Ireland

VIII - ESM Treaty

The European Stability Mechanism (ESM) Treaty was signed on July 11 2011. It was later renegotiated and a new ESM Treaty was signed on February 2, 2012. The Treaty provides a permanent emergency fund that is intended to succeed the temporary emergency funds. It entered into force on September 27, 2012 for 16 contracting parties (Estonia completed ratification on October 3). The 17 contracting parties are the member states of the Eurozone, but the ESM Treaty is concluded outside EU law.
(
http://www.european-council.europa.eu/eurozone-governance/esm-treaty-signature?lang=it and http://www.esm.europa.eu/pdf/FAQ%20ESM%2008102012.pdf)

Negotiation
VIII.1
What political/legal difficulties
did Ireland encounter in the negotiation of the ESM Treaty, in particular in relation to the implications of the treaty for (budgetary) sovereignty, constitutional law, socio-economic fundamental rights, and the budgetary process.

Outside statements made in Parliamentary debates the position of the government in negotiations are not known. 

Ratification
VIII.2
How has the ESM Treaty been ratified in Ireland and on what legal basis/argumentation?

Under the Irish Constitution the Government is vested with executive powers in relation to external relations including the conclusion and ratification of international agreements.[1] All international agreements, except those of a technical and administrative character,[2] must be laid before the Dáil (lower house) and those implying a charge on public finances require approval by the Dáil in order to bind the State.[3] Ireland operates a dualist system and international agreements have no formal legal standing unless incorporated into domestic law. This is usually done through an Act of the Oireachtas (Parliament). Its provisions were implemented in Irish law through an act of the Oireachtas, namely the European Stability Mechanism Act 2012 (the ESM Act 2012). The ESM Act 2012 was debated before the Dáil on 7 June 2012 and before the Seanad on 26 June 2012. It was signed by the President on 3 July 2012. The ESM Treaty was subsequently ratified by the Government and the instrument of ratification was deposited on 1 August 2012.[4] In Pringle v Ireland the ESM Treaty was deemed not to require an amendment of the constitution and hence a referendum. It did not involve a delegation of policy making power to an international institution per Crotty. Rather it was a clear and limited commitment to participate in an international organisation for a specified purpose (see further answer to question VIII.4 below).[5]

Ratification difficulties
VIII.3
What political/legal difficulties
did Ireland encounter during the ratification of the ESM Treaty?

No significant political or legal difficulties were encountered during the ratification of the ESM Treaty with the exception of the constitutional challenge initiated by Thomas Pringle and independent member of the Dáil (lower house) (see next questions).

The Government (Fine Gael and the Labour Party) and the largest opposition party (Fianna Fáil) were in favour of the ESM Treaty and the ESM Act 2012 and voted in favour of the act. Sinn Féin and the United Left Alliance were opposed to the Treaty and the Act. The Act was published during the referendum on the Fiscal Compact and was passed by the Oireachtas (Parliament) shortly after a positive result in that referendum. In the Parliamentary debates on the Act a number of contributors made reference to that context and the link between the Fiscal Compact and the Act.  A number of contributors also raised the possibility of the ESM being used to directly recapitalise banks rather than the current method of routing such funds through national Governments.

Those in favour of the Act saw it as a credible funding mechanism for Ireland in the event that it would be forced into a second programme of financial assistance. Thus ‘[the] Government believes the availability to Ireland of a credible funding backup as provided by the ESM treaty will be very important in terms of market re-entry and leaving the EU-IMF programme of support. There is no clear answer to the question as to where else financial assistance could be found were a situation to evolve in which we require further assistance. Enacting the ESM Bill 2012 and ratifying the ESM treaty will ensure that Ireland has access to this funding safety net if our efforts to re-access the market are delayed in any way and we need to resort to further assistance.’[6]

Those opposed to the Act focused on a number of issues. A number of contributors opposed the Act on the grounds that it, through its conditionality, would further the policies of austerity. In the opinion of Sinn Féin ‘at the core of the fund are the failed policies of unlimited bailouts and crippling austerity.’[7]  Similarly the ESM was described as ‘a sinister Trojan horse being driven into the heart of Europe to impose more poisonous austerity on ordinary citizens and further dismantle democracy within the European Union. It is a permanent austerity mechanism, not a stability mechanism.’[8] A number of contributors also objected to the immunities and privileges of the ESM and its officers.[9] The question of Ireland’s contribution was also raised both before the Dáil (lower house) and the Seanad (upper house) and was dealt with extensively before the Dáil sub-committee on finance.[10]

Case law         
VIII.4
Is there a (constitutional) court judgment on the ESM Treaty?

