The shaky legal basis of the EU Recovery Fund

Copyright Day 243 - August 30, 2016 #365project #3" by blmurch is licensed under CC BY 2.0

By MEP Charlie Weimers

Following the German Supreme Court’s decision to suspend ratification of EU “Recovery Fund”, Swedish MEP Charlie Weimers (SD-ECR) takes a look at the EU’s 750 billion euro spending and lending scheme, which EU member states are currently ratifying.

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Recently, the Swedish Parliament voted for both the EU’s long-term budget and the so-called “recovery fund”. It is bad enough that the agreement goes against Swedish interests, doubles EU spending, leads to a sharp increase in Swedish contributions, grants the EU the right to issue debt and opens up the possibility of EU taxes. To all of this, the following can be added: that it undermines the rule of law.

An unhealthy culture has developed within the EU institutions where the world is described in post-modern terms. Just as the traditional Western view of truth as something objective and universal is being rejected, the Constitutional limits set by the rule of law for politicians and civil servants are being eroded. Thereby, in bureaucratic and political culture, the meaning of language has often been undermined.

We can witness this postmodern approach in the EU’s directive covering fruit jams. When the authors of the directive discovered that in some countries, carrots are also turned into jam, they didn’t wish to change the definition, but instead solved the problem by – absurdly – redefining the root as a fruit. This kind of standardization has contributed to Scandinavian jam, which is traditionally less solid, now more closely resembling continental European jam. In any case, it illustrates how language often serves as a tool for bureaucrats to get their way. 

Is a sovereign debt crisis a natural disaster?

Some interpretations of the EU Treaties are completely unreasonable. During the financial crisis, southern European countries with high public debt levels were hit particularly hard. Thereby, the EU decided to grant emergency loans to Greece. At a meeting in May 2010, EU finance ministers decided to create two temporary bailout funds with a combined lending capacity of €500bn, which were later phased out, after the creation of the European Stability Mechanism (ESM).

The legal basis for the creation of the first Eurozone bailout fund, the EFSM, was Article 122(2) of the TFEU. According to this article, an EU Member State may be granted financial assistance if it is “in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control”.

To interpret a debt crisis as a “natural disaster” is manifestly incorrect. Nor did the authors of the Treaty ever refer to a member state suffering from a debt crisis as “exceptional occurrences beyond its control”. That EU countries have mismanaged their economies for decades and that some of them lied about economic statistics has long been a known fact. The interpretation in 2010 was clearly unreasonable, but was ultimately considered necessary by EU leaders, to enable them with a legal basis to act.

Once the situation had been stabilised and when countries had agreed, in October 2010, to amend the Treaty, to create a permanent bailout fund, the ESM, the EU Council decided in December 2010 that Article 122(2) “will no longer be needed for such purposes.” Once the crisis was over, EU leaders reverted to the original interpretation of the Treaties.

Different interpretations from one day to the next

The pandemic has hit southern Europe hard, as their debt mountains had only increased in the decade following the sovereign debt crisis. This time, Germany and France want to save southern European eurozone members from bankruptcy by using EU budget funds. 

In the past, Articles 310 and 311 of the TFEU have been interpreted as an absolute ban on the EU taking on debt and EU budget deficits, with Article 310 stating that the “revenue and expenditure shown in the budget shall be in balance” and Article 311 stating that “without prejudice to other revenue, the budget shall be financed wholly from own resources.”

The European Council, as recently as a month before final negotiations began, argued that the principle of budgetary balance “‘prevents the European Union from issuing debt to finance itself”, while the European Commission argued that “EU borrowing is only permitted to finance loans to countries. The EU cannot borrow to finance its budget”. The generally accepted interpretation before the negotiations last Summer was therefore that the EU was not allowed to borrow as it is doing today.

However, for the European Council to reach a compromise, a reinterpretation of the treaties was necessary. An article had to be found to legally underpin the recovery fund.

For this, the third paragraph of Article 175 was used. This is an exception clause in the article enabling EU structural funds. The clause allows for “specific actions (…) outside the Funds and without prejudice to the measures decided upon within the framework of the other Union policies”, granting the European Parliament and the Council [the right to adopt such specific actions] in accordance with the ordinary legislative procedure”.

This paragraph was never intended to replace the budgetary process or to be a part of it. Nevertheless, it was used to set up the recovery fund.

Democracy and the rule of law

Countries that wish to join the EU, must meet certain conditions relating to democracy and the rule of law. The rule of law, set out in the second article of the Treaty, is said to be a fundamental value and a prerequisite for the functioning of the EU. During the negotiations on the EU’s long-term budget and the Recovery Fund, the disbursement of EU funds was made conditional on respecting the fundamental principles of the rule of law.

Meanwhile, the “Corona Fund” is created through legal Jujutsu. This should make us wonder whether the EU itself is complying with rule of law conditionality. When the ban in the EU treaties’ on EU budget deficits and on EU borrowing raised hurdles, it was decided to simply go around the treaties and implement the proposal without any real legal basis.

This is how the rule of law is undermined and how democracy is eroded. Ultimately, it also further weakens the moral authority of the EU. 

This article was originally published in Swedish, by Svensk Tidskrift.

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