01 February 2023

The rise of Article 122 TFEU

On crisis measures and the paradigm change

The last decade, and especially the past year, saw a marked increase in the EU’s reliance on Article 122 TFEU. This legal basis was used to adopt a series of measures aimed to address the health and energy crises following the COVID pandemic and Russia’s invasion of Ukraine.

At least two of those measures are now subject to direct challenges before the General Court and the Court of Justice. From a constitutional perspective, however, it is unfortunate that these two cases will probably not invite the Courts to address the more fundamental constitutional questions raised by the Council’s recent recourse to Article 122 TFEU. The latter ultimately raises the question whether, despite the EU’s mere coordinating competence in the area of economic policy pursuant to Article 5 TFEU, a paradigm shift, whereby a (limited) EU economic policy is developed, can be pursued based on Article 122 TFEU. Before this more fundamental question is highlighted, the cases before the GC and CJEU cases will first be briefly presented.

Exxonmobil v. Council & Poland v. Council

Exxonmobil is challenging the windfall tax (temporary solidarity contribution) imposed by the October 2022 Council Regulation on an emergency intervention to address high energy prices before the General Court. The argument of Exxonmobil appears to be that the EU lacks the competence to impose temporary solidarity contributions since these amount to a tax for which the Member States remain competent. Given that Exxonmobil recorded its highest ever profit in 2022, at 56 billion USD, its action appears morally abject but it does raise a very relevant legal question for the above noted paradigm shift. The General Court will most probably not address that question however, and will most likely dismiss the case as inadmissible. Although the regulation is a regulatory act (given that it is a non-legislative act of general application) and might be of direct concern to Exxonmobil, implementing measures by the Member States are required to introduce the solidarity contribution. Assuming that Exxonmobil is directly concerned by the regulation, it is in any event not individually concerned since the solidarity contribution requirement will apply to any companies with activities in the crude petroleum, natural gas, coal and refinery sectors, producing legal effects with respect to categories of persons viewed generally and in the abstract (see paras 47-48).

The case brought by Poland against the August 2022 Council Regulation on coordinated demand-reduction measures for gas will be admissible. However, from the reference in the OJ it does not seem that Poland is raising the fundamental question of the limits to Article 122 TFEU in light of the EU’s mere coordinating competence in economic policy. Instead, Poland’s main plea is that Article 192(2)(c) TFEU ought to have been used as a legal basis (implying that it believes the EU enjoys competence). This would be so since the regulation significantly affects a Member State’s choice between different energy sources. This is an argument that Poland has already tried in relation to other EU (climate) measures before the Court and on which the latter has ruled that “Article 192(2) TFEU can form the legal basis of an EU measure only if it follows from the aim and content of that measure that the primary outcome sought by that measure is significantly to affect a Member State’s choice between different energy sources and the general structure of the energy supply of that Member State.” (para. 46) The CJEU will therefore have to apply its well-known choice of legal basis test, but in a way that it will first and foremost test whether Article 192(2)(c) TFEU is the correct legal basis, which is not quite the same as testing whether Article 122 TFEU is the right legal basis.

The increased reliance on Article 122 TFEU

To recall, Article 122 TFEU reads as follows:

  1. Without prejudice to any other procedures provided for in the Treaties, the Council, on a proposal from the Commission, may decide, in a spirit of solidarity between Member States, upon the measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products, notably in the area of energy.
  2. Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned. The President of the Council shall inform the European Parliament of the decision taken.

Article 122 TFEU thus foresees two legal bases that both allow measures to be adopted to address emergencies or crises. Its first paragraph would allow general measures, while the second specifically envisages financial aid. On the second paragraph, the Court noted in Pringle that it could not be relied on to establish the ESM since the ESM is a permanent mechanism to the benefit of the stability of the Eurozone as a whole, not a temporary mechanism to the benefit of (a) specific Member State(s) (para. 65). While Article 122(2) TFEU was relied on during the euro crisis to establish the EFSM, it has really started to do the heavy lifting of the EU’s crises response instruments since the pandemic. The chart below shows the number of legal acts adopted based on Article 122 TFEU (and precursors) since the entry into force of the Maastricht Treaty. With this, a paradigm shift has been triggered.