Thomas Pringle v Ireland and others contained a challenge to the constitutionality of the ESM Act.[11] It was tried at first instance in the High Court before Justice Laffoy who rejected those aspects of the challenge based on Irish law. For an assessment of the High Court judgement see question V.4. This judgement was appealed to the Supreme Court. The below description summarises the Supreme Court judgment with respect to the ESM Treaty. The claim relating to Decision 2011/199/EU amending Article 136 TEU is detailed in question V.4 above.

Thomas Pringle v The Government of Ireland, Ireland and the Attorney General

  1. Name of Court:Supreme Court of Ireland
  2. Parties:Thomas Pringle TD (appellant) vs Government of Ireland, Ireland and the Attorney General (defendants).
  3. Appeal

Citation:[2012] IESC 47

Date of Judgment:19October 2012

 

4        Admissibility Issues:N/A

1.      Legally Relevant factual situation: N/A

2.      Legal questions: The Appellant raised various questions that were grouped by the Court under the following headings:

1.      That the ESM Treaty (the Treaty) represented a delegation of sovereignty to an international institution that was prohibited under the Irish constitution as interpreted in Crotty (the “sovereignty claim”).

2.      That the ESM Act, implementing the ESM Treaty in Irish law, represented an unconstitutional delegation of legislative authority to the Government (the “transfer of powers claim”).

3.      That the ESM Treaty breached Union law (the “ESM claim”).

4.      European Council Decision amending Article 136 TFEU breached Union law (the “Council Decision claim”)

5.      The appellant argued that the breach by the ESM of Union law implied a parallel breach of the Irish constitution due to the special status that Union law enjoys under Article 29 of the Irish Constitution.

6.      That an injunction should be granted restraining the Irish government from ratifying the ESM Treaty.

7.   Arguments of the Parties:

The appellant argued that the Treaty breached Union law. It was pointed out that in the recital to Decision 2011/119/EU that the European Council considered a treaty amendment was “required” for the entry into force of the ESM. This, according to the appellant, was evidence that the European Council itself considered the ESM incompatible with the TFEU as it then was. More specifically he argued that the ESM breached the Treaty’s provisions on EMU, namely Articles 122, 123, 125 and 126 TFEU, both in their substance and with regard to the objective and spirit of those provisions. The ESM also conferred competence for monetary and economic matters to a non-Union body, the ESM, and conferred new competences on Union institutions, namely the ECB and the Court of Justice. Finally, the principle of sincere cooperation prohibited Ireland from ratifying a Treaty that was incompatible with its obligations under Union law.

The appellant argued that the ESM Treaty and the ESM Act breached the Irish constitution. The Treaty, particularly when read in combination with the Fiscal Treaty went beyond the mere provision of aid but was intended to be an instrument of a more general policy of economic and financial stability and solidarity within the Eurozone. As such it represented an unconstitutional delegation of sovereignty to an international institution per Crotty. He argued that the Treaty was a permanent commitment and surrendered to an international body decision making power that could have severe budgetary implications for Ireland. The defendants argued that the treaty at issue in Crotty, namely Title III of the SEA, Ireland’s membership of the ESM Treaty would not reduce or fetter the executive or legal powers of the state, in particular in relation to foreign affairs. It pointed to the fact that Ireland’s contribution was limited and could only be increased with the future consent of the Irish Parliament.

  1. Conclusions of the Court:

The Court referred the Union matters (Points 3 and 4) to the Court of Justice under a separate judgement and requested the use of the accelerated procedure.  

