Published: 21 September 2020 Author: Stefan Talmon
The debate about the British Secretary of State for Northern Ireland’s announcement in the House of Commons on 8 September 2020 that the UK Internal Market Bill would “break international law in a very specific and limited way” has unearthed some notable examples of breaches of international law by other States. One little known such breach concerned Germany’s disregard for the Articles of Agreement of the International Monetary Fund (the IMF Treaty) and the so-called “Smithsonian Agreement” in March 1973. The breach was admitted in a private meeting only in 1978 and became known to the general public only some 30 years later when the transcript of the meeting was declassified.
On 30 November 1978, German Chancellor Helmut Schmidt paid a rare visit to the Council of the German Federal Reserve – the Bundesbank – to discuss the negotiations over the creation of the European Monetary System (EMS). After the collapse of the Bretton Woods System in the early 1970s, the EMS was to create a new system of fixed exchange rates to guarantee an area of currency stability throughout the European Economic Community (EEC). Central banks were to be put under an obligation to intervene in other EEC members’ currencies in order to maintain fixed exchange rates. The Council was less than enthusiastic about the EMS, to say the least, and the Chancellor came to provide assurances on its operation. The Bundesbank feared that there could be situations in which its intervention obligations could assume a scale that de facto made the fulfilment of its statutory responsibilities impossible. In case the EMS was to become part of the Treaty of Rome or any other international treaty, the members of the Council were therefore keen to reserve the right to withdraw at any time from the EMS – which they considered “the first phase of an experiment” – and wanted to make sure that no impairment of national responsibility in the area of monetary policy resulted from the experiment. In order to allay the Council members’ fears, Chancellor Schmidt stated:
“[O]ut of consideration for domestic economic stability in spring 1973, [we] did not only override an agreement between issuing banks but also breached international law, applicable international treaty law, by releasing the Bundesbank from further intervention in the American dollar. And [we] did not even inform the IMF [International Monetary Fund] in advance, let alone give it the chance to influence the decision. I repeat what I have said before. In spring 1973, we breached applicable international treaty law, the IMF Treaty, in multiple ways. We have neither complied with all the rules, the procedural rules of the treaty, nor have we complied with the substantive provisions. We have released the Bundesbank from the duty to intervene against the dollar solely with the motive of winning leeway for a stable, a stability-oriented policy in our country – we did so in consultation with the leadership of the Bundesbank and the then Finance Minister of the Federal Government; the then Federal Chancellor had approved of the action. We certainly did not notify earlier, when the Federal Republic of Germany joined the IMF, that, in case of need, we would apply the clausula rebus sic stantibus, we did not even write it down, we did it when there was no other way. […]
The detachment [of the Deutschmark] from the dollar, contrary to international law, [was carried out] because domestic stability was threatened too much. All of that was not previously written down somewhere or recorded in advance, deposited with a notary; so, if necessary, one must refer to this or that [provision] in the Treaty of Rome or elsewhere if someone should have legal objections – in truth, it is never a legal problem, only for Germans such things are legal problems, only for Germans and lawyers. German perfectionism must not prevail over political reason. I agree […], what is crucial is that exchange rate adjustments are made when necessary. We have already done this many times […] and it will also come about in the future. I have no doubts about that at all.
No, it does not depend on the [future] treaty. It is the normative power of the facts that will be decisive later on, and the facts are either set by the Council of the Federal Reserve or the Federal Government, or jointly by agreement between the two. The legal side is not that important.”
For all intents and purposes, this is a remarkable admission for a German Chancellor to make and even more so for one as internationally acclaimed as Helmut Schmidt. The nonchalance with which international law is treated is shocking. The gist of the statement is that international law will not stand in the way of what political or economic reason dictates. One can only speculate whether this outrageous statement was part of a strategy to persuade the members of the Council of the Bundesbank to give up their resistance to the ESM. But, of course, this would not make things any better.
The Chancellor’s reference to the clausula rebus sic stantibus was nothing more than legal window-dressing. The requirements for invoking a fundamental change of circumstances as a ground for terminating, withdrawing, or suspending a treaty – under both Article 62 of the Vienna Convention on the Law of Treaties and customary international law – are quite narrow and it is more than questionable whether they were fulfilled in the present case. In any event, the clausula applies only to the treaty in its entirety and not to individual treaty obligations. Germany never invoked the clausula with regard to the IMF Treaty as such. The rebus sic stantibus rule also does not come into play with regard to treaties that are easily terminable. State parties are allowed to withdraw from the IMF Treaty “at any time” with immediate effect. But perhaps most importantly, the clausula rebus sic stantibus does not give a party the right to terminate its treaty obligations unilaterally merely upon its subjective claim of a fundamental change of circumstances. The clausula provides the parties only with the right to initiative a procedure which may lead to the termination or suspension of the treaty – either by agreement of the parties or by the decision of an international court or tribunal.
One day after the Northern Ireland Secretary stated in the House of Commons that the UK Internal Market Bill would “break international law in a very specific and limited way”, the German Ambassador to London tweeted: “Stay calm and carry on repeating the obvious: international agreements need to be respected and adhered to. Very much so.” As Chancellor Schmidt’s statement shows, however, in exceptional circumstances and if the stakes are high enough, even States like Germany which are generally committed to multilateralism and international law may break international law in a very specific and limited way. Germany would thus be well advised not to take too much of the moral high ground.
Category: Law of treaties