On Banks, Courts and International Law: The Intergovernmental Agreement on the Single Resolution Fund in Context

Abstract

In May 2014, 26 Member States of the EU have concluded an intergovernmental agreement on the transfer and mutualization of contribution to the Single Resolution Fund (SRF). This international treaty constitutes a core component of the second pillar of the European Banking Union – the Single Resolution Mechanism, to wind down failing banks in the Euro-zone – and complements an EU regulation adopted by the European Parliament and the Council creating the SRF. The article critically analyses the choice to use international law to adopt the rules on transfer and mutualization of contributions to the SRF. As the article maintains, resort to an intergovernmental agreement in this case was not necessary from a legal point of view. In fact, the justification for the use of international law in this case rested on a flawed legal argument, namely that EU regulations cannot impose financial obligations on the states. Moreover, as the article explains, resort to international law is unsound from a policy point of view. The use of an international treaty to regulate the transfer and mutualization of contributions to the SRF opens the door for national courts’ review of the agreement – a prospect which contrasts with the constitutional logic of leaving decision of economic questions in the political process. In light of these weaknesses, the article explains that the intergovernmental agreement was tolerated by the European Parliament to secure completion of the Banking Union before the 2014 EU elections, but concludes suggesting that a pressing constitutional challenge for the European Parliament is to devise legal and political mechanisms to prohibit the Member States from acting outside the EU legal order whenever the Treaties provide for the powers and means to act within the Union.