Point 2, the transfer of powers claim, was not considered urgent by the Supreme Court as it related not to Ireland’s ability to ratify the ESM Treaty but rather giving internal effect to Ireland’s obligation under the Treaty.

The Court found it unnecessary to address Point 5 as any determination would not have any practical effect. If the Treaty was contrary to Union law then it would not go ahead in which case a determination of its compatibility with Irish constitution would be moot. In the alternative and the Treaty was in fact compatible with Union law then it would, for the purposes of this argument, also be compatible with the Irish constitution.

The Court therefore dealt with Points 1 and 6 in the present judgment, namely whether the ESM Treaty was compatible with the Irish constitution (Point 1) and whether an injunction restraining the Irish government from ratifying that Treaty should be granted (Point 6). 

A majority of the seven member Court found against the appellant under both points. It held that the ESM Treaty did not constitute an unconstitutional delegation of sovereignty per Crotty and that the balance of convenience overwhelmingly favoured refusing an injunction. A minority of one, Hardiman J, dissented, finding that a referendum and a constitutional amendment would be required in order for the State to legally ratify the ESM Treaty.

Point 1 – The Sovereignty Claim

A majority consisting of Denham CJ, Clarke, Fennelly, MacKechnie, Murray and O’Donnell JJ, (judgements by Denham CJ, Clarke, MacKechnie and O’Donnell JJ) found that the Treaty did not represent an unconstitutional delegation of power as defined in Crotty.

The majority contrasted the international treaty at issue in Crotty, namely Title III of the SEA dealing with coordination between members of the EC in the conduct of their foreign policies with the ESM Treaty. Crotty found that under the Irish constitution sovereignty flowed from the Irish people. This sovereignty was exercised by various organs established by the Constitution in accordance with the provisions of that constitution. The government had a wide discretion in the exercise of foreign policy. This discretion did not however include the ability to limit or delegate that power. Title III of the SEA was an open-ended, vague and wide-ranging commitment to adjust the State’s foreign policy in accordance with the concerns and actions of other states. As such it was a delegation of the Government’s freedom to direct the State’s foreign policy. It was therefore an unconstitutional delegation of sovereign authority to an international institution.

The ESM Treaty by contrast had a clearly defined scope. It was a narrow, if important, commitment on behalf of the state. The policy, namely the maintenance of stability in the Eurozone by the provision of appropriate financial assistance to members of the ESM, was defined and set down by the parties to the Treaty. The institution itself only implemented this policy. As stated by MacKechnie J ‘[i]n effect the fundamental difference between [Title III of the SEA and the ESM Treaty] is the fact that the ESM Treaty is essentially policy implementing and not policy making.’ Furthermore it was not an open-ended financial commitment. The liability of Ireland was limited and any increase in the capital would have to be approved by the Irish Parliament by legislation. Finally the limited circumstances in which Ireland would not exercise its voting rights (in the event of a failure to meet its commitments or in the event that a threat existed to the sustainability of the Euro zone) would not represent instances of policy making.

Hardiman J wrote the single dissenting judgement. After an assessment of the various judgments in Crotty he came to a different conclusion to the majority regarding its ratio, finding that the essence of that judgment was the point of reference for which the sovereign powers of the state should be exercised.[12] In particular he found that when exercising its powers the State was to have reference to the ‘common good’ as mentioned in Article 6 of the Irish constitution, where that ‘common good’ was to mean the common good of the Irish people. By contrast the ESM Treaty delegated decision making power over a considerable sum of money of the Irish people to be disbursed in the interest of maintaining the stability of the Eurozone as a whole. An interest that may, or may not, coincide with the “common good” of the Irish people. Furthermore, he found that under the ESM the Irish government would be obliged to submit to decisions regarding expenditure according to ‘particular procedures’, something that amounted to a delegation of sovereignty within the meaning of Crotty. Finally, Hardiman J had ‘considerable doubts’ regarding whether the procedures of the ESM and in particular the accountability of the Minister for Finance when exercising his powers as a member of the Board of Governors of the ESM.

