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: Conditionality

Market discipline is not the only enforcement mechanism that performs a function comparable to sanctions in the proper sense. Aside from the pressure from the financial markets, since the outbreak of the Eurozone crisis, conditionality has emerged as the most effective tool for enforcing fiscal constraints. Conditionality has been employed primarily in the context of financial assistance. Drawing from the experience of pre-accession negotiations and from IMF practice, loan disbursements under assistance programmes were made conditional upon the adoption by the Member State concerned of fiscal consolidation measures and structural reforms. Despite the variety of legal instruments employed to collect and transfer financial resources to the requesting Member State, either integrated into or external - but connected - to the EU legal order,[1] the recourse to conditionality in the form of memoranda of understanding was a key feature in all financial assistance programmes. In this context, conditionality can be seen as a continuation of the enforcement mechanisms described above by other, and far more stringent, means. Operating in a situation of emergency, EU institutions, especially those forming part of the so-called ‘Troika’, enjoyed an unprecedented capacity of policy formulation, supervision and guidance on key economic and social issues. However, under this form of control, the Member State concerned is relieved of its reporting obligations under the SGP and the MIP, as envisaged by Article 7 of Regulation 472/2013.

More recently, EMU-related conditionality was also embraced in the operation of the European Structural and Investment Funds (‘ESI Funds’). This new type of ‘spending conditionality’ is one of the major innovations in the 2013 reform of structural funds ahead of the launch of the 2014-2020 programme period. Regulation 1303/2013 transformed ESI Funds into compliance tools backing EMU governance mechanisms. Pursuant to Article 23 of the Regulation, ESI Funds’ commitments and payments may be suspended where a Member State has failed to comply with its obligations under an EDP, in the case of particularly serious macro-economic imbalances or if a Member State receiving financial assistance has breached its commitments under a macroeconomic adjustment programme. As to the first case, the Commission may propose to suspend ESI disbursements when the Council has decided that the Member State concerned has failed to address its excessive deficit.[2] In the context of an MIP, the Commission may propose to put ESI Funds on hold where the Council has adopted either two successive recommendations finding that the corrective action plan proposed by the Member State concerned is insufficient or two successive decisions establishing non-compliance by a Member State that failed to take the recommended corrective action. Finally, funding can be suspended if a Member State receiving financial assistance has not implemented the adjustment programme referred to in Regulation 407/2010 or has failed to honour its commitments under a macro-economic adjustment programme referred to in Article 7 of Regulation 472/2013.

Both conditionality under financial assistance programmes and ‘spending conditionality’ under Regulation 1303/2013 are relative novelties compared to pre-existing, more established forms of conditionality in the EU legal order. Traditionally, conditionality has been employed in relations with third countries, either as a tool in preaccession negotiations or as a means to advance EU values in trade and aid policies. By making a given benefit (for instance, the provision of development aid or privileged access to the EU market) conditional upon compliance with certain commitments, the EU is able to project its own values, particularly on human rights, the rule of law, and democracy, onto the international scene.5 By contrast, ‘internal’ conditionality enshrined in post-crisis reforms serves a different function. It does not aim to export EU values to third countries, but to stimulate compliance with fiscal rules and to boost the effectiveness of the EMU enforcement machinery. In a longterm perspective, ‘spending conditionality’ appears to be more innovative than financial assistance conditionality. Whereas the latter is seen as exceptional and temporary, the former is an ordinary component of the EU enforcement machinery. As such, it is likely to trigger a more in-depth transformation in the relationship between the EU and the Member States.[3] Governance by conditionality departs from the traditional toolbox available for guaranteeing compliance with EU law and calls into question the very need to resort to sanctions, as it offers an easy alternative to the enforcement procedures laid down in the Treaties. In particular, the ‘spending conditionality’ embedded in the operation of ESI Funds allows EU institutions to fully exploit the asymmetry of power that underpins the relationship between a party controlling financial resources and a party hoping to reap a benefit from their provision.