A paradigm shift

The recent legal acts adopted pursuant to Article 122 TFEU arguably constitute a paradigm shift because through these crisis measures, the EU is indirectly pursuing an economic policy. Of course, this policy is not a fully-fledged one as that would be clearly incompatible with the competence division reflected in Article 5 TFEU. Instead, economic policy is pursued in a secondary fashion whereby the main objective of the Article 122 TFEU measures (nominally) remains crisis response, as also evidenced by most of these measures’ temporary nature. The very real consequences for the economic policies of the Member States should nonetheless be clear. The regulation on the recovery instrument mentions as one of its objectives the support for “reforms and investments to reinvigorate the potential for sustainable growth and employment in order to strengthen cohesion among Member States and increase their resilience”. The Council Regulation on an emergency intervention to address high energy prices, introduces price controls by putting a cap on the revenues of electricity producers and requires Member States to redistribute the resulting surplus revenues among final electricity customers. Fossil fuel companies are for their part subject to an excessive profit tax. Although the recovery and resilience facility regulation is not based on Article 122 TFEU, it implements the recovery instrument (which is based on Article 122 TFEU), and rests on six pillars of which only one is strictly linked to crisis response (see Article 3(e) of the regulation). Approval of the recovery and resilience plans and the disbursements of recovery and resilience money depends on Member States following up on recommendations issued under the European Semester or the Stability and Growth Pact, giving further teeth to those recommendations. While perhaps not constituting a super competence as Leino-Sandberg and Ruffert would have it (see below), these further policy implications clearly go beyond what a strict reading of Article 122 TFEU would allow. In relation to the recovery instrument, this question was already put to the German Constitutional Court but under that Court’s Ultra Vires doctrine, the question is whether the EU exceeded its competences manifestly and in a structurally significant way. The Constitutional Court clearly noted that it was not convinced that the recovery instrument was merely addressing the effects of the pandemic but equally held that the EU still did not manifestly exceed its competences (para. 173 et seq.) (discussed earlier on Verfassungsblog here and here).

A debate that boils down to the legal basis test

The extensive reliance on Article 122 TFEU has not gone unnoticed and has already been the subject of academic debate (see also the doctrine cited in para. 154). In his discussion of the post-pandemic recovery instrument, De Witte noted that some might view the reliance on Article 122 TFEU as problematic since the instrument’s objective of supporting an economic transition goes beyond the realm of crisis management. According to De Witte himself however, Article 122 TFEU could still be relied on: providing assistance following a crisis (permissible under Article 122 TFEU) “should not prevent the use of that assistance to also strengthen the mid-term and long-term economic resilience of those States.” Leino-Sandberg and Ruffert disagreed, finding that the EU institutions amalgamated the two different legal bases in Article 122 TFEU, exploiting the resulting legal ambiguity. For them the EU’s response is built on a fragile legal foundation, and they warn that “Article 122 TFEU will gradually develop into a new super competence, to be used without effective democratic scrutiny”. The latter would be so because Article 122 TFEU prescribe recourse to non-legislative procedures whereby paragraph 1 foresees no role at all for the European Parliament and paragraph 2 only prescribes that the President of the Council should inform the Parliament of the decision taken. In addition, national parliaments have only been marginally involved in the adoption of both the recovery instrument and the recovery plans (see Dias Pinheiro & Dias).

The settlement of this debate ultimately depends on the legal basis test: is Article 122 TFEU the right legal basis for these measures, given their aim and content? Here, two points should be flagged. The first is the possibility to combine the legal bases of Article 122 TFEU. Under the Court’s established case law, when one single measure pursues several objectives none of which is incidental to the others, multiple legal bases should be relied on, but only if the decision-making procedures are compatible (see paras 56-57). The latter is the case here. However, combining both legal bases might also be seen as a circumvention of the limits set by the separate legal bases. Concretely: in Pringle, the Court suggested that Article 122(1) TFEU was inappropriate to provide financial aid (para. 116); while Article 122(2) TFEU was appropriate to provide such aid but only temporary and in a targeted manner (para. 65). If the Court simply follows its standard approach of combining legal bases however, both Article 122(1) and (2) TFEU can be combined, allowing for the creative legal engineering that supports an EU economic policy through the back door.

The second point relates to the actual choice of legal basis test and the question of how strict/tenuous the link should/may be between the aim of addressing the severe difficulties or emergency and the incidental economic policy prescriptions. Under the Court’s case law, incidental measures are absorbed by the main legal basis as long as they are ancillary (see para. 31). The Court’s test is rather imprecise here and has mainly been developed in the area of external relations. Still there appear to be three different types of ancillary provisions, two of which are relevant in an internal EU setting. Firstly, there are provisions that are a necessary adjunct to ensure the effectiveness of the main provisions (para. 70); secondly there are substantive provisions that are only limited in scope (paras 75-76). It is doubtful that the economic policy prescriptions imposed through some of the Article 122 TFEU measures are only limited in scope. This is the main argument to argue that the Council acted ultra vires. By contrast, those measures could be argued to constitute a necessary adjunct, not to the main provisions as such but to ensure that any assistance provided does not undermine the measures adopted by the Union in particular in the area of the coordination of Member States’ economic policies (see by analogy para. 143 of Pringle). Article 122 TFEU would also remain an exceptional legal basis, even if relied on to create a permanent framework, since concretely triggering the application of the mechanism and the adoption of temporary crisis measures within that framework would still depend on ‘severe difficulties’ presenting themselves.

While such a reading might not be a traditional reading of Article 122 TFEU, the (only) pertinent question is whether it is a permissible reasoning. That the (previously) dominant reading of Article 122 TFEU may have been more restrictive in no way precludes a more flexible interpretation in the present and future. After all, the TEU and TFEU constitute a constitutional charter intended to endure for ages to come, and consequently to be adapted to the various crises of human affairs. The significant checks and balances in the EU’s constitutional charter, even those in Article 122 TFEU which exclude a role for the European Parliament, buttress this flexibility.

I would like to thank Prof. Bruno De Witte for comments on an earlier draft. All errors or omissions remain my own.

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