20th May 2019

Economic control hangs in the balance

The European Court of Justice in Luxembourg will on Tuesday (13 July) hand down what may be the most significant ruling in its 46 year history.

The case may not sound like much (Judgement C-27/04 Commission v Council), but at stake is who is in control of the EU economy - Brussels or member states.

Read and decide

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The European Commission took the Council of member states to court over its decision in November to suspend disciplinary procedures against France and Germany for repeatedly breaking EU economic rules.

Brussels had recommended that France and Germany take measures to bring their budget deficits below the maximum EU permitted level of three percent of gross domestic product (GDP).

But Paris and Berlin persuaded enough of their colleagues to vote down these recommendations and place the procedure "in abeyance", effectively killing off the rules that underpin the euro.

The Commission argues that the Council had no right to suspend the procedure it recommended - a disciplinary procedure that could result in fines of billions of euro.

But the Council maintains that the final decision rests with member states.

What happens if...

Whichever side wins, there are serious consequences for decision-making in the EU economic sphere.

If the Commission wins and the Court decides that the member states had no right to suspend the disciplinary procedure, then it could annul the member states' declaration and the member states would have to go back to the Commission's recommendations to France and Germany that they suspended in the first place.

"We would be back to where we started", says Guillaume Durand, an expert on economic governance at the European Policy Centre in Brussels.

"But as the same people would be around the table, it is hard to see why there would be a difference".

If the procedure were to be re-started and carried through to its conclusion, Germany and France - who this year will have exceeded the limit for three consecutive years - could in theory next year face fines of up to 0.5 percent of their GDP.

If these fines were indeed dished out, Germany would face a sanction of just under 10 billion euro and France could expect a fine of just over seven billion.

In practice, though, few analysts believe the fines would ever actually be levied.

Death to the pact

However, France and Germany are not the only member states currently in breach of the rules. The Netherlands, Greece and Italy all have deficits over three percent of GDP and could face similar punishment.

If the Court decides that the member states acted within their legal rights to suspend the procedure, it effectively buries all claims from the Commission to be the supervisor of EU economic policy.

And with another huge row brewing between member states and the Commission over the EU budget for 2007-2013, it would give EU capitals the upper hand in an ongoing power struggle.

Power struggle

Some analysts believe that winning this power battle is more important than the actual implications of the result. Mr Durand says that the case is "a largely symbolic issue" and that the row is really about control.

"It's more for the Commission to show the Council that they can not just do what they want", he says.

And Jorgen Mortensen, an expert at the Centre for European Studies argues in a recent paper that the crisis over the economic rules, "brought into the open a conflict that had been brewing ever since the creation of the EEC in 1958: the sharing of competences for macroeconomic policy-making between the national governments and the EU institutions".

Neither side involved in the case was prepared to speculate on what implications the result might have.

A spokesman for the EU Presidency said, "we will have a reaction tomorrow" and a Commission spokesman said that he would not like to comment on "hypothetical questions".

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