They're Changing The Face Of Europe
Tour the low-rise, modern headquarters of the European Court of Justice, located on a windswept plateau on the fringes of Luxembourg, and it's hard to believe that this is one of Europe's most dynamic and radical institutions. The corridors are quiet, the decor is soothing, and the 1,000 or so employees -- half of whom are translators -- are friendly and relaxed.
But the 51-year-old court, whose primary purpose is to interpret the meaning of European Union treaties and directives and to make sure they are applied uniformly across the 15-member union, has become a major driver of European economic integration. Over the past year, for instance, its judges have given trustbusters in EU member states the power to smash state-backed cartels; outlawed most types of government-owned golden shares; and prevented EU governments from entering into their own open-sky air-travel agreements with the U.S.
In the early years of the EU, the court's main business was knocking down tariff barriers and ensuring that agricultural goods could be sold freely across Europe's borders. But with time, the court's caseload has grown exponentially and now includes more cases about taxation, the environment, and financial services. Its justices completed 513 cases in 2002, up from 420 just five years ago. Companies and even individuals are increasingly resorting to this little-known institution to prod slow-moving EU bureaucrats and national politicians into action. "If Europe has a single market today, it is largely because of the ECJ," says Carl Otto Lenz, a German attorney who served as an advocate general -- one of eight legal experts charged with presenting impartially reasoned opinions on the cases before the court -- from 1984 to 1997.
The court's decisions range from the sweeping to the minute. In May, for instance, it outlawed most types of so-called golden-share arrangements -- stakeholdings that European governments can use to protect companies from foreign takeovers -- on the grounds that they impede the free flow of capital. More recently, the 15 red-robed justices, led by Vassilios Skouris, a 55-year-old former Greek Interior Minister and polyglot, have delved into the intricacies of tax law.
Witness the court's recent ruling on the Bosal Holdings case. Bosal, a Netherlands-based manufacturer of automobile-exhaust systems, had appealed to the ECJ because the Dutch tax authorities wouldn't allow it to claim tax deductions on interest payments made on money borrowed to invest in non-Dutch European subsidiaries. The company's lawyers successfully argued that the Dutch law effectively restricted Bosal's right to locate operations wherever it wants inside the EU. The court ruled in Bosal's favor in September.
On the surface, the Bosal case might not seem important. But experts note that the Dutch treasury is likely to lose upwards of $1.85 billion in annual tax revenues as dozens of other Dutch companies take advantage of the ruling. And that's just the start. Enterprises in other EU countries will now demand that their national tax authorities amend their rules in line with the court's decision. "The ECJ is forcing the EU to confront the tax issue, something that individual countries have been very reluctant to do," says Adam Craig, head of the EU tax practice at Deloitte & Touche in London.
The jurists of Luxembourg don't just take aim at national governments: They also do battle with the policymakers of Brussels. The European Court of First Instance, an affiliate of the ECJ, has rapped European Competition Commissioner Mario Monti on the knuckles for exceeding his powers in three big mergers cases. The rulings marked a major setback for the seemingly omnipotent "Super Mario," as the silver-haired Italian had been dubbed. Among the most notable was the court's decision in June, 2002, that Monti had not presented a convincing case to support his decision to block British tour operator Airtours PLC's $1.3 billion takeover bid for compatriot First Choice. Emboldened by the ruling, Airtours, since renamed My Travel Group PLC, is seeking damages from the competition watchdog. Legal experts say the payout could be in the neighborhood of $850 million. French electrical-equipment maker Schneider is also seeking $1.5 billion in compensation from the commission, which in 2001 nixed its acquisition of French competitor Legrand -- a decision later reversed by the court.
TOWER OF BABEL
Inside its chambers, the European Court of Justice is a veritable Tower of Babel. Although the court's working language is French, several languages are regularly used in any one case. All decision must be translated into every one of the 11 official tongues. Each EU member state has the right to appoint one justice, for a renewable six-year term. Most have served as high-court or appeal judges in their own countries or are drawn from academia. Judgements are by majority opinion. Yet unlike the U.S. and Britain, the individual opinions of the jurists are not made public, so it is difficult to characterize judges as either liberal or conservative based on their records.
At one point, the ECJ only accepted cases referred by the European Commission, member states, or national courts. Since 1989, however, companies and individuals have enjoyed direct recourse to the court, subject to certain rules. The bulk of such cases are handled by the Court of First Instance (hence its name).
No wonder, then, that a growing number of companies are trooping to Luxembourg to air their grievances. That's what Swedish financial-services giant Skandia did. Tax authorities at home told a Skandia employee that he could not claim deductions on his Swedish tax return on contributions to pension schemes in Denmark, Germany, and Britain. In June, the ECJ found that the Swedish law contravened EU regulations designed to create a level playing field for insurers, no matter in what European country they operate. "Having the ECJ means companies can challenge national laws when they conflict with the single market," says Skandia's counsel, Jan-Mikael Bexhed.
Now the court is bracing for another major transition. Ten new members will join the EU next May, adding ten new justices, eight more official languages, and 650 additional staff to the court's roster. "Finding interpreters who can go from Hungarian into Estonian won't be easy," frets one official.
Still, EU expansion may make the ECJ more relevant than ever. When the European club expands to 25, decision-making in Brussels is likely to be even more tortuous than it is today. Progress on European integration -- already slow -- could grind to a halt. More and more, it will be up to the court in Luxembourg to spur it along. Given its activist record to date, the ECJ isn't likely to shrink from the task.
By David Fairlamb in Luxembourg