In the latest RevDem Rule of Law podcast Oliver Garner discusses the substantive and constitutional tensions caused by the Court of Justice of the EU’s internal market case-law with Dr Vilija Velyvyte. She is a Lecturer in Law at the University of Reading and was previously a Lecturer in EU Law and Constitutional Law at the University of Oxford. She is the author of Judicial Authority in EU Internal Market Law: Implications for the Balance of Competences and Powers (Hart Publishing, 2022).

Your recent book asks the question of to what extent the Court of Justice of the European Union observes the constitutional limits of EU competence and its own institutional powers in the interpretation of EU internal market law laid down in the EU Treaties. EU internal market law is one of the classic topics of EU law scholarship. What drew you to this topic and made you believe you had an original contribution to make?

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You are absolutely right that EU internal market law is indeed one of the hottest topics of EU law. And it is also true that the Court has been criticized before for going too far in its interpretation of internal market law, for getting the balance between the economic and the social wrong, and for showing insufficient respect for the regulatory choices of the Member States.

However, I felt that the argument was under-explored. What I add to this debate is that I look at the Court’s interpretation of internal market law from a competence perspective.

It is one thing to say that the Court is going too far, but it is a qualitatively different claim to argue that, in doing so, the Court is acting inconsistently with the constitutional principles that govern the division of competences between the EU and the Member States.

 That sort of inquiry requires, in the first place, explaining why those principles should apply to the Court, what they mean when applied to judicial practice, and how they should guide the interpretation by the Court of EU internal market law. The principles that I have in mind are conferral, subsidiarity, and proportionality.

Conferral governs the scope of EU competences. It stipulates that the EU only has those competences that have been granted to it, or conferred on it, by the Member States via the EU Treaties. If a competence has not been granted to the EU, it remains with the Member States. Subsidiarity and proportionality, on the other hand, govern the exercise of competences that have been conferred upon the EU. Subsidiarity effectively requires that, when the EU Member States share a certain competence, such as the regulation of the internal market, the EU will act only if action at the EU level brings an added value. This establishes a constitutional preference for de-centralized decision making within the EU. Proportionality governs the intensity of EU action. EU regulatory action must be proportionate to the objectives underlying that action, and it should not go further than what is necessary.

In addition to these principles that govern the vertical division of competences between the EU and Member States, I also assess the implications of the Court’s case law for the horizontal balance of powers in the EU between the EU legislature and judiciary. Here I examined the case law in light of the principle of institutional balance, which essentially requires that EU institutions act within the limits of their powers and respect the powers of other institutions. This principle is the EU’s version of the separation of powers.

The analysis of the case law in light of these four constitutional principles allows me to assess how the interpretation by the court of EU internal market law shapes, and has shaped, the balance of competences and powers in the EU. In other words, the book examines the implications of the Court’s interpretative choices for the constitutional nature of the EU as a polity in which power is shared between different levels of government – a federal polity. That is my original contribution.

Thank you very much for that comprehensive introduction to your argument. You mentioned these four principles of conferral, subsidiarity, proportionality, and institutional balance. But you argue further in your book that the Court of Justice’s observance of these principles has been inconsistent, thereby creating substantive and constitutional tensions in the EU’s relationship with the Member States. What are these substantive and constitutional tensions?

By substantive tensions I mean problems that arise when highly sensitive domestic policy issues are regulated mainly through the case law of the Court of Justice in the absence of a sophisticated constitutional mandate that would authorize such intervention on behalf of the EU.

Let me explain this. I look at policy areas that, due to their political and social sensitivity, have been excluded by the EU Treaties from the legislative or regulatory competence of the EU. My main case studies are health care, education, and collective labour relations. According to the Lisbon Treaty, the EU does not have competence or power to regulate those areas in a binding way. But here is the rub – EU internal market law applies across all areas, regardless of whether they belong to EU competence or are reserved to the competence of the Member States. For example, EU legislation regulates national rules on the advertising of tobacco products. This is a public health issue, but also an internal market issue.

So, whilst the EU does not have competence to adopt binding rules in the area of public health, it has competence to regulate the internal market, and that competence allows the EU to regulate matters of public health through the back door, if you will.

Not all of the EU’s internal market law stems from EU legislation – far from it. For example, the rules on free movement in the EU are laid down in the Treaties and can be directly invoked in court. Just like EU internal market legislation, those rules apply in all areas regardless of whether they belong to EU or Member State competence. How far these rules apply depends on their interpretation by the Court of Justice. The general tendency is that the Court of Justice interprets the free movement rules expansively. To give you an example, the Court holds that the free movement of services means that patients have the right to receive medical services across borders, and if they get those services for free at home, they should be able to have the same in other Member States. The costs would have to be covered by the patient’s home Member State. To illustrate what this means in practice, let us look for instance, at the case in which the Romanian government was ordered to pay €17,000 for a heart operation performed on a Romanian citizen in Germany. While this is a positive outcome for the patient, it has systemic implications for the Romanian health care system because it diverts resources away from other patients who cannot afford to go abroad, it makes the waiting list longer, and it interferes with the government’s capacity to plan healthcare expenditure. This is what I mean when I talk about substantive tensions that arise from the fact that Member States lose the right to manage their health care systems independently from the EU as a result of the Court’s interpretation of free movement.

