The European Donkey and Coronavirus (Part I)

Written by Timothée Ceurremans

In the wake of the COVID-19 pandemic, the EU will face an almost unprecedented economic crisis that will probably put the economically-“weaker” Member-States (“MSs”) on their knees. Unfortunately, the pandemic has made this crisis unavoidable. Nevertheless, its effects can be mitigated.

This is the inevitable conclusion the European Central Bank (“ECB”) and the Eurozone finance ministers arrived at in their long meetings preceding the announcement of the yet unseen measures, respectively on March 18th and April 10th. In a similar attempt, the European Commission (“EC”) has also decided, on March 12th, that some of the State Aid measures taken by Member-States to mitigate the economic consequences of the deadly virus will fall within the meaning of art. 107(2)b) TFEU (“exceptional measures”) if notification and disbursement has been done correctly. In the same vein, the Council agreed on proposition of the EC to suspend the normally applicable debt and deficit rules and activate the general escape clause of the Stability and Growth Pact.

In the face of all these exceptional measures, questions relating to the emergency framework of the EU arise. In this two-part article, 3 of these questions will be treated. The first concerns the state of emergency within the framework of the Treaties. To what extent can the EU declare a State of Emergency? If it can’t, how does the EU act legally in times of crises? And how can it guarantee the EU remains a Union de droit?

The second question will pertain to the Pandemic Emergency Purchase Program (“PEPP”) announced by the ECB in a Press Release. Does the measure comply with the case-law of the Court of Justice? In other words, does the program fit within the mandate of the ECB as defined by art. 127 TFEU? If not, how could this be remedied?

Finally, the third question concerns the package on which the Eurozone finance ministers have finally agreed on. In light of this deal, one might wonder whether European solidarity really thrived. Are we finally seeing a communized economic policy that deepens European integration in an unprecedented fashion? Said differently, is this tantamount to a “coronabond” which mutualizes the debt caused by the crisis? Or, in the alternative, are we still stuck in old ways reminiscent of the sovereign debt crisis?

I. The EU's emergency framework

Despite the growing attention given to national States of Emergencies and the consequences they entail for the wielding of power by executive branches throughout the continent (see, for instance, Hungary and Belgium), less academic attention has been dedicated to the oversight of the EU’s global emergency response as such… As if the Union’s institutions are shielded from shortcomings in testing times.

The EU has been prey to several crises over the past two decades: the sovereign debt crisis, the migration crisis and the coronavirus pandemic, to name just the most salient ones. All of these crises required the EU to take strong action at supranational level. More particularly, the sovereign debt crisis saw, inter alia, the rise of the European Stability Mechanism (“ESM”) and QE, the migration crisis was partly addressed by the EU-Turkey Statement and the coronavirus pandemic mobilizes a whole array of competition, economic and monetary governance tools. The first two examples have, at least, one commonality: they both had to be retroactively validated by the Court of Justice because they appeared, on their face, vitiated by manifest legal shortcomings (Pringle, Gauweiler, Weiss for the first and NF for the second). This judicial validation of QE, for instance, entailed a substantive modification of the EU economic constitution (Ioannidis, 2016). Knowing this, will the corona-measures be challenged judicially? Will they also carry with them an (in)formal Treaty amendment? If so, how do they fit within the emergency framework of primary law? Is there, in fact, a formal and general emergency clause?

The straightforward answer to the last question would be an emphatic no. Indeed, the EU does not have a general emergency clause that affords great power to the executive for it to act swiftly upon the salient issues identified above. Now, although no formal emergency mechanisms have been constitutionalized, the EU has undoubtedly been creative in crisis management. It can be ascertained that an “informalised emergency practice” has emerged in the supranational setting, especially in economic emergency (Kilpatrick, 2015). This practice can best be witnessed in the appearance of the ESM, which was at first concluded outside the framework of EU law (De Witte and Beukers, 2013). The fact that it was concluded externally engendered a number of negative externalities, among which can be found the altering of the constitutional balance to the benefit of executive governance (Dawson and de Witte, 2013), the technocratic dictates of austerity imposed by “frugal” MSs such as the Netherlands or Germany (Kilpatrick, 2018; Bartl 2017), the non-justiciability of Memoranda of Understanding ("MoUs") (Dermine, 2017; Kilpatrick, 2014) and the Rule of Law problems inherent to the ESM framework (complexity, inaccessibility, incomprehensibility and secret character of the normative sources) (Kilpatrick, 2018). A few years after the crisis blew over, some of these problems were addressed by two things: First, a shift regarding admissibility was operated by the Court in its case-law pertaining to MoUs (Ledra Advertising and Florescu). Second, the ESM-framework was internalized by the EU legal order. In the same vein, the amendment of the Treaties also served to address some of the problems created by the crisis.

