP. L. REV. 379, 394–400 (2009); Lorand Bartels, The WTO Legality of the EU’s GSP Arrangement, 10 J. INT’L ECON. L. 869, 869 (2007); Barbara Brandtner & Allan Rosas, Human Rights and the External Relations of the European Community: An Analysis of Doctrine and Practice, 9 EUR. J. INT’L L. 468, 468 (1998). 334 German Law Journal [Vol. 14 No. 01 that the interpretation, or reinterpretation, of international trade rules to bring them in 49 compliance with human rights laws is a logical, doctrinal, and interpretative possibility. A proposal to use the existing paradigm might not satisfy all critics, but it certainly proves that the irreconcilability assertion is far too pessimistic. The WTO Agreements on Sanitary and Phytosanitary Measures and the Technical Barriers to Trade point to the possibility that states may enter agreements, within the ambit of the 50 WTO, that allow them to take measures to protect life, health, and the environment. Therefore, far from being a conflict lacking solutions, trade and human rights can coexist if the states are able, in the future, to incorporate human rights norms into international trade agreements. This could take the form of modifications to existing GATT and WTO rules or new treaties that amend the existing trade norms. D. Conclusions and Recommendations It should be noted that international institutions and regimes are not static and are often founded upon considerations that are less important now than at the time of their formation. Take the example of the United Nations. At the beginning, the United Nations was a Cold War institution that was formed to maintain international peace and security by 51 negotiating the interests of Cold War rivals. Today, the UN stands as the most important player in human rights law. The World Bank is another institution that was initially established with a geographically and substantively limited mandate. However, its mandate has been expanded and made global, the World Bank now deals with issues of equitable income distribution, environmental sustainability, elimination of corruption, tax 52 reform, and privatization. Therefore, it is a possibility, if not an inevitability, that the 49 See Oscar I. Roos, Exploring the Linkage Between WTO Dispute Resolution and International Human Rights Law, 19 CURRENTS: INT’L TRADE L.J. 11, 11 (2011) (arguing that this linkage is coming to the WTO, and that it is coming as a matter of law, rather than through a process of negotiation ). 50 See Denise Prévost, Opening Pandora’s Box: The Panel’s Findings in the EC-Biotech Products Dispute, 34 LEGAL ISSUES OF ECON. INTEGRATION 67, 67 (2007). 51 See H ANS K ELSEN , T HE L AW OF THE UNITED N ATIONS : A C RITICAL A NALYSIS OF ITS F UNDAMENTAL P ROBLEMS 23–50, 24 n.8 (1966) (writing at a time when state sovereignty reigned supreme and the full impact of the human rights movement was not yet apparent—in 1950). Kelsen stated that not only could the UN Charter, or even the Universal Declaration of Human Rights (UDHR), not be interpreted as imposing any duty to respect the rights of their subjects, but the function of the UN regarding human rights is inconsistently set forth. Id. He extensively quotes the sub-committee that drafted article 1(3) which stated that assuring or protecting such fundamental rights is the primary concern of each state. Id. But see T HOMAS BUERGENTHAL , I NTERNATIONAL H UMAN RIGHTS : I N A N UTSHELL 23 (1988) (explaining why the superpowers of the time were not interested in human rights, arguing that sponsors of the Charter might have had to come to terms with their own human rights abuses if they were to allow a human rights enforcing organization to emerge from the San Francisco Conference). Buergenthal cited the Gulag of the U.S.S.R., the racial discrimination against African-Americans in the U.S.A., and the vast colonial empire of the U.K. as evidence of the reluctance of the masters of the Conference to address human rights. Id. 52 See José E. Alvarez, The WTO as Linkage Machine, 96 AM. J. INT’L L. 146, 149 (2002). 2013] International Trade and Human Rights: An Unfinished Debate 335 WTO will slowly evolve to accommodate the individual and social concerns that fall under the rubric of human rights. It is to be expected that many will object to the introduction of human rights into the international trade regime. However, it is important to realize that human rights exceptions are already present, albeit in a generic form, as state prerogatives to protect the public interest and public morality. Additionally, the language of human rights is increasingly invoked by states as the intersection between the two regimes becomes clearer. For instance, Mauritius made a formal appeal to the WTO Committee on Agriculture contending that the right to adequate food be taken into consideration in WTO 53 negotiations regarding agriculture. The European Union and the United States, on the other hand, have led an initiative within the WTO to incorporate labor rights issues in the 54 WTO. Ultimately, participants in international trade are already party to human rights obligations that they intend to respect. It is only a matter of efficiency and effectiveness that the respect for these obligations be integrated into the international trade system. Many proposals could be made suggesting how the WTO should incorporate human rights issues into its mandate. The most common proposal is that states should negotiate a social clause that sets out a minimum standard of human rights to be enforced by the WTO 55 itself. O ce i corporated as part of the si gle u dertaki g, the WTO’s Dispute “ettle e t Body could e force these social sta dards—constituting the core of human 56 rights. Other proposals include the creation of new trade groups or committees at the 57 WTO, conducting human rights impact assessments before the implementation of 58 59 investment projects, and other non-coercive incentive based methods. Direct i ol e e t of ci il society orga izatio s a d the e ualizi g up of de elopi g a d 53 World Trade Organization, Committee on Agriculture, Note on Non-Trade Concerns, 1, 9, G/AG/NG/W/36/Rev.1 (Nov. 9, 2000); see also Marceau, supra note 46, at 787–88. 