Point 6 – The Injunction Claim

The appellant sought an injunction restraining the Government from ratifying the ESM Treaty pending the outcome of the Article 267 TFEU reference to the Court of Justice. A question arose as to the appropriate test with the appellant arguing that a test based on Union law should be used, in particular as articulated in Zuckerfabrik and Atlanta. This was not however evident, as the ESM Treaty is not a Union measure, and Ireland in ratifying it would not in fact be implementing Union law.

The majority found against the appellant with the most substantial treatment of the injunction question by Clarke J. A definitive judgment was not made on whether the domestic test based on Campus Oil or that based on Union law should be used or in fact what might be the substantial differences between the two tests. Rather it was found that the appellant’s case failed under either test. Based on an affidavit provided by a senior civil servant in the Department of Finance stating that it was in the financial interest of Ireland and other members of the ESM that it enter into force as soon as possible and that it was in Ireland’s interest to be involved in the ESM as early as possible, it was concluded that the balance of convenience overwhelmingly favoured the refusal of an injunction.

  1. Legal effects of judgment:

The judgment confirmed the compatibility of the ESM Treaty with the Irish constitution.[13]

  1. Outcome and implications:

The Government was not prevented from ratifying the ESM Treaty. In particular it was not obliged to hold a referendum amending the constitution in order to accede to the ESM.

Mr Pringle has indicated he is dropping the outstanding claim relating to the constitutionality of the ESM Act (in particular the appropriateness of the delegation of power under the Act to the Minister). Accordingly, following the judgement of the Court of Justice in the preliminary reference proceedings, it is expected that the Supreme Court will make an order refusing the appeal from the High Court leaving that Court’s judgment standing.[14] 

Capital payment 
VIII.5
What is the role of Parliament in the payment of the (first instalment of) paid-in capital required by the ESM Treaty (article 36 ESM Treaty)? What relevant debates have arisen in relation to this payment?

The ESM Act 2012 authorises the Minister of Finance on behalf of the State to make payments of authorised capital into the ESM out of the Central Fund[15] up to a maximum of €11,145,400,000.[16] As payments made from the Central Fund they shall be subjected to the usual (ex post) accountability procedures of Parliament. Parliament has no further role in authorising payments under the Act. An amendment to the Act would be necessary to raise the ceiling above the figure mentioned above.

Application & Parliament     
VIII.6
What is the role of Parliament in the application of the ESM Treaty, for example with regard to decisions to grant financial assistance and the disbursement of tranches, which both require unanimous adoption by the Board of Governors composed of the national Finance Ministers?

Section 8 of the ESM Act 2012 requires that the Minister compile a report to be laid before the Dáil every six months. This report shall include the total value of contributions made to and received from the ESM. Beyond normal parliamentary procedures regarding executive accountability, Parliament does not have any formal role in the activities of the ESM or in determining the actions of the Minister for Finance when acting as a member of the Board of Governors of the ESM.

Application difficulties   
VIII.7

What political/legal difficulties
did Ireland encounter in the application of the ESM Treaty?

A number of members of Parliament and public commentators raised the question of the provision of financial assistance to Spain in order to recapitalise its banking system. In particular a common position across the political spectrum was that it would be desirable for the ESM to directly provide funds to banks and for that mechanism to be retrospectively applied to the Irish banking sector. Thus ‘[i]t is the policy of the Irish Government that recapitalisation of sovereigns should be separated from recapitalisation of banks and that a mechanism should be found to recapitalise banks in such a way that the recapitalisation would not form part of the general government debt and in normal parlance, would be of the sovereign balance sheet.’[17]

Opposition parties criticised severely the handling of the Cypriot financial situation in March 2013. In particular they criticised what was termed the incompetence and complacency of the European Council. They also criticised the levy imposed on deposits of more than €100,000, claiming it would undermine confidence in the banking systems as a whole.[18] Ireland’s support or at least acquiescence of the original deal, imposing a levy on all bank deposits was also questioned and a number of deputies argued that the deal reflected a distinct lack of solidarity with the Cyprus.[19] Micheál Martin, the leader of the opposition did welcome the inclusion of bondholders and shareholders in the final package claiming that ‘[i]t reinforces the fact that equity demands further significant relief for Ireland’.[20]

Implementation
VIII.8
Have there been any relevant changes in national legislation in order to implement or to comply with requirements set by the ESM-Treaty?

