The Price of Borrowing EU Institutions, and the Price of Being Borrowed – A short comment on Ledra Advertising

The Court’s judgments in the cases of Ledra Advertising and Mallis are a huge step forward in the EU’s process of construing a coherent set of rules for EMU. The outcome might be upsetting for some, but it is good to have (at last) some certainty over crucial legal issues that have been in a limbo throughout the rough years of the crisis. Ledra Advertising and Mallis might not come to the perfect solution, but at least there is now a solution to hold on to.

In a nutshell, the Court, sitting in Grand Chamber, has stated that Eurogroup decisions are not subject to judicial review by way of an action of annulment. However, the Court adds that Commission and ECB action in the context of financial assistance programmes must comply with EU Law, including, of course, the Charter of Fundamental Rights. Therefore, specific actions of the Commission and of the ECB in the context of the European Stability Mechanism’s financial assistance programmes can result, if unlawful, in damages actions before the Union’s courts. This is a severe reversal of the General Court’s decision in first instance, and also a departure from the solution proposed by Advocate General Wahl.

To declare that the Commission is liable under EU Law for its actions outside the scope of the Union is quite remarkable. However, the alternatives were so worrisome that it seems as if the Court has chosen the least bad choice among an array of very bad ones. To suggest that an applicant can sue Member States individually for the ESM’s actions is not a very realistic scenario. This would also imply that the EU’s involvement in the financial assistance programmes had taken place in a legal vacuum, non-accountable before any court of law and granting EU Institutions a freedom to comply or not with the rules in the terms they considered most appropriate.

In Ledra Advertising, the Court states that EU Institutions, and in particular the Commission, were bound by EU Law when participating in ESM financial assistance programmes. That includes the Charter, of course. As a result of such duty, the Commission, if it considered that a draft Memorandum of Understanding was in breach of fundamental rights, had an obligation not to sign it. Therefore, the Commission can be liable for its activity, but also its inactivity in the context of financial assistance programmes. The judgment thus puts an end to a certain ambiguity in the practice of the Institution’s actions in non-EU contexts, which now comes full-circle under the scope of EU Law.

But many questions still remain. The Court is quite harsh when it declares that the Institutions are bound by the Charter, even if they are acting beyond the powers of the Union, but it also refreshes its case-law in Pringle, according to which Member States are not implementing EU Law in such contexts. Therefore, in the course of a financial assistance programme EU Institutions must comply with the Charter, but Member States do not.

Also, the way in which the Court has stated that Eurogroup Declarations are not reviewable acts makes it quite difficult to attack the Institution’s activity in actions of annulment. Therefore, the natural course of action will be damages actions, which is a complex route, a genuine minefield that hardly any litigants manage to succeed in. In fact, the Court goes into the substance in Ledra Advertising and dismisses the plaintiff’s action on the grounds that there was no violation of the Charter by the Commission. The essential content of the fundamental right to property of the applicants had not been breached, and therefore, in the absence of a manifest breach, no liability was declared by the Court. The balance is quite obvious: the Union is potentially liable for the actions of its Institutions outside the Union’s competence, but the standard of illegality that will be demanded from the applicant will be high (as it has always been).

Applicants who have suffered the results of strict conditionality now have the doors wide open to the Luxembourg courts, but they should get ready for a very rough ride.

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