Now, tensions of a constitutional nature are related to that. The right of the Member States to regulate certain areas independently of the EU is guaranteed to them by the Treaties and in different ways protected by the principles of conferral, subsidiarity, and proportionality. In the book, I demonstrate how the interpretative approach employed by the Court often strains these principles. By doing so, it shapes the overall constitutional balance of competences between the EU and Member States. I refer to this as the EU’s federal balance, which the Court has a constitutional duty to uphold.

However, the case law affects the balance of powers between the EU legislature and judiciary. Here I discuss how the case law, in effect, traps the legislature into a limited set of legislative responses to the case law, none of which can remedy that case law in a meaningful way that would reflect the different interests of the Member States and other stakeholders involved in the EU’s legislative process. In part, this is because the case law constitutes an interpretation of the Treaties that are EU primary law, and can only be changed by a treaty amendment.

On the other hand, even in situations in which the EU legislature is left with some space to re-regulate the matter concerned, it is often unable to do so in practice.

It is virtually impossible to reach the required political agreement to effect change when the matters at stake are highly sensitive, and they are likely to be highly sensitive if they have been excluded from the EU’s explicit regulatory competence in the first place.

 So, what ultimately happens is that the legislature often ends up merely codifying the rules developed by the Court, thereby legitimizing that case law. But, in reality, the matter concerned remains de facto regulated by the Court, even if the case law later acquires a legislative form. A prominent example of this legislature-judiciary dynamic is the EU directive on patients’ rights. It governs patients’ access to health care in other Member States and, in substance, it codifies the case law on the matter and in key provisions replicates it word for word.

You mentioned this misbalance between the legislature and the judiciary in the EU, and it seems to me that the negative consequences for Member State autonomy have received more attention in the literature than this question of the internal balance between the EU legislature and judiciary. What do you think could be the long-term democratic consequences of this misbalance between the EU legislature and judiciary?

I think that we need to talk about both of these things together because they are related. When the Court’s case law creates a misbalance on the vertical level, between the powers of the EU and the Member States, that also has consequences for the horizontal balance.

First of all, one of the most obvious consequences is that the EU’s federal balance is gradually shifting in favour of the center. The EU as a polity is by its nature of limited and conferred powers. In time it has becomes less limited, so to speak.

Although no legal order is static, which in my view is normal and desirable at least to some extent, the shifts in power generated by the case law are problematic if they take place by straining the basic structural principles that underpin the EU’s constitutional architecture.

 Now, of course, there are consequences for the democratic legitimacy of the EU. The greater the amount of highly politically sensitive issues that are decided by the judiciary, the less space for legislative decision making at the national or EU level. This will inevitably have an impact on democracy in the EU in the long term. Now, looking even longer term, there are also broader consequences for the integrity of the EU legal order, and for the survival of the EU as a project of European integration. When tensions between the EU and Member States accumulate, they start manifesting themselves in various forms, for example, through challenges to the authority of EU law and the Court of Justice. Some of these challenges come from national constitutional courts, which increasingly tend to refuse to follow the rules of EU law as interpreted by the Court of Justice. Other challenges are political, and are posed by Eurosceptic, often populist, political movements that win votes by exploiting the narrative of so-called EU competence creep. These developments divide and weaken the EU, and they threaten to jeopardize the success of European integration.

I was really struck by your description about how EU free movement law decisions can affect systems at the national level such as higher education and healthcare. Could you talk us through this phenomenon a little bit more? And would you say the root cause of this problem is the fact that there is a uniform legal order at the EU level but without harmonized social systems in Europe?

In the book I discuss quite extensively the so-called regulatory implications of the case law – how this case law affects national health care, education, and industrial relations systems. The cause of this effect is twofold.

First, there is the fact that EU free movement rules transcend the boundaries of EU competence. They apply in all policy areas including those that fall outside of the EU’s regulatory competence. The second cause is that the Court interprets the reach of those rules very generously, which results in substantial interference by EU law with the national regulatory systems. I have given you the example of case law on access to cross border health care, the regulatory obligations it creates for the Member States, and how that affects national health care systems. When it comes to education, we need to look at the case law on the free movement of students. The Court of Justice has long established that EU students have a right to study in any Member State and to do so on the same conditions of access to education as nationals of that state such as tuition fees and to some extent maintenance grants and loans. Students not being discriminated against on the basis of their nationality is a key principle of EU law.

