Courageous or Naïve about the Reparations Loan for Ukraine?

The widely discussed (see here and here) legal basis for EU’s executive economic measures enshrined in Article 122(1) TFEU is commonly referred to as an “emergency clause”. Once again, this legal basis was eyed for a novel purpose, and one which seems to be the most delicate yet: a reparations loan for Ukraine addressing the serious economic difficulties in the face of Russia’s war in Ukraine.

Although the reparations loan for Ukraine was eventually agreed pursuant to more conventional legal bases (i.e. Articles 212 and 311 TFEU), the recent frequency of the use of Article 122(1) TFEU offers a glimpse into the EU institutions’ perceptions of the legally feasible. As such, this latest addition to the cases of application in the form of a proposal seems to be entirely out of scope for the “emergency clause”, substantially breaking with past perceptions about its interpretation and application, thus leaving behind a trove of constitutional uncertainties in EU law. Even the European Central Bank rejected any involvement. More generally, this case seems to be indicative of the latest modus operandi driving the evolution of EU law, which can be referred to as “integration through stealth”. What was once known as the “law of integration” seems to have transformed into ever riskier interpretations of Treaty articles.

I argue that this new method of integration can potentially undermine the essence of the legal system at the heart of the European project—the intrinsic value of certainty and credibility of an international organization featuring various novel aspects of supranationality that might cause the organization to seem “complex and almost baroque” to some.

Historical Intention and Early Case Law Pointing to Narrow Scope of Application

Originally, Article 122(1) TFEU was intended as an executive competence to act in exceptional situations by unanimity for conjunctural measures within the internal market. Since its inception, changes were made to the precursor of today’s norm. The adoption of Article 103a of the Maastricht Treaty as well as the continuous replacement of unanimity may point to a deliberately enlarged power of discretion. However, subsidiarity to other legal bases has always been a constant precondition. The phrase “without prejudice to any other procedures provided for in this Treaty” can be found in all four preceding norms. Moreover, even similar powers granted to the High Authority by Articles 58 and 59 ECSC Treaty included a notion of subsidiarity. The case law for Article 122(1) TFEU and its precursors also points to such interpretation (see, for example, CJEU 11/71 (13.06.1972) mn 29 et seq; CJEU 5/73 (24.10.1973) mn 15; CJEU 43/72 (24.10.1973) mn 21; CJEU C-370/12 (27.11.2012) mn 104 et seq, 115 et seq, 131; CJEU C-589/15 P (27.10.2017) mn 69 et seq). Contrary to this arguably narrow interpretation and application, however, the Commission was now proposing for the Council to adopt a reparations loan in support of a third state by qualified majority.

Undetermined Wording

Textually, the first paragraph of Article 122 TFEU leaves room for substantially differing interpretations, as it includes undetermined concepts such as “measures appropriate to the economic situation” and “spirit of solidarity”. However, the economic situation and solidarity clearly refer to circumstances within the EU, as the article in question sits within Part Three entitled “Union Policies and Internal Actions”, and the “spirit of solidarity” has the qualifier “between Member States”. Even though Ukraine could be considered “an integral part of Europe’s defence and security architecture”, as the Commission’s Explanatory Memorandum states, this does not make Ukraine an EU Member State. Therefore, the wide power of discretion granted to the Council cannot go beyond the text of Article 122(1) TFEU, which points away from its use for a reparations loan to a third state.

Article 122 TFEU in Relation to Other Legal Bases

Systematically, Article 122 TFEU can be interpreted as a parallel provision to Articles 143 and 144 TFEU and as counterweight to the so-called “no bail-out” clause of Article 125 TFEU, which prohibits any mutualisation of debt under the regime of joint and several liability. Similar legal bases to the first paragraph of Article 122 TFEU can be found in its second paragraph and Articles 352 and 114 TFEU, which all bear distinct features and (legal and factual) intricacies but follow similar objectives. Outside of Part Three of the TFEU, a specific legal basis for macro-financial assistance to third countries can be found in Articles 209, 212 and 213 TFEU in Part Five entitled “Cooperation with Third Countries and Humanitarian Aid”. The second (adopted) proposal for a reparations loan made by the Commission is indeed based on Article 212 TFEU, which also seems to set a precedent for enhanced cooperation in budgetary law.

