4.2.3.2 Downwards effect of a directive concerning state-owned banks

The ban on downwards vertical effect of a directive applies only in relation to individuals. Hence, a directive cannot of itself impose obligations on an individual and therefore cannot be relied upon against a person before a court. The rationale thereof is that a directive is only binding on the Member States and, therefore, its provisions can only be relied on against authorities of the Member State. Against this backdrop, it is important to consider what constitutes ‘authorities of the Member State’. Is a bank that is majority-owned by a Member State an ‘emanation of the State’?

Before analysing this question, it is important to note that the Union courts developed the doctrine of vertical direct effect of a directive to allow an individual to rely directly upon a directive against (an emanation of) the State.1 Here, however, the question is whether the ECB (or a national competent authority) can directly rely upon a directive against (an emanation of) the State. Important, in this regard, is Portgas, in which the Union Court affirmed that the authorities of the Member States must be in a position to ensure that emanations of the State comply with the provisions of a directive. Hence, the authorities of a Member State may rely directly upon a directive, which is sufficiently clear and precise, against an emanation of the State.2 Considering that the duty to comply with a directive is binding on all emanations of the Member State and that other public authorities may therefore rely directly upon a directive against emanations of the State, it seems fair to conclude that the ECB could also rely directly upon a directive vis-à-vis an emanation of the State.3

Against this backdrop, it becomes all the more important to consider what exactly constitutes an emanation of the State. From the case law, it is clear that the Union courts employ a broad understanding of what constitutes an authority of the Member State to allow a person to rely upon a directive directly against such an ‘authority’.4 This is, of course, subject to the condition that the provision of the directive is sufficiently clear, precise and unconditional, and the transposition period has expired. Not only do such authorities include the public administration exercising sovereign powers, but it also includes other entities which qualify as an emanation of the State. In Foster, the Union Court held that an emanation of the State encompasses:

Recent case law clarified that the conditions presented in Foster are not cumulative.6 It follows that an organisation or body, even one governed by private law, is an emanation of the State if it meets any one of the following criteria:

It seems unlikely that a bank would meet the first condition as they are established under private law and cannot be considered part of the State.8 The requirement of ‘special powers’, under the third condition, means powers “beyond those which result from the normal rules applicable in relations between individuals”.9 The exact content of such ‘special powers’ remains somewhat unsure. 10 The Union courts recognised special powers inter alia when national law required compulsory membership to an insurance undertaking,11 and when it entrusted a company with the construction and operation, including levying tolls, of motorways.12

In order to qualify a State-owned bank as an emanation of the State, the second criterium is the most promising. According to this criterium, an entity that falls under the authority or control of a public body qualifies as an emanation of the State. This implies that the ECB may rely directly upon a directive against a bank “which is owned or otherwise controlled by the State”.13 It will be for the Union courts to determine when a bank is controlled by the State. However, drawing a connection with the distinction between the free movement of capital and the right of establishment, it seems likely that State control would imply the power to exercise a definite influence over the bank’s decisions and to determine its activities.14 As such, State control implies a controlling power that goes beyond a passive investment acquired solely to make a financial investment without any intention to influence the management and control of the bank.