Diane Fromage, Maastricht University*

* I am grateful to Menelaos Markakis for his insightful feedback.

On March 12, 2020, the Court of Justice dismissed an appeal concerning the Steinhoff case (T-107/17), previously decided by the General Court in May 2019. This case, though not widely discussed, holds significant weight as it clarifies and broadens the European Central Bank (ECB)’s obligation to ‘respect the rights [of the EU Charter of Fundamental Rights (ECFR)], [to] observe the principles and [to] promote the application thereof’ as stated in Article 51 ECFR, specifically concerning its advisory role.

Stemming from measures taken during the Great Financial Crisis, this case centers around losses experienced by private creditors due to the restructuring of Greek public debt – the largest of its kind globally. F. Steinhoff and other parties involved were impacted by the Greek government’s actions to stabilize their national debt and avoid bankruptcy, which included a voluntary Private Sector Involvement Scheme. Law No. 4050/2012 was enacted, offering a restructuring deal to Greek bond holders that considerably decreased their value. This law also implemented a retroactive Collective Action Clause (CAC), stipulating that if two-thirds of bond holders for a specific issue agreed to the exchange, all bondholders would experience a reduction in their bond value. (CACs have since become standard in euro area Member States with the implementation of Article 12(3) of the European Stability Mechanism Treaty). Steinhoff and the other plaintiffs suffered substantial losses, even without consenting to the exchange.

Before its enactment, the Greek government consulted the ECB on this law, as mandated by Article 127(4) TFEU, which states that national authorities must consult the ECB on draft legislation within its purview. The ECB’s opinion was generally favorable and did not raise objections. They highlighted that using CACs for bond exchanges is standard practice, approved of the potential for negotiations between Greece and private creditor representatives regarding exchange terms, and emphasized that Greece alone is responsible for ensuring its debt sustainability. Following the law’s passage, Steinhoff and the other plaintiffs sought to hold the ECB accountable for their losses, arguing that the ECB should have warned Greece that implementing Law No. 4050/2012 would infringe on their fundamental rights. Some bondholders also contested the law in the Greek Council of State and the European Court of Human Rights, alleging violations of property rights, peaceful enjoyment of possessions, equality, non-discrimination, proportionality, legitimate expectations, and legal certainty. Both courts dismissed these claims. (For a deeper dive, see Evangelos Venizelos’s recent article on the matter). Additionally, bondholders attempted to challenge the law in national courts of other Member States, such as Germany.

Following the Accorinti and Nausicaa cases, the Steinhoff case is the third instance where the ECB’s non-contractual liability is being argued in connection to the Greek law and resulting investor losses. The General Court was tasked with determining if the ECB was liable for not alerting the Greek government, during its Article 127(4) TFEU consultation, that the proposed law was potentially illegal. The applicants asserted that the ECB should have flagged the Greek law for violating the pacta sunt servanda principle, their right to property as protected by the ECFR (Article 17(1) and (2)), the freedom of capital movement within the EU (Article 63 TFEU), and the prohibition of preferential treatment to financial institutions by EU and national bodies as stated in Article 124 TFEU.

The General Court began by referencing established case-law, stating that EU institutions can be held liable for non-contractual damages even if the damage arises from a non-legally binding act. Three conditions must be met: the infringed law granted rights to individuals and the breach was sufficiently severe, actual damage occurred, and a causal link exists between the institution’s breach and the damage sustained. The General Court then examined the nature of the ECB’s advisory role, reiterating that while the ECB’s opinions are non-binding for national authorities, the ECB can still be held accountable for them. However, given the ECB’s broad discretion in formulating opinions, liability only arises in cases of blatant and serious disregard for this discretion.

When assessing the case’s core, the General Court determined that the pacta sunt servanda principle, a general principle of EU law, was not violated. They argued that the ECB’s consultation opinions do not pertain to contractual agreements between a Member State and a private individual. Instead, they are intended for Member States and fall under the ECB’s ‘fundamental missions in the area of monetary policy’ (translated from the original text), particularly their duty to maintain price stability. Therefore, the General Court decided that the ECB was not obligated to highlight a violation of this principle, as it primarily concerns contract law between involved parties.

