The facts are well-settled by now and the majority of us know that on the evening of 15/3/13, Eurozone finance ministers agreed on an extraordinary course of action in response to Cyprus’ request for a bail-out of the State and its banking sector, both on the brink of apparent collapse. The political agreement reached at the ministers’ Eurogroup configuration, seeks to impose a levy on deposits with Cypriot banks, catching both Cypriot and foreign depositors (hereinafter referred to as ‘the Decision’).
Developments are of course constantly unfolding. Following fierce reactions to the Decision, the Eurogroup held an urgent teleconference on 18/3/13, resulting in a statement by its president, Jeroen Dijsselbloem. The statement sought to assure that deposits under EUR100.000 would be fully guaranteed in what is presented as an upholding of the Eurogroup’s ‘view’ that ‘small depositors should be treated differently from large depositors’. The issue is that the Eurogroup never expressed such a view in the first place. Nor did it bother itself with revisiting the various legal anomalies emanating from what it wants to present as a political decision enjoying the consensus of all Eurozone member states, but has in fact been a catastrophic step, irrespective of whether it is eventually passed into law by the Cypriot Parliament.
Reactions from economists, politicians, the media and analysts, but most importantly the outrage of the Cypriot people against the levy, could likely ostracize the intended levy from Cyprus’ bailout package. This note will not concern itself with the legal aspects of how the levy is being presented as a tax so as to evade the EU’s own deposit guarantee rules (Professor Lindseth’s post accurately illustrates such issues).
Nor does this note discuss any of the political aspects of the situation, despite the fact that being based in Cyprus I have been distressed to watch an utterly incompetent former government allowing public debt to grow even more and a failing nationalized bank turn into a ‘zombie’ over the past year. That Cyprus needs a bail-out today is not just due to public debt spiraling out of control, but also due to the fact that, according to a recent confession of the former Government’s own finance minister, it adhered to the Greek PSI without requesting a recapitalization of Cypriot banks. Cypriot banks, heavily exposed to Greek bonds, suffered immense losses from the Greek ‘haircut’ and it has been admitted by the former Cypriot government that they did not ‘comprehend’ what they were agreeing to at the time.
Deplorable as political incompetence of Cypriot’s former Government may be and distressing as the incumbent Government’s lack of political initiative may be, it is the legal rationale – or the lack of it to be precise – employed in the Eurogroup Decision that should be of concern. The Eurogroup Decision is widely understood as having been imposed on the Cypriot Government. But the Decision itself has no legal effect, Protocol 14 to the Lisbon Treaty may have formalized the Eurorgoup but this body remains devoid of any power to issue binding decisions having legal effects.
For a decision to facilitate the levy on bank deposits to be binding at an EU level, it should have been taken by the Council under its ECOFIN configuration. In such a case, namely where an ECOFIN decision had been in place as to how the Cyprus bailout would have materialized, the Cypriot Parliament would in fact be implementing EU law when legislating the levy on deposits.
What this note argues is that the Eurogroup, whether intentionally or not, in fact rolled over to Cyprus the responsibility for the legislative manifestation of the levy. In this manner, Cyprus remained hostage to the Eurogroup’s political Decision as a condition to its bailout by the ECB/EC/IMF troika. The ransom in this ‘hostage’ crisis was for Cyprus to burden itself with the responsibility of legislating contrary to one of the most fundamental rights protected under its own and the EU’s legal order: the right to property.
The right to property is a fundamental right common to all national constitutions. As far as the Cypriot legal order is concerned, the right to property is protected under the Constitution of Cyprus (Article 23). Despite its omission in the original European Convention of Human Rights (‘ECHR’) the right to property is enshrined as ‘the right to peaceful enjoyment of possession’ in Article 1 of Protocol I to the ECHR.
On an EU level, even prior to the enactment of the EU’s Charter of Fundamental Rights (‘Charter’), the right has been recognised on numerous occasions by the case-law of the Court of Justice of the European Union (then ECJ) starting with the Hauer Judgment. Article 17(1) of the EU’s Charter of Fundamental Rights, essentially based on Article 1 of Protocol I to the ECHR, reads:
“Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated by law insofar as is necessary for the general interest.”
In accordance with Article 52(3) of the Charter the scope of the right is the same as that of the right guaranteed under the ECHR.
It is therefore the case that Cyprus legislation enforcing the levy emanates from a purely political decision that enjoys no legal basis. The Eurogroup has in the way achieved the apparent ‘inapplicability’ of the Charter as Cyprus could not be held to be implementing EU law in imposing the levy on its depositors. The astonishing result is that Cyprus is in fact called upon to transpose into its legal order the Eurogroup Decision, but as this Decision enjoys no legal force Cyprus ends up absorbing all liability for any infringement of the right to property under its own Constitution by enforcing a levy on its ‘own’ initiative.
Therefore, where the levy becomes law, a judicial battle as to whether the levy infringes the right to property or not (on the basis of the ‘public interest’ exception), would be confined to Cyprus law and the Charter’s provisions would not be invoked. Moreover, the only recourse would be before Cyprus courts, in an effort to offend purely national statutory provisions that do not transpose any EU legal instrument.
There can be little doubt that had an ECOFIN decision been in place as preceding any national legislation on behalf of Cyprus, such national legislation would in fact fall within the scope of Article 51 of the Charter and the situation would have been quite different. Regarding the field of application of rights protected under the Charter, it is most useful to visit the CJEU’s very recent Judgment of 26/2/2013 in C-617/10 Åkerberg Fransson:
“20 That definition of the field of application of the fundamental rights of the European Union is borne out by the explanations relating to Article 51 of the Charter, which, in accordance with the third subparagraph of Article 6(1) TEU and Article 52(7) of the Charter, have to be taken into consideration for the purpose of interpreting it (see, to this effect, Case C-279/09 DEB  ECR I‑13849, paragraph 32). According to those explanations, ‘the requirement to respect fundamental rights defined in the context of the Union is only binding on the Member States when they act in the scope of Union law’.
21 Since the fundamental rights guaranteed by the Charter must therefore be complied with where national legislation falls within the scope of European Union law, situations cannot exist which are covered in that way by European Union law without those fundamental rights being applicable. The applicability of European Union law entails applicability of the fundamental rights guaranteed by the Charter.”
For yet another time, law has fallen foul of politics. The Eurogroup ministers have committed an unprecedented departure from the protection of an inviolable right and they are asking Cyprus to carry the burden of legislating to that effect.
Anastasios A. Antoniou is an Advocate of the Supreme Court of Cyprus practicing competition law, energy law and EU law. He acts as Cyprus Counsel for a plethora of multinational corporations and global law firms on competition law, oil and gas law, merger control and international law matters. He also appears before all Courts of Cyprus representing clients in high-profile cases involving corporate, energy, competition, constitutional and human rights litigation. He is the Managing Advocate at Anastasios Antoniou LLC, a Cyprus Law Firm ranked by the Legal 500 as a leading firm, advising and litigating in competition law, oil and gas law, maritime security law, intellectual property and international law matters. The Legal 500 have highlighted Anastasios’ ‘expertise’ as being the reason behind Anastasios Antoniou LLC’s ‘solid reputation’. Anastasios is a Member of the Cyprus Bar Association and the International Bar Association (IBA) while he is honoured with membership in the European Competition Lawyers Forum, amongst other international associations and institutes he participates in. He is a frequent author of articles in international and European legal journals and the national press of Cyprus.