Abstract
On 13 September 2022, the Court of Justice, in its Grand Chamber formation, ruled in Banka Slovenije 1 that Slovenian legislation that required the Central Bank of Slovenia to compensate certain holders of financial instruments was incompatible with EU law and in particular Article 123 TFEU. Although the judgment was about preventing a central bank from monetizing government debt, it indirectly strengthened the defences of central banks’ independence from political interference.
Commentary and analysis on the extent of independence and the nature of accountability of the European Central Bank have filled hundreds, perhaps thousands, of pages of scholarly journals and books.
Article 130 TFEU stipulates that ‘neither the European Central Bank, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions', while Article 282(3) provides that the ECB ‘shall be independent in the exercise of its powers and in the management of its finances'.
These are powerful statements that have raised important questions about the purpose and scope of the ECB's independence in democratic political systems such as those of the EU and its Member States. Such questions have spawned a voluminous literature. 2 The Court of Justice has also given us some rather surprising answers.
Twenty years ago, in case Commission v. ECB, the Court of Justice explained that the purpose of Article 130 TFEU was ‘to shield the ECB from all political pressure in order to enable it effectively to pursue the objectives attributed to its tasks, through the independent exercise of the specific powers conferred on it’. 3 This was confirmed later on in its judgment in case Gauweiler and Others 4 and in case Rimšēvičs and ECB v. Latvia. 5 However, the Court went on to point out that ‘recognition that the ECB has such independence does not have the consequence of separating it entirely from the European [Union] and exempting it from every rule of [Union] law’. 6 Being subject to inspections by OLAF to detect possible fraud was not ‘per se capable of undermining the ECB's independence’. 7
In other words, checks by a non-political body to ensure compliance with the EU's financial rules did not impinge on the ECB's prerogative to conduct monetary policy independently because, one may add, preventing or detecting fraud does not directly or indirectly affect the freedom or discretion of the ECB to set interest rates or to engage in transactions on financial instruments.
The ECB, however, is not a normal central bank. It does not act alone. It operates within the European System of Central Banks (ESCB) and, pursuant to Article 9 of the ESCB Statute, implements the decisions it takes in the context of monetary policy (and in the context of its more recently assigned task of prudential supervision of financial institutions) ‘through’ the national central banks (and national supervisory authorities, respectively). In this respect, the Executive Board of the ECB may issue ‘instructions’ and have ‘recourse’ to national central banks. 8 This is the reason why the Treaty, in Article 130 and Article 7 of the ESCB Statute, also requires that national central banks must be empowered to act independently.
This immediately raises another question: who is responsible for decisions taken within the ESCB? In the landmark case Berlusconi, 9 which concerned supervision of financial institutions, the Court of Justice provided an answer. National authorities only assist in the preparation and/or implementation of the decisions of the ECB, as the latter enjoys exclusive competence in this field. In the absence of a division of powers or competences between the ECB and national authorities, the decisions of the ECB fall under the exclusive review of the Court of Justice. More importantly, it is for the Court of Justice to review the actions of the competent national authorities: ‘[c]onsequently, it must be held that the EU Courts alone have jurisdiction to determine, as an incidental matter, whether the legality of the ECB's decision (…) is affected by any defects rendering unlawful the acts preparatory to that decision that were adopted by the Bank of Italy. That jurisdiction excludes any jurisdiction of national courts in respect of those acts.’ 10
Therefore, we see that the prerogative of the ECB to decide independently not only requires its collaborating national central banks to be independent, but also implies that the jurisdiction of the Court of Justice extends to those acts of national authorities which are preparatory for ECB decisions. If national courts were to review those acts, uniformity in the application of EU law would be threatened, as reasoned by the Court of Justice in paragraph 50 of its judgment in Berlusconi. Although not stated as such by the Court of Justice, we may infer that there could also be a risk that review by national courts could impinge indirectly on the ECB's independence if they were to annul national acts or force adjustment of national acts.
However, the ruling of the Court of Justice in the Berlusconi case presupposes that the tasks of national authorities can be distinguished in terms of whether they implement EU law or national law. This distinction is especially relevant to national central banks because the Treaty allows them to carry out tasks assigned to them by the Member States. According to Article 14(4) of the ESCB Statute, ‘national central banks may perform functions other than those specified in this Statute (…) [s]uch functions shall be performed on the responsibility and liability of national central banks and shall not be regarded as being part of the functions of the ESCB’ and Article 35(3) of the ESCB Statute clarifies that ‘the national central banks shall be liable according to their respective national laws.’
Eventually, as the Court of Justice acknowledged in the Court of Justice acknowledged in Rimšēvičs and ECB v. Latvia, ‘the ESCB represents a novel legal construct in EU law which brings together national institutions, namely the national central banks, and an EU institution, namely the ECB, and causes them to cooperate closely with each other, and within which a different structure and a less marked distinction between the EU legal order and national legal orders prevails.’ 11
The Court made this statement in order to ground its right to rule on whether Mr Rimšēvičs, the then Governor of the Bank of Latvia, had been justly suspended from his duties, that is, on the basis of sufficient indications of serious misconduct. Although Article 14(2) of the ESCB Statute confers to the Court of Justice jurisdiction to hear cases concerning removal from office of a central bank governor, it is not explicit on whether it applies to acts of the Governing Council of the ECB or Member States and whether the jurisdiction of the Court of Justice extends to assessment of the legality of national procedures. In this connection, the Court held in Rimšēvičs that ‘Article 14.2 of the Statute of the ESCB and of the ECB reflects the logic of this highly integrated system (…) and, in particular, of the dual professional role of the governor of a national central bank, who is certainly a national authority but who acts within the framework of the ESCB and sits, where he is the governor of a national central bank of a Member State whose currency is the euro, on the main decision-making body of the ECB. It is because of this hybrid status and (…) in order to guarantee the functional independence of the governors of the national central banks within the ESCB that, by way of exception, a decision taken by a national authority relieving one of those governors from office may be referred to the Court.’ 12
Indeed, it is precisely because now we have a ‘highly integrated system’ of European and national institutions that it is less clear how Member States may assign functions to the national central banks without impinging on the independence of the ECB.
In the Banka Slovenije case mentioned above, the government of Slovenia imposed an obligation on the central bank to compensate holders of financial instruments with income below a certain amount, which created the possibility that the central bank would run out of money.
First, the Court of Justice noted that the Treaty does not require Member States to grant to national central banks independence over their budgets, as it does for the ECB in Article 282(3) TFEU. It also observed that ‘in the light of the hybrid status of the national central banks (…) the principle of independence of those central banks does not necessarily apply in the same way when they carry out a task falling within the scope of the ESCB and when they perform a function not falling within that scope which has been assigned to them under national law by virtue of Article 14(4) of the Protocol on the ESCB and the ECB’. 13 The Court did not explain in which sense the independence of national central banks was different from that of the ECB.
The Court still went on to hold that the Slovenian central bank could find itself in a situation where it would have to negotiate a budgetary increase or a loan in order be able to provide the compensation, but it did not consider how likely it was that the central bank would run out of money, whether the Slovenian measure was disproportional to the financial capacity of the central bank and, more importantly, why a request for additional public funding would be different from the annual budget negotiations.
The independence of the ECB and national central banks has been rigorously protected by the Court of Justice, but in the process the boundaries of that independence have become less clear. The implication is that there is now more uncertainty as to what Member States may require their own central banks to do and how they may use them to implement domestic policies.