Beyond the passage of the ESM Act 2012 there have been no other legislative changes in order to implement or comply with the requirements of the ESM Treaty.

Miscellaneous
VIII.9
What other information is relevant with regard to Ireland and the ESM Treaty?

The ESM and in particular its recital 5 making access to ESM funding conditional on ratification and transposition of the Treaty on Stability and Coordination and Growth (TSCG) was a central issue in the referendum on TSCG itself. Advocates of a ‘no’ vote argued that recital 5 was a ‘blackmail clause’ while advocates of a ‘yes’ vote argued that it was a reasonable request that states accessing the ESM would make commitments to fiscal discipline.[21]

During the referendum campaign there was also a discussion regarding the exact relationship between the ESM and the amendment of Article 136 TFEU during which a pronouncement of the referendum commission on the matter was challenged before the High Court by Pearse Doherty (see question V.4 above).


[1]               Article 29.4 Bunracht na hÉireann (Constitution of Ireland).

[2]              Hogan and Whyte, JM Kelly: The Irish Constitution (n 1) 546.

[3]               Article 29.5 Bunracht na hÉireann (Constitution of Ireland).

[4]              Treaty Series 2013 No 14 European Stability Mechanism Treaty available at http://www.dfa.ie/uploads/documents/Legal%20Division%20Documents/Treaty%20Series%202013/no.14%20of%202013t.pdf (last visited 19 November 2013).

[5]              For a discussion of whether the decision to amend Article 136(3) TFEU required a constitutional amendment see answer to question V.4 above and Gavin Barrett, ‘The Treaty Amendment on the European Stability Mechanism: Does It Require a Referendum in Ireland?’ (2011) 29 The Irish Law Times 152.

[6]               See contribution of Minister for Finance, Michael Noonan, Dáil Debates, 7 June 2012, Vol 767 No 2, 600.

[7]               Pearse Doherty TD, ibid, 609.

[8]               Richard Boyd Barret TD, ibid, 611.

[9]               See as an example the contribution of Senator David Norris, Seanad Debates, 27 June 2012, Vol 216 No 5, 311 ff.

[10]             European Stability Mechanism Bill 2012, Committee Stage, 14 June 2012 available at  http://debates.oireachtas.ie/FI1/2012/06/14/00003.asp (last visited 19 November 2013).

[11]             For the High Court case see Pringle v The Government of Ireland (n63). For the Supreme Court case see Pringle v Government of Ireland (n 64).

[12]This point was also made by Denham CJ (paras 14 xviii and 17 ii) but did not play as significant a role in her reasoning.

[13]             Point 5 on the effect of a finding of incompatibility with Union law would have on the constitutionality of the ESM Treaty was not determined in the present judgment (see judgment of Denham CJ para 11 ii).

[14]             Correspondence with Mr Pringle, TD, 13 June 2013, on file with author.

[15]             European Stability Mechanism Act 2012, s 2.

[16]             ibid, s 3.

[17]             See comments of Minister for Finance Michael Noonan, Select Sub-Committee on Finance, 14 June 2012, European Stability Mechanism Bill 2012: Committee Stage.

[18]              See comments of Gerry Adams TD, Dáil Debates 27 March 2013 Vol 798 No 1, 23.

[19]              Mick Wallace TD, ibid, 28.

[20]             Micheál Martin TD, ibid, 21.

[21]             Is it not reasonable for citizens of other EU states to ask if we need additional funding why should we receive it in the absence of bring debt under control and supporting the essential legal architecture being put in place to ensure we do not get into similar difficulties in future?’ Minister for Justice and Defence Alan Shatter, Dáil Debates, 19 April 2012, Vol 762 No 1, 92-93.