The General Court reached a different conclusion regarding the ECB’s responsibility to uphold the right to property guaranteed by the ECFR (also a general principle of EU law). While ultimately concluding that no disproportionate infringement on the right to property occurred and that its fundamental aspects remained untouched, the Court deemed that the ECB has a duty to call out any violation of the right to property within its area of competence, including its advisory role. This is because, as an EU institution, the ECB is obligated to ‘respect the rights, observe the principles [guaranteed in the Charter] and promote the application thereof’ (Article 51 ECFR). The Court, drawing on the Ledra Advertising case, argues that the European Commission can violate property rights through action, inaction, or failure to act, and similarly, the ECB can also breach this right through inaction. The ECB’s special status does not exempt it from respecting fundamental rights or contributing to the Union’s objectives. Although not explicitly mentioned, the General Court had previously applied its findings about the Commission in the Ledra Advertising case to the ECB in the Chrysostomides case. Therefore, this point is not novel to the General Court’s reasoning.

Moving on to a potential breach of the free movement of capital guaranteed by Article 63 TFEU, the General Court determined that overriding reasons of general interest justified the restriction on capital movement in this case. The plaintiffs failed to demonstrate a disproportionate restriction, leading the Court to conclude that no violation of Article 63 TFEU occurred.

Finally, the General Court concluded that the ECB did not commit a sufficiently serious breach of the plaintiffs’ right by not addressing the Greek law’s violation of Article 124 TFEU, as no such breach occurred. Even if there were a violation, the plaintiffs would not be entitled to damages because Article 124 TFEU safeguards the Union as a whole and doesn’t confer rights upon individuals, including the plaintiffs.

Based on these arguments, the General Court ruled against pursuing the ECB’s non-contractual liability.

This judgment holds constitutional significance for the EU legal system due to its expansion of the ECB’s obligation to observe and promote the ECFR—an aspect the Court of Justice did not address during the appeal process concluding in March 2020.

As mentioned earlier, the General Court essentially extended its findings from the Ledra Advertising case, which established the Commission’s unconditional duty to ensure compliance with the ECFR for memoranda of understanding within the European Stability Mechanism framework, to the ECB. However, this analogy is not entirely persuasive. While the Commission’s obligation can be seen as applicable to the ECB due to its involvement in negotiating these memoranda (a conclusion the General Court itself reached in the Chrysostomides case), their roles differ significantly from the ECB’s function in its advisory capacity. For instance, the Commission actively negotiates and signs the memoranda of understanding on behalf of the ESM. Although it lacks decision-making power, as per the Court of Justice’s findings in the Pringle case, and its involvement with the ESM doesn’t fundamentally alter its powers outlined in the Treaties, its active participation signifies a greater degree of responsibility compared to the ECB’s issuance of non-binding opinions on national legislation within its domain. Consequently, directly applying the Ledra Advertising case findings to the Steinhoff case, as the General Court did, requires more substantial justification, particularly since Article 51 ECFR states that Union institutions are to ‘respect the rights, observe the principles and promote the application thereof in accordance with their respective powers’ (emphasis added). One could argue that the European Commission, as guardian of the Treaties, bears a greater responsibility to actively champion the ECFR than the ECB, which operates with more technical and limited functions within the EU legal framework.

In its reasoning, the General Court appears to overlook the fundamental purpose of the ECB’s consultative role. As established in Council Decision 98/415 regarding consultations between the ECB and national authorities on draft legislation, national authorities must consider the ECB’s opinions but are not bound by them, and bear sole responsibility for the adopted acts. The General Court acknowledges the ECB’s broad discretion in formulating opinions and that only a blatant and severe overreach of these powers could trigger non-contractual liability. The ECB’s unique functions and expertise justify this prior consultation, as established in the OLAF case. Therefore, demanding that the ECB verify the ECFR compliance of national legislation it has no hand in shaping or amending seems unwarranted. Furthermore, since the ECB can opine on national regulations outside EU law, this risks indirectly expanding the scope of the Charter defined in Article 51 ECFR, as the Member State, not bound by the ECFR otherwise, would not be ‘implementing Union law’.

Lastly, the General Court’s differentiation between general principles of EU law deserves attention. While both are general principles, the Court does not hold the ECB responsible for ensuring respect for the pacta sunt servanda principle, yet obligates it to protect the right to property. This distinction stems from the Court’s view that the ECB’s opinions target Member States and fall under its ‘fundamental missions in the area of monetary policy,’ whereas the pacta sunt servanda principle governs relationships between a Member State and a private party. However, the question arises: given that both are general principles of EU law, why this differentiation, and how does one determine which principles the ECB must uphold?

It appears that the General Court missed an opportunity to further strengthen the protection of fundamental rights within the Union, as it did in the Ledra Advertising case. A more comprehensive and nuanced rationale was needed to achieve this. The boundaries defining the conditions and scope of the Charter’s application have become less clear, and we can only hope the General Court will provide further clarification in future rulings.

Barnard & Peers: chapter 19

Photo credit: maslmaslmasl, via Wikimedia Commons