The responsive measures taken by the institutions in the current crisis can also, to some extent, be considered an epiphenomenon of the supranational “informalised emergency practice”. Some decisions, in particular, bear witness to the extraordinary powers the institutions endow themselves with. Inasmuch these powers can be said to derogate from the usual framework (as will be shown in sections b and c) that is foreseen for their functioning, they raise concerns insofar they should abide by the normative framework of the Treaties and the settled case-law of the Court in the absence of a declared State of Emergency. For instance, some doubts were raised as to the compatibility of the so-called “bazooka” PEP Programme announced by the ECB with the case-law of the Court of Justice and the Treaties (see point b.). Another example lies in the demand, especially of the “Frugal Four” (Denmark, the Netherlands, Finland and Austria), that Member-States in need of financial assistance are subjected to fiscal discipline or, in other words, austerity (see point c.). Therefore, it can be observed that resorting again to Quantitative Easing and the ESM put some problems identified earlier back on the table. Further, it appears that the new corona-measures will probably have to face their fair share of legal challenge because they can, already now, be said to suffer from a few shortcomings.

In Flemish, we say “Een ezel stoot zich geen twee keer aan dezelfde steen”. That translates: Once bitten, twice shy.

In Flemish, we say "Een ezel stoot zich geen twee keer aan dezelfde steen" (Literally: "A donkey will not hit the same stone twice"). That translates: Once bitten, twice shy. To transpose this to the current situation, the recurring problems that constitute the common denominator of different crises should prompt EU leaders to rethink the ability of the supranational machinery to face these. Otherwise, we will make the same mistakes again. In light of the many rule of law shortcomings emergencies bring to the fore as well as the need for a more democratic crisis-handling, my proposition is the following: Insert an “emergency clause” in the Treaties to legitimize much of the actions taken in times of crises so that the institutions wouldn’t run afoul the primary law applicable in “normal” times (alike what is argued by Dyzenhaus, 2008). Leaving aside the regrettable socio-economic hardship European solutions cause, wouldn’t the democratic input in EU law be enhanced by such a clause? Wouldn’t it, by the same token, increase the credibility of the argument of the Union as a rule of law-based organization? After all, in times of crisis the EU has already proceeded to the amendment of the Treaties to legitimize its contested action (see the Pringle-case for the judicial validation). What is more, it did so retroactively, leaving much to be wondered about the state of the desideratum on the prohibition of retroactivity Lon Fuller formulated in The Morality of Law. Moreover, the fact that creative legal solutions have to be mobilized by the Court of Justice to justify the Union’s response retroactively can only feed the Eurosceptic fringe. That is because it provides fertile ground for the accusation of judicial activism and, hence, undermines the Union de droit-argument in its procedural aspect.

Charles Michel, during his speech at the Plenary Session of the EP on April 16th, asked the question: “Comment peut-on tirer des leçons de la crise actuelle et renforcer l’espace politique et démocratique en conséquence?” Well, esteemed President, it could be through the insertion of a general emergency clause. Let the measures taken by the EU institutions be validated a posteriori, according to an a priori Treaty-defined procedure. Make it abide by the co-legislative procedure in the matters pertaining to the Union legislator’s competence and define a clear-cut time limit. While some may accurately retort that monetary policy benefits from a technical and independent mandate that isn’t subject to public scrutiny, a growing amount of academics have called for the recognition of the fact that monetary and economic policy operate in a “continuum” that should therefore be subject to some kind of political accountability (Dermine, 2019). The retrospective validation of monetary and economic emergency measures would provide the called-for democratic legitimacy for measures perceived as technocratic dictates. This would naturally be without prejudice to the dictates' limited justiciability.

Nevertheless, until a pragmatic and overarching solution is mobilized, it is guaranteed that the European Donkey will be bitten twice.

On a side note, it is true that the current political situation makes it very unlikely that an amendment of the Treaties will be agreed to. Nevertheless, the possibility is not to be discarded completely for a simple reason: the Conference on the Future of Europe will enter its 2nd Phase in July 2020 - if it isn't delayed due to the pandemic. This Conference is a political body set up by the Commission and the European Parliament which aims to come up, inter alia through public consultations and citizen participation, with tangible solutions and perhaps even Treaty changes. It is with that Conference in mind, that the formalization of an emergency procedure is proposed here.

Now that it appears clear why the Treaties should undergo amendment to encompass a formal emergency procedure, Part II of this piece will explore why the ECB's PEPP can be said to run afoul conditions set by case-law. Further, the economic measures announced by the Council will be put in context and explained.