It is a measure of the complexity of Economic and Monetary Union law that almost 10 years since the onset of the Euro crisis we do not yet have an answer to some of the most fundamental legal questions about the bailouts that were coordinated by the EU: 1) What is the legal nature (and/or effects) of a Memorandum of Understanding (MoU), which lays down the conditions attached to the financial assistance granted to the recipient State? 2) Which legal remedies may admissibly be brought against the bailout conditions before the EU courts? 3) Do the national measures adopted in implementation of the MoU fall within the scope of application of the EU Charter of Fundamental Rights, which has formed the basis of many, unsuccessful thus far, challenges?

A new judgment delivered by the ECJ’s Grand Chamber (Case 258/14, Florescu) now provides more clarity on these issues. The attention thus far given to the judgment is not commensurate with its legal significance. The case originated in Romania and concerned a national measure which prohibited the combining of a net pension with income from activities carried out in public institutions if the amount of the pension exceeded a certain threshold – a typical austerity measure, adopted in many countries hit by the crisis. The measure was linked to an MoU concluded between the European Community (as it then was) and Romania for the purposes of balance-of-payments assistance (see Article 143 TFEU and Regulation 332/2002). The applicants sought to argue that the impugned measure was adopted in implementation of the MoU, which was, in their opinion, part of EU law; and that it violated their Charter right to property (Article 17).

The Court qualified, for the first time ever, the MoU for balance-of-payments assistance as an act of an EU institution which may be subject to a request for interpretation pursuant to Article 267 TFEU (reference for a preliminary ruling). Moreover, it established a link between the impugned national law and the MoU, holding that the former was adopted in implementation of the latter. Since the MoU formed part of EU law, the impugned national measure was ‘implementing Union law’ within the meaning of Article 51(1) of the Charter and was therefore brought within its remit. This flies in the face of the Court’s earlier jurisprudence, where it was held that the Member States concerned (Portugal and Romania) were not ‘implementing Union law’ in adopting the impugned austerity measures. The Court in Florescu, however, upheld the legality of the impugned measure, ruling that it was not disproportionate to the attainment of the objective pursued.

In a new article published in the Common Market Law Review (Volume 55, Issue 2, pp. 643-672), we look at this important judgment. In holding that the MoU for balance-of-payments assistance to non-Eurozone countries is an act of an EU institution which may be subject to interpretation by the Court (also in the light of the Charter), the Court enhanced the legal accountability of the EU institutions for their actions related to bailouts. The bailout conditions shall be interpreted in the light of all primary and secondary EU law, including the EU Charter, and may therefore be brought to bear a different meaning, insofar as this would not result in a contra legem interpretation. It is hoped that this might serve to mitigate the MoU’s adverse impact on the socioeconomic conditions in the recipient State.

We believe that this case will condition the future development of Economic and Monetary Union law, in ways that may not yet be readily apparent. Questions abound: is the MoU for balance-of-payments assistance legally binding or simply ‘mandatory’ in the sense that the disbursement of financial assistance is linked to the fulfilment of the conditions in the MoU? Is it only subject to interpretation by the Court pursuant to Article 267 TFEU (as would be the case for EU soft law measures) or could it also be declared (wholly or partially) invalid pursuant to Article 267 TFEU or 263 TFEU? Is it possible to extend the Court’s findings in Florescu to MoUs with other EU financial assistance mechanisms, such as the European Financial Stabilisation Mechanism (EFSM)? Furthermore, as regards the financial mechanisms placed outside the EU legal order, would it be possible to argue that the conditionality linked to the MoUs with the European Financial Stability Facility (EFSF) and the European Stability Mechanism may be subjected to judicial scrutiny thanks to the Council Decisions adopted under the Excessive Deficit Procedure (Articles 126 and 136 TFEU) and ‘two-pack’ legislation (Article 7 of Regulation 472/2013)? Would there equally be a link to the EU Charter of Fundamental Rights in the case of such Council Decisions (Article 51(1) of the Charter)? We have sought to provide an answer to these questions in our article, arguing that the view favoured by the Court seems to be that the MoU is capable of producing binding legal effects; that the Florescu’s ratio decidendi may be extended to other financial mechanisms established within the EU legal order; and that, as regards those mechanisms established outside the EU legal framework, one could draw on the Council Decisions setting out the core bailout terms, which may be judicially examined in the light of the EU Charter of Fundamental Rights.

The article is also available on SSRN.

Menelaos Markakis is postdoctoral researcher at the European Research Centre for Economic and Financial Governance, Erasmus University Rotterdam.

Paul Dermine is doctoral researcher at the Maastricht Center for European Law, Maastricht University.