EUROPE’S HIGHEST court is likely to rule before the end of the year on the legal challenge by Independent TD Thomas Pringle against the European Stability Mechanism bailout fund, from which Dublin is seeking aid for Ireland’s surviving banks.
Mr Pringle’s case was presented yesterday in Luxembourg at a plenary hearing before the 27-judge European Court of Justice.
As defendant in the case, the Government argued there was nothing improper in an imminent change to the EU treaties to allow the creation of a rescue fund for any distressed member state.
The Government has been supported in its defence by Germany and 10 other EU countries, as well as the legal service of the European Council, the European Commission and the European Parliament.
The court’s judgment is expected before the treaty change takes effect on January 1st, 2013.
In view of the uncertainties over the ESM raised by the case, the court moved to hear it under a fast-track process.
“The use of the accelerated procedure in this case is necessary in order to remove as soon as possible that uncertainty, which adversely affects the objective of the EMS treaty, namely to maintain the financial stability of the euro area,” said the court’s president on October 4th.
While some cases before the court must be heard by all 27 judges, Mr Pringle’s challenge did not fall into that category.
This was the first time that all members of the court chose to hear such a challenge. The court often hears cases in chambers of three, five or 15 judges.
Mr Pringle’s case centres on the €500 billion ESM fund, which has already started operations as a permanent successor to the European Financial Stability Facility temporary fund.
Ireland draws loans under its EU/IMF bailout programme from the EFSF.
With the campaign for debt relief a priority for Dublin, the Government is seeking support in Europe to deploy the ESM to directly recapitalise Allied Irish Banks, Bank of Ireland and Permanent TSB.
One of Mr Pringle’s main arguments is that the treaty change, which enables the ESM to override Europe’s no-bailout clause, was not properly enacted.
The TD for Donegal southwest has also taken issue with the fact that the ESM is an inter-governmental body, operating not as an EU institution but as an organisation set up under international law.
“Developed in haste, the ESM treaty is at odds with and undermines the EU legal order,” said John Rogers SC for Mr Pringle.“In trying to defend the compatibility of the ESM with the EU treaties, the intervening member states and institutions have had to engage in mischaracterisation and distortion in the confusion of form and substance and in legal and conceptual contradictions,” he told the court.
“We are concerned that a body outside the union and not subject to union law could take measures in connection with the union and dictate conditions that will be imposed on member states in matters so fundamental and integral to the union as its economy and its currency.”
For the Government, Michael Cush SC, said Mr Pringle’s challenge ignored the actual wording of the treaty amendment and its purpose, which was to confirm that the euro zone countries may in times of crisis establish a stability mechanism.
“Such a mechanism will not affect the union’s exclusive competence regarding monetary policy for the euro area nor will it increase the limited competence that it has in respect of the co-ordination of the member states’ economic policy.” The amendment was fully compatible with the European treaties, said Mr Cush.
Germany argued in court that there was no sign of any infringement of European law. Thomas Henze, legal counsel for the German government, said it was in the power of member states to allow the ESM to start operations before the treaty change came into force. “The current financial crisis has led to the unforeseeable situation where some member states have been pushed to the brink of insolvency,” Mr Henze said.
“In such cases other member states can provide financial support to these countries, otherwise it would trigger a chain reaction which would bring about the collapse of the euro area.”
The case follows on from Mr Pringle’s Supreme Court appeal to the High Court’s dismissal of his challenge in April to Ireland’s participation in the ESM. The Supreme Court refused him an injunction restraining the Government from ratifying the ESM treaty, but referred questions over its validity to the European court. – (Additional reporting by Bloomberg)
