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European Court of Justice says the European Stability Mechanism (ESM) is compatible with EU law

November 2012
Thierry Bosly, Dr. Assimakis Komninos, Ian Clark, Michael Doran, Gavin McLean


27 November 2012
In a judgment handed down today, in a preliminary reference from the Irish Supreme Court, in Thomas Pringle v The Government of Ireland, Ireland and the Attorney General (Case C-370/12), the Court of Justice of the European Union ("CJEU") has held that the provisions of the Treaty on the European Union ("TEU") and the Treaty on the Functioning of the European Union ("TFEU") do not preclude the conclusion and ratification of the ESM Treaty.

Thomas Pringle is a member of the Irish parliament and brought a constitutional challenge before the Irish Supreme Court, opposing the ratification of the Treaty Establishing the European Stability Mechanism ("ESM").

The Treaty Establishing the ESM was originally signed by finance ministers of the 17 Eurozone countries on 11 July 2011. A modified version of the Treaty was signed in Brussels on 2 February 2012. The ESM Treaty entered into force on 27 September 2012 and the ESM was inaugurated on 8 October 2012 following ratification by all 17 Eurozone Member States. The ESM will function as a permanent firewall for the Eurozone, with a maximum lending capacity of €500 billion. It was intended to replace the existing European Financial Stability Facility ("EFSF"). ESM Member States can apply, subject to strict conditionality, for an ESM bailout if they are in financial difficulty or their financial sector is a stability threat in need of recapitalisation.

In March 2011, the European Council followed the simplified procedure and amended Article 136 of the Treaty on the Functioning of the European Union ("TFEU"), to avoid a protracted ratification process involving referenda in certain Member States. This procedure was introduced by the Lisbon Treaty in order to help facilitate changes to the policies and actions of the EU. This procedure applies only to the internal policies and actions of the EU and may not increase the competences conferred on the EU in the Treaties. European Council Decision 2011/199/EU (the "European Council Decision") used the simplified Treaty revision procedure and allowed Eurozone Member States to establish a stability mechanism to be activated if absolutely necessary to safeguard the stability of the Eurozone as a whole.

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