  • [1] 2 3 See A. Hinarejos, ‘The Legality of Responses to the Crisis’, in Amtenbrink and Herrmann (eds), supra note 12, 1376-1380; C. Kilpatrick, ‘Are the Bailouts Immune to EU Social Challenge Because They Are not EU Law?’ (2014) 10 European Constitutional Law Review 363; loannidis, supra note 72. 4 See A. Sapir, G.B. Wolff, C. de Sousa, A. Terzi, The Troika and financial assistance in the euro area. Successes and failures — Study for the Directorate-General for Internal Policies of the Union (European Parliament) (EU Publications 2014). 5 V. Vita, ‘Revisiting the Dominant Discourse on Conditionality in the EU: The Case of EU Spending Conditionality’ (2017) 19 Cambridge Yearbook of European Legal Studies 116. 6 Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) no. 1083/2006. 7 See, generally, Amtenbrink and Repasi, supra note 16, 157. 8 The Commission proposed to include the same clause also in the Recovery and Resilience Facility, the mechanism offering financial support for investments and reforms in response to the economic and social crisis generated by the COVID-19 pandemic and in relation to the green and digital transitions. See Article 9 of the Proposal for a Regulation of the European Parliament and the Council estabilishing a Recovery and Resilience Facility, 28.05.2020, COM(2020) 408 final.
  • [2] In accordance with Article 126(8) and (11) TFEU. 2 Article 8(3) Regulation 1176/2011. 3 Article 10(4) Regulation 1176/2011. 4 See D. Kochenov, EU Enlargement and the Failure of Conditionality: Pre-accession Conditionality in the Fields of Democracy and the Rule of Law (Kluwer, 2008); E. Gateva, European Union Enlargement Conditionality (Palgrave Macmillan, 2015). 5 On values in EU external policy, see M. Cremona, ‘Values in EU Foreign Policy’, in M. Ev 6 See L. Bartels, Human Rights Conditionality in the EU’s International Agreements (Oxford University Press, 2005). 7 ans, P. Koutrakos (eds), Beyond the Established Orders: Policy Interconnections between the EU 8 and the Rest of the World (Hart, 2011), p. 275. 9 EMU governance has proven to be an important laboratory for the design of institutional mechanisms that may be replicated in other policy areas. The Commission’s proposal for a regulation on the protection of the EU budget in case of generalised deficiencies of the rule of law in the Member States suggests that conditionality could become an instrument for the enforcement of EU values on recalcitrant Member States, well beyond the boundaries of economic policy. Under
  • [3] 2 3 the scheme envisaged by the Commission, disbursements of EU funds could be suspended in case of rule of law deficiencies in a Member State liable to impair sound financial management and threaten the financial interests of the Union (Proposal for a Regulation of the European Parliament and the Council on the protection of the Union’s budget in case of generalised deficiencies as regards the rule of law in the Member States, COM(2018) 324). See the chapter by M. Bonelli in this book. 4 Vita, supra note 76,119. 5 D. Adamski, ‘National Power Games and Structural Failures in the European Economic Governance’ (2012) 49 Common Market Law Review 1319, 1322-1323; R. Palmstorfer, 'The Reverse Majority Voting under the “Six Pack”: A Bad Turn for the Union?’ (2014) 20 European Law Journal 191. See, for a different perspective, Snell, supra note 7, 160-164, who observes that this was one of the elements concurring to preserve policy space for national authorities. 6 Decision 2003/89/EC on the existence of an excessive deficit in Germany—Application of Article 104(6) of the Treaty establishing the European Community, OJ L34 of 11.02.2003; Decision 2003/487/EC on the existence of an excessive deficit in France—Application of Article 104(6) of the Treaty establishing the European Community, OJ L165 of 03.07.2003. On 25 November 2003, the Council voted on the recommendations, failing to reach the required majority. The Commission brought an action of annulment against the non-decision of the Council, but the Court dismissed it (see Judgment of 13 July 2004, Commission v. Council, C-27/04, paras. 25-36).
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