But the problem is that, if you push no-discrimination to the absolute, you risk creating serious problems specifically for those countries like Belgium and Austria that offer essentially free education, have very low entry requirements, and also happen to neighbour a large country where the same language is spoken.

In Belgium, for example, in some of the medical programs French students make up more than 80% of the class. The same is true for Austria and German students.

For Belgium and Austria, unrestricted student mobility, which the court seems to insist upon in its judgments, is a big concern. It risks compromising the financial sustainability of public education systems in those countries; foreign students do not contribute to the financing of education through taxation and normally they come back home after their studies. Also, when it comes to medical programs, which was a particular issue in the cases concerning Austria and Belgium, a constant influx of foreign students may create the problem of a shortage of health specialists. All that means that, in the long term, Austria and Belgium may be compelled to revise their policies of offering essentially free and open access to education to nationals. They may need to consider a more restrictive system of access to education which would apply equally to both nationals and students coming from other Member States. This is problematic given that the EU Treaties should protect the right of the Member States to organize and manage their education systems independently of the EU.

In terms of the root cause of this problem, I cannot agree that it is the fact that national social systems are not harmonized at the EU level. They are not harmonized because Member States decided not to delegate this competence to the EU, and they have enshrined that choice in the EU Treaties. For that reason alone, the EU cannot be considered, as you suggest, a uniform legal order. It is not intended to be such.

Now, the Court of Justice has a choice as to how far to advance EU free movement rules in situations in which they come into conflict with national regulatory preferences. This is typically done by giving more or less space for Member States to justify measures that restrict the free movement.

In some areas, however, including highly politically sensitive areas, the Court has a tendency to advance free movement and give virtually no space for Member States to justify their regulatory policies and the values and interests protected via those policies.

 It does not have to be this way. There are plenty of examples in the Court’s wider case law showing that the Court is capable of taking a more sensitive approach. The fact that national social systems are not harmonized at the EU level should, if anything, serve as a reminder for the Court to be mindful of that in the interpretation of free movement law. But the impression one gets from the case law is that the Court seems to take this as a mandate to compensate for what has not been agreed through the political process. This is not the right approach both from the point of view of the institutional position of the Court as a judicial institution and from the point of view of the principle of conferral, which is supposed to protect that autonomous domain of national competence.

It seems to me from the examples you mentioned that the Court of Justice perhaps does not apply proportionality and subsidiarity in such a way that is sensitive to real contextual factors such as a large country next to a small country. We have seen examples in secondary legislation, for example, on voting rights for Luxembourg and Belgium, in which those kind of considerations have been taken into account. So it would be interesting to consider whether solutions like this could help the problem in the future.

I guess that it depends, again, on whether the Court is going to respect the legislative choice, or whether the Court is going to interpret the legislation in line with the Treaties and its own interpretation of free movement. We never know which way the Court will go.

My case studies show that, usually, the Court really pushes to interpret that legislation in a way that complies with the Treaties, and that means free movement being pushed to the absolute.

We have examples from education and health care case law where this has happened, so I am not optimistic. Perhaps it really depends on that political context, and the political backlash that the court feels that it might face if it decides to go one way or another. And I guess there are examples where the court has revised its stance in the past, for example, the Damo and Alimanovic cases in which the court clearly reversed its stand on EU citizenship rights and what they entail in terms of getting social benefits in other countries. So, the Court is capable of doing that, and that is fine because courts do reverse their case law. As long as that reversal is grounded in principle, and the constitutional principles of conferral, subsidiarity, and proportionality then that is completely justified. But we never know with the Court of Justice.

That brings us back to that institutional balance between legislature and judiciary. You mention, in the introduction to your book, the narrative of ‘Take Back Control’. Beyond the Brexit context that made this phrase famous, rule of law backsliding in Poland and Hungary has also often been framed in reaction to judgments of the Court of Justice of the European Union on effective legal protection and other areas. To what extent do you think that the Court’s case law can be regarded as a contributing factor to populist constitutional resistance against the European Union?

I think that it is important to understand that the cases of Poland and Hungary, and to some extent Romania as well, are about much more than the Court of Justice’s case law, or even the EU itself. Constitutional resistance against the EU, as you phrase it – I would just say defiance of EU law and the authority of the Court of Justice, by Poland and Hungary stems from their internal problems with the rule of law.

Defiance of law is a symptom of rule of law backsliding in those countries. The causes of rule of law backsliding are multiple and complex, and should not be framed simply as a response to the case law of the Court of Justice, or the issue of the EU’s competence creep.