54 Busse, supra note 26, at 1922. 55 Steve Charnovitz, Rethinking WTO Trade Sanctions, 95 AM. J. INT’L L. 792, 819–20 (2001), Zagel, supra note 10, at 30; Joseph, supra note 36, at 271; Tatjana Eres, The Limits of GATT Article XX: A Back Door for Human Rights?, 35 GEO. J. INT’L L. 597, 600 (2004); Virginia A. Leary, Workers’ Rights and International Trade: The Social Clause (GATT, ILO, NAFTA, U.S. Laws), in 2 F AIR T RADE AND H ARMONIZATION : P REREQUISITES FOR F REE T RADE? 177 (Jagdish N. Bhagwati & Robert E. Hudec eds., 1997). 56 See Gerard Greenfield, Core Labor Standards in the WTO: WORKINGUSA 9, 12 (2001). 57 Reducing Labor to a Global Commodity, 5 Andrew T. Guzman, Trade, Labor, Legitimacy, 91 CALIF. L. REV. 885, 902 (2003). 58 See Zagel, supra note 10, at 30; Jonathan H. Marks, 9/11 + 3/11 + 7/7 =? What Counts In Counterterrorism, 37 COLUM. HUM. RTS. L. REV. 101 passim (2006) (providing a general discussion of how to apply a Human rights impact assessment). 59 Id.; Zagel, supra note 10, at 6–9. 336 German Law Journal [Vol. 14 No. 01 developed states have also been suggested to address the right to democratic participation withi the WTO’s i stitutio al fra ework y decreasi g the democratic deficit of the 60 WTO. Although the WTO has begun taking measures to address these matters, human 61 rights have not yet been introduced into the normative and institutional structure. One of the biggest obstacles in implementing these, or any other, potential solutions is the self-containment of the trade and human rights narratives in both their respective normative systems and the imagination of their participants. The human rights and international trade regimes were established separately following the formation of the UN, and have lived largely separate lives since. This bifurcation has created problems as each regime has evolved its own legal notions, lexicon, and institutions that are separate from each other, capable of describing the same things in different words, or different things in the same words. The self-referential and self-contained nature of the language of each discipline is reflected, for instance, in the trade and human rights debate (also known as 62 the Alsto -Petersman de ate . Recognizing this problem, Mary Robinson, the former United Nations High Commissioner for Human Rights, proposed a bilingualism of trade and 63 human rights experts. Bilingualism, however, is still the exception, as experts from the respective regimes continue to talk past each other. Even more problematic than the lack of bilingualism in the normative systems, and their respective professional disciplines, are the human interests driving political decisionmaking. The mere fact that the tension between the two regimes is known, and numerous 60 See Panizzon, supra note Error! Bookmark not defined.; Sarah Joseph, Democratic Deficit, Participation and the WTO, Research Paper No. 2009/48 (2009), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1899405 (suggesting equalizing up ); Joseph, supra note 36, at 60–61; Daniel D. Bradlow, The Times They Are A-Changin’”: Some Preliminary Thoughts on Developing Countries, NGOS and the Reform of the WTO, 33 GEO. WASH. INT’L L. REV. 503, 503 (2000–2001); Daniel C. Esty, Linkages and Governance: NGOs at the World Trade Organization, 19 U. PA. J. INT’L ECON. L. 709, 709 (1998); Steve Charnovitz, Participation of Nongovernmental Organizations in the World Trade Organization, 17 U. PA. J. INT’L ECON. L. 331, 331 (1996); Christopher Butler, Comment, Human Rights and the World Trade Organization: The Right to Essential Medicines and the TRIPS Agreement, 5 J. INT’L L. & POL’Y 1, 1 (2007); Joost H.B. Pauwelyn, The Sutherland Report: A Missed Opportunity for Genuine Debate on Trade, Globalization, and Reforming the WTO, 8 J. INT’L & ECON. L. 329, 341–343 (2005). 61 For information and analysis pertaining to the use of amicus briefs from NGOs and greater accommodation of public policy issues since the Doha initiative, see Charnovitz, supra note 60; Butler, supra note 60; Joseph, supra note 36, at 271; Abbott, supra note 15, at 283–84; Frederick M. Abbott, The Doha Declaration on the TRIPS Agreement and Public Health: Lighting a Dark Corner at the WTO, 5 J. INT’L ECON. L. 469, 469 (2002). 62 See supra notes 3–4 and accompanying text; Thomas Cottier, Joost Pauwelyn & Elisabeth Bürgi, Introduction: Linking Trade Regulation and Human Rights in International Law: An Overview, in HUMAN RIGHTS AND INTERNATIONAL TRADE 1, 7–8 (Thomas Cottier, Joost Pauwelyn & Elisabeth Bürgi eds., 2005); ANDREW LANG, WORLD TRADE LAW AFTER NEOLIBERALISM: REIMAGINING THE GLOBAL ECONOMIC ORDER (2011). 63 Mary Robinson, The Fifth Annual Grotius Lecture Shaping Globalization: The Role of Human Rights, 19 AM. U. INT’L L. REV. 1, 2 (2003). 2013] International Trade and Human Rights: An Unfinished Debate 337 potential solutions have been suggested, does not necessarily mean that any proposal will be enacted. Human rights activists should intensify their struggle to influence decision makers to give greater precedence to human rights interests. The focus of advocates should be on the best-case scenario: That is, a situation in which the normative and institutional system of human rights law is integrated with that of the international trade mechanism. However, advocates also need to recognize the inevitable liberalization of global trade and the effects it is having on international law. As the tension between trade and human rights will not always be resolved in favor of human rights, advocates should also consider which human rights standards are appropriate to specific normative issues. Gi e the lack of ili gualis , discussio o what co pro ises should e struck ay prove difficult. It is, nevertheless, a discussion that ought to take place. 338 German Law Journal [Vol. 14 No. 01