„Action against ECOFIN” - Introduction to the Case and the Relevant Legal issues dr Krystyna Kowalik-Bańczyk

Plan of the presentation  I. Case – step by step  II. Article 104 TCE and other provisions relevant for excessive deficit procedure  III. Type of control of excessive deficit – political and/or judicial ?  IV. Legal actions suitable for our case  V. Conclusions

I. Case – step by step (1) Once upon a time there was a country, named Germany, that... participated in the third stage of the Economic and Monetary Union  beginning of 2003 – presumption of an excessive deficit in Germany  more than 3 %

I. Case – step by step (2)  Commission starts the procedure under art. 104 TCE for excessive deficit  2003 – Council adopts recommendation to be put into practice until specified time  2003 – as Germany does not react correctly – the recommendation is made public  30 November 2003 – Council Decision obliging Germany to take certain measures to reduce the deficit by 30 April 2004  2004 – Commission does not think that Germany responded sufficiently to that Decision

I. Case – step by step (3)  April 2004 – Commission recommendation to the Council to take certain sanctions against Germany  21 April 2004 – Council Decision obliging Germany to lodge within one month a non- interest-bearing deposit (Deposit Decision)  May 2004 – Germany contests that Decision under art. 230 TCE, but:  1 July 2004 – German pays the deposit

I. Case – step by step (4)  12 October 2005 – information from Germany to the European Commission that Germany’s draft budget for 2006 complies with convergence criteria  Germany proposes to European Commission to recommend to the Council to abrogate the Deposit Decision  until December 2005 the Commission does not make such a recommendation to the Council

I. Case – step by step (5)  15 December 2005 – Germany urges the European Commission to issue the recommendation to the Council  29 December 2005 –WITHOUT RECOMMENDATION FROM THE COMMISSION – on its own motion, Council adopts an Abrogation Decision – abrogating the Deposit Decision

I. Case – step by step (6)  the Abrogation Decision is taken by majority of 2/3 votes of Member States, without Germany and Member States not participating in the EMU  25 February 2006 – European Commission brings an action for annulment of the Abrogation Decision, claiming as well its immediate suspension  OUR CASE ITSELF  3 March 2006 – the deposit is paid back to Germany, although the case is pending

I. Case – step by step (7)  Germany parallelly claims that if the Deposit Decision from 2004 was invalid – it wants to get dammages for lost interests for the period July 2004-March 2006  France – another country with an excessive budgetary deficit since 2004  12 January 2006 – Council Decision against France obliging it to pay a deposit  France refuses to pay the deposit, claiming the similarity with German situation

Case – step by step (8)  Four Member States – Netherlands, Finland, Greece and Portugal – want to join in the procedure instigated by the Commission against Council Abrogation Decision  Netherlands and Finland support the Commission  Portugal and Greece support Germany and France (wonder why?...)

Article 104 TCE (1)  Paragraph 1 sets a clear obligation: Member States shall avoid excessive government deficits Paragraph 2 states that the Comission is a watchdog Commission shall monitor the development of the budgetary situation (...) with a view of identifying gross errors. Reference values are specified in the Protocol on excessive deficit procedure annexed to TCE

Article 104 TCE (2)  What happens if a Member States breaches par. 1 of art. 104? :   par. 3 – Commission prepares a REPORT   par. 5 – if there is an excessive deficit or even only a risk of it – Commission addresses an OPINION to the Council   par. 6 – Council on the recommendation from the Commission issues an OVERALL ASSESSMENT DECISION if excessive deficit exists

Article 104 TCE (3)   par. 7 – After Assessment Decision, Council makes RECOMMENDATIONS to the Member State concerned – to bring the deficit to an end within specified period   par. 8 – if no reaction – Council Decision to make the recommendation PUBLIC   par. 9 – if Member State persists – Council may give notice to take measures for the deficit reduction

Article 104 TCE (4)   par. 11 – if Member State fails to comply with the measures indicated by the Council, the Council may ask Member State to : 1) publish aditional information 2) make a non-interest bearing deposit until the deficit has been corrected 3) to pay fines it may also ask European Investment Bank to reduce its lending policy towards that Member State