Intention of Union Measures Based on Article 122 TFEU

Teleologically, the first paragraph of Article 122 TFEU follows the idea of a (temporary) last resort best described as a protective clause (“Schutzklausel”) to the Union’s economy. Even if the field of energy, which is explicitly mentioned in the norm, only serves as one possible example of application, external action envisioned by the proposed reparations loan and backed by Regulation (EU) No 833/2014 under CFSP seems to break with the objective pursued by Article 122(1) TFEU. The notion of emergency measures follows the idea that these are exceptions to the rule. In that regard, it should be remembered that this proposal comes only a few months after it was used for the so-called SAFE regulation, which has been entangled in serious legal debate and adjudication since the European Parliament has filed for its annulment (C-560/25). Against this backdrop, it seems even more questionable that the Commission has suggested to have a second edition of SAFE. One can only hope that the Commission will reevaluate the legal basis for this potential second edition of SAFE. The combination of frequency and unconventionality of the (proposed) applications for Article 122 TFEU within a short period of time point away from it being a temporary protective last resort. Only a seemingly unlimited principle of effectiveness can justify the use of Article 122(1) TFEU for such a measure in the form of a reparations loan.

Outlook on Instances of Application

Looking at the most recent proposals and adoptions pursuant to Article 122 TFEU, however, the outlook does not seem to be optimistic. Starting with SURE but certainly since the adoption of EURI, Union measures resting on the shoulders of this legal basis seem to be mounting at an increased pace. Article 122 TFEU, which should be divided into a “solidarity clause” (Article 122(1)) and an “emergency clause” (Article 122(2)), seems to lend itself to the most far-reaching purposes. As Ruffert coined the phrase “necessity knows no laws” (“Not kennt kein Gebot”) in relation to the adoption of the massive recovery fund known as NGEU, this proposal is only the latest addition to an attempt at integration by stealth. The justification for the use of Article 122(1) TFEU could only be found in a seemingly unlimited effet utile. However, the adoption of a reparations loan based on Article 122(1) TFEU can have the exact opposite effect than what is presumably described by the “intrinsic connection of the defence and security architecture with the Union’s economic situation”. This phrase, taken from the Commission’s Explanatory Memorandum, suggests that a financially stable Ukraine as part of Europe’s defence and security architecture would ultimately preserve the stability of the Union’s economy. However, the use of such fragile legal basis can have adverse effects on the Union’s economy, as (foreign) investors—and any Union citizen, for that matter—can legitimately question the legal certainty of their assets within the Union. As a reparations loan of that structure also entails issues of international law (see also here, here and here), the justification needed for the use of Article 122(1) TFEU for a reparations loan for Ukraine goes beyond what was necessary even for NGEU.

The Broader Picture

The moment in time for increased use of “legal high-tech” and “legal engineering” might not be unrelated to the global state of mind of conflicting ideas and dangerous geopolitical environments. At a time when liberal ideas are under intense pressure (see, for example, here and here) to compete with other (political) ideologies, it seems obvious to push for fast solutions. That way, an observer would not frame the EU’s action as too slow and not effective enough. Quick solutions anticipate questioning of the entire bureaucratic system and, thus, these solutions ultimately avoid possible backlash from a seemingly tedious democratic process. It remains to be seen whether public opinion about the Union’s wide interpretation of effective policymaking can eventually outweigh the increased uncertainty about the legitimate choice of legal basis and an inevitable reinterpretation of primary law norms.

Finally, this proposal seems to be an instance of the EU Treaties being perceived as a fantastical constitution by constitutional actors who themselves are pushing the limits by “us[ing] the full potential of the EU treaties”, which is, however, one step too far. Therefore, a call for reason is appropriate so that future European lawyers will not face the need to categorize Union measures as courageous or naïve with regard to the potential effects they can have on the entirety of the EU and its conferred competences. Measures of integration should rather be carefully considered and coherent with past perceptions about their use. In that vein, it seems necessary to have recourse to Walter Hallstein who famously described the successful European unification process by referring to integration through law (“Integration durch Recht”).