 It would be far-fetched to say that the Court or the EU are responsible for the policies of the Polish and Hungarian governments offending the fundamental rights of minorities or stifling the independence of the judiciary. Now, that said, it is true that aspects of the Court’s case law are indeed problematic, as I discuss in the book, and this has caused several national constitutional courts to reject some of the Court’s judgments, or more accurately reject the rules of EU law as interpreted by the Court of Justice. This has been done by the Czech Constitutional Court, the Danish Supreme Court, and most recently the German Federal Constitutional Court. The Italian Constitutional Court were very close to rejecting an interpretation of EU law by the Court of Justice that contradicted the Italian Constitution in the Taricco case. But the Court of Justice ultimately conceded and revised its initial judgment to let the Italian Constitutional Court have its way, so direct confrontation was avoided.

The problem is that these legitimate attempts to protect national constitutional identity against unconditional supremacy of EU law are exploited by populist non-democratic regimes and their captured constitutional courts. Then we get rulings from the Polish Constitutional Tribunal or the Romanian Constitutional Court declaring that the judgments of the Court of Justice requiring them to restore the independence of the judiciary in those countries are ultra vires and must not be enforced. So these politicized constitutional courts borrow the rhetoric from other constitutional and supreme courts that have raised issues of EU judicial overreach to infuse their own politically motivated rulings with legitimacy. That is a dangerous tendency and it shows how important it is that the European Court of Justice as the guardian of the rule of law in the EU duly observes, and is perceived as observing, the constitutional limits of EU competence and its own institutional powers in the interpretation of EU law.

I thought we could finish our discussion with some of the proposals to resolve the problems that you identify in your book. You propose certain interpretive solutions on the part of the Court which could rectify inconsistencies in its case law and the constitutional and institutional imbalances which have resulted therefrom. Do you think that the problem of competence creep can be solved by reorientation by the Court alone? Or do you think that intervention by the High Contracting Parties at a Treaty reform would be necessary, particularly in light of the judicial trap you identify that limits the legislature to legislative legitimation of case law?

I doubt both the feasibility and desirability of EU Treaty reform. Any amendment requires a unanimous vote among 27 Member States followed by ratification according to their respective national constitutional provisions. That is a very high threshold to achieve, especially given that divisions among Member States on sensitive questions like these are inevitable. That said, I do not think that it would be desirable to introduce into the Treaties a more specific limitation on the powers of the EU or specifically the Court. The EU Treaties already contain a number of safeguards that should ensure that EU institutions respect the limits of their powers and EU competences. The principles of conferral, subsidiarity, and proportionality that I focus on in the book are among the primary examples of those safeguards. They define the delicate balance between EU supranationalism and the autonomy of the Member States that the Court ought to uphold in its case law. The Treaties also include a number of non-economic rules, such as on social protection or the environment, that aim to inform the framework of EU law and policy and that should be streamlined into the EU’s activities.

We also have the EU’s Charter of Fundamental Rights. It contains an extensive list of not only civil and political but also socio-economic fundamental rights, which crucially have the same normative status as the rules of the internal market. All these provisions of a non-economic nature that are set out in the EU Treaties should inform and guide the Court’s interpretation of EU internal market law. Specifically, these provisions allow the Court to protect various non-economic interests and values against the deregulatory effects of internal market law. Those interests and values are often invoked by the Member States as justifications for the restrictions of free movement.

So, as a short answer, we do not need a Treaty reform, but we do need the Court to be faithful to the overall framework of the EU Treaties instead of focusing narrowly on advancing free movement in the EU.

It is against that background that I argue that the solution lies with the Court itself. It is a feasible and moderate solution that draws on the interpretative techniques, as I call them, which the Court already employs in its wider internal market case law.

The techniques that I discuss in the book are the exemption from the scope of EU law, the doctrine of margin of appreciation, and a fair balance approach. They represent different points in the spectrum of intensity of judicial review, from complete deference, to the granting of more room for national manoeuvre, to an equitable weighting of competing interests. All of these techniques are techniques of judicial deference. In the book I conceptualize them as expressions of the principles of subsidiarity and proportionality in judicial reasoning. The Court already employs these techniques widely but does so inconsistently when faced with issues of comparable sensitivity. I demonstrate this most poignantly with the example of the Court of Justice’s gambling case law.

The bottom line of my propositions is that the court should make better use of techniques of judicial deference and apply them consistently across the areas that are expressly excluded by the Treaties from the EU’s explicit regulatory competence.

This would help to ensure that sufficient sensitivity is shown to national regulatory autonomy, and to the non-economic interests that are protected by the exercise of that autonomy.

This would also have a positive impact on the balance of powers between the Court and the EU legislature. In the absence of detailed regulatory guidelines laid down in the case law, the legislature would no longer be trapped by the judiciary and would have more space to address the issues at stake through legislative action at the EU level, if such action were deemed necessary. This is how my propositions, if implemented by the Court of Justice, would alleviate those constitutional and institutional tensions created by the case law that I describe in the book.

This transcript has been edited for length and clarity. In collaboration with Karen Culver.