Article 104 TCE (5)  par. 12 – if the Council decides that the excessive deficit has been corrected, it shall abrogate some or all of the previous decisions, i.a.: -overall assessment decision (par. 6) -recommendation decision (par. 7) -decision to make recommendation public (par. 8) -decision to take specific measures (par. 9) -decisions on sanctions (par. 11)

Article 104 (6)  Par. 13 – if the Council wants to abrogate its previous decisions from par. 7, 8, 9, 11 and 12  it shall act on the RECOMMENDATION from the COMMISSION  by a majority of two-third of the votes of its members, excluding the votes of the representative of the Member State concerned

Article 104 (7)  CAUTION: - the way of voting within Council is to be deducted also from article 122 par. 1 and 3! Member States not belonging to Euro-zone shall not vote on the decisions set in art. 104 par. 9 and 11 (decisions on measures and decisions on sanctions)

Article 104 (8)  Paragraph 10 of this article excludes the possibility to bring an action for infringement under art. 226 or 227: The rights to bring actions provided for in Article 226 and 227 may not be exercised within the framework of paragraphs 1 to 9 of this Article

Article 104 TCE (9)  This article sets an obligation concerning all Member States - not just those belonging to the Euro-zone (but for UK)  but the Member States outside Euro-zone are deprived of voting rights regarding decisions under par. 9 and 11 of art. 104 TCE

Possibility of control (1)  ‘Political control’  by the Council after the recommendation from the Commission  the Council should not act on its own motion  not all Member States are voting  ‘Judicial control’  by the European Court of Justice (ECJ) Paragraph 10 of art. 104 exludes actions under 226 and 227 Case 27/04 – each Council Decision might be subject for an action for annulment

Possibility of control (2) RISKS : - lack of recommendation from the Commission might block the procedure - voting in the Council requires two-third for a decision – difficult to reach sometimes (better for bigger states) - voting in the Council on the most serious decisions (art. 104 par. 9 and 11) includes only the Members of Euro-zone

Actions (ECJ)  1. action for annulment – art. 230 TCE  2. action for damages – art. 235 and TCE  3. any other possibility? – articles 226 and 227 TCE are excluded (art exludes it towards para. 1-9)  action for failure to act – art. 232 TCE

Article 230 (I)  The Court of Justice shall review the legality of acts adopted jointly by the European Parliament and the Council, of acts of the Council, of the Commission and of the ECB, other than recommendations and opinions, and the acts of the European Parliament intended to produce legal effects vis-à-vis third parties

Article 230 (II)  The ECJ has jurisdiction in actions brought by a Member State or an institution (...) on grounds of:  1. lack of competence  2. infringement of an essential procedural requirement  3. infringement of this Treaty or any rule of law relating to its application  4. misuse of powers

Article 230 (III)  Problems :   are the actions of the institutions involved questionable?   what type of infringement has occured here?   even if the act is declared void – the problem remains...

Action for dammages  art. 235  The Court of Justice shall have jurisdiction in disputes relating to compensation for damage provided for in the second paragraph of article 288  art. 288 par. 2  In the case of non-contractual liability, the Community shall, in accordance with general principles common to the laws of the Member States, make good any damage caused by its institutions or by its servants in the performance of their duties

Action for dammages  What are the rules applicable?  ‘general principles common to the laws of the Member States’  - 1. serious infringment (very often of a norm containg basic rights for an individual)  - 2. dammage  - 3. causal link between the infringment and the dammage

Action for dammages  - what sort of infringement by the Commission has occured here?  - is there a dammage resulting from this infringement?

Action for dammages   is art. 288 par. 2 applicable here?  ( does it concern the responsability of the Community towards Members States or individuals only?)   is it connected with the action for annulment? Would a failure to annul the decision lead to an exclusion of this claim?

Other actions?  Art. 104 par. 10  The rights to bring actions provided for in Articles 226 and 227 may not be excercised within the framework of par. 1 to 9 of this Article.  Article 232 – but in our case nobody used it

Conclusion  more political than judicial control  what could this political control reach?  what influence of the narrow judicial control?  is the action for annullment really an act of control for stability pact?