23 October 2012

Bloomberg: Euro area bailout fund faces challenge at highest court

The euro area's €500 billion bailout fund faces another test as the European Union's highest court weighs claims that the firewall violates EU law and should be banned in its current form.

A complaint by Thomas Pringle, an independent member of the Irish parliament, has reached the Luxembourg-based EU Court of Justice, which has the power to topple the European Stability Mechanism, or ESM. A hearing is scheduled for today, with a ruling possible as soon as the end of the year under a fast-track procedure.

The EU court case follows a separate decision last month by Germany’s Federal Constitutional Court in Karlsruhe not to block the ESM. The German ruling handed a victory to Chancellor Angela Merkel, who championed the bailout facility as vital to save the euro area from a fiscal meltdown as it lurches between crises.

Pringle argues that the ESM, which was declared operational on October 8, violates the no-bailout provision under EU law and encroaches on the EU’s role in economic and monetary policy. A March 2011 decision by EU governments to change a legal provision in a treaty to allow for the ESM’s creation was done incorrectly, Pringle argues. Even if found legal, the ESM cannot function until this treaty change has come into effect, Pringle claims, according to court documents.

Ireland’s Supreme Court, which is handling Pringle’s challenge, decided in July to refer three questions to the EU’s top court that could each put at risk the validity or immediate functioning of the ESM. The EU court decided on October 4 to treat Pringle’s case under an accelerated procedure “to remove as soon as possible that uncertainty, which adversely affects the objective of the ESM treaty, namely to maintain the financial stability of the euro area".

Full article

Case Thomas Pringle vs Government of Ireland, Ireland and the Attorney General

© Bloomberg