JUDGMENT OF 6.10.1982 — CASE 59/81 COMMISSION v COUNCIL

In Case 59/81

THE COURT composed of: J. Mertens de Wilmars, President, G. Bosco, A. Touffait and O. Due (Presidents of Chambers), P. Pescatore, Lord Mackenzie Stuart, A. O'Keeffe, T. Koopmans, U. Everling, A. Chloros and F. Grévisse, Judges, Advocate General: P. VerLoren van Themaat Registrar: P. Heim

gives the following

JUDGMENT

Facts and Issues

I — Facts and procedure

When the annual adjustment to the remuneration and pensions of officials and other servants of the Communities came to be made for the period 1 July 1979 to 30 June 1980 the Commission submitted to the Council a proposal for, in particular, the incorporation into the salary scale from 1 July 1980 of an increase of 3.3% (that is, 3.1% for the increase in the cost of living recorded in Belgium and Luxembourg, and 0.2% to represent the average increase in purchasing power which had been recorded in remuneration in the national public services between 1 July 1979 and 30 June 1980), but the Council adopted the proposal only in relation to the lowest-paid officials and other servants, that is to say, those in Grade D 4, step 1 ; for such officials the net increase amounted to BFR 1107.

In the case of the other members of staff, however, Regulation No 187/81 as amended allowed each of them the same net amount at a flat rate, thus reducing the general average increase to 1.5%. The Council also failed to adopt the proposal for a quarterly adjustment of the weightings for various countries of employment with particularly large increases in the cost of living.

The Commission claims that in adopting the regulations in question the Council has broken with a practice of many years' standing and, in particular, one which has been observed for the past four years in which the Council followed the method for adjusting remuneration drawn up by itself on 25 June 1976, which was still applicable when the regulations were adopted.

Before that method is examined it is necessary to trace the history of the Council's policy on pay for Community officials.

(a) History of the policy on pay

The detailed rules for adjusting remuneration are set out in Article 65 of the Staff Regulations, paragraphs (1) and (2) of which provide as follows:

“(1) The Council shall each year review the remunerations of the officials and other servants of the Communities. This review shall take place in September in the light of a joint report by the Commission based on a joint index prepared by the Statistical Office of the European Communities in agreement with the national statistical offices of the Member States; the index shall reflect the situation as at 1 July in each of the countries of the Communities. During this review the Council shall consider whether, as part of [the] economic and social policy of the Communities, remuneration should be adjusted. Particular account shall be taken of any increases in salaries in the public service and the needs of recruitment. (2) In the event of a substantial change in the cost of living, the Council shall decide, within two months, what adjustments should be made to the weightings and if appropriate to apply them retrospectively.”

Until 1965 the policy on pay merely limed to maintain purchasing power but From 1966 it was agreed that that aim must be widened so that officials might also benefit from increases in levels of income recorded in the various Member States of the European Communities. That objective was recognized, moreover, in the judgments of the Court of 5 June 1973 and 26 June 1975 in Commission v Council (Case 81/72, [1973] ECR 575, and Case 70/74, [1975] ĒCR 795, respectively). To that end a “joint specific indicator” was created, sased on a representative group of national civil servants and used to determine each year the amount by which purchasing power had fluctuated in Member States' public administration; Community salaries were revised on the basis of that index.

However, as doubts and arguments Frequently arose as to whether the indicator was sufficiently representative, it was found necessary to lay down an objective method for making adjustments to purchasing power. As a result, the Council requested the Commission on 14 December 1970 to submit to it a paper “on working methods to be used for the application of Article 65 of the Staff Regulations”.

The paper was submitted on 2 June 1971 to the Council, which after lengthy discussion adopted during its 192nd meeting on 20 and 21 March 1972 a system for adjusting remuneration known as the “first method”.

The system, which was to apply for a trial period of three years and was described by the Council as being “in line with the provisions in the existing Article 65 of the Staff Regulations”, provided a guarantee for staff that the annual adjustment of salaries would, first, include compensation for the rise in the cost of living through the operation of the joint indicator established in accordance with Article 65 of the Staff Regulations and confirmed in use and, secondly, set in motion “machinery for measuring more accurately variations in the purchasing power of remuneration” in the public service by the operation of the former specific indicator, now improved, and a new indicator representing the variations in total salary per head in real terms in the public administrations.

In the words of the Council, the system “forms part of a policy which is intended to guarantee, in the medium term, that the remuneration of European officials will vary in step with the average variations recorded for salaries in the national civil services” (statement made at the 221st meeting on 18 and 19 December 1972).

At the end of the three-year period during which the first method was to apply the Council adopted, after much study and discussion, a second method of adjusting salaries to which no time-limit was attached, but which was subject to review.

Since it appears from the preamble to Regulation No 187/81 that the Council relied on that method when it adopted the regulations which the Commission is challenging, its contents must be called to mind.

(b) The 1976 method

This method comprises first a basic principle couched in the same terms as those of the statement made on 18 and 19 December 1972, quoted above.

In order to achieve the aim stated in the basic principle, the Council is to take a decision pursuant to Article 65 (1) “in the light of” five “factors”:

1) Variations in the cost of living measured, as in the past, by means of the joint index prepared by the Statistical Office pursuant to Article 65 of the Staff Regulations.

2) Variations in the real income of national civil servants, represented, in fact, by one of the two parts of the old specific indicator, but in a more sophisticated version. It was thenceforth to be the responsibility of the Statistical Office to prepare an indicator for each category — A, B, C and D — and a weighted average indicator based on the numbers of national civil servants in those four categories.

3) Civil service per capita emoluments in real terms, also taken from the first method, where it constituted the second part of the specific index.

It should be noted that these first three factors are supplied by the Statistical Office.

4) General factors of an economic and social nature. This item, supplied by the Commission, represented “other macroeconomic factors indicative of Member States' economic and social policies, such as the gross domestic product per capita of the working population and the aggregate per capita earnings in the economy as a whole”.

5) Recruitment needs and the structure of Community staff complements, information likewise supplied by the Commission.

Despite the Commission's proposals, the 1976 method provides for salaries to be adjusted annually ex post facto, and for the adjustments to take effect retroactively from 1 July of the year in which the end of the reference period used for the salary review occurs, the reference period corresponding to the 12 months preceding the first day of July of the year in which the review is made.

Finally, paragraph 3 of the 1976 method deals with interim adjustments to remuneration.

(c) Application of that method since 1976

Under that method four regulations laying down the annual adjustments to salaries were adopted before Regulation No 187/81. Each of the four regulations adopted the Commission's proposals, which were duly supported by data supplied by the Statistical Office.

The annual adjustments thus decided upon were adopted in accordance with the basic principle set out in the 1976 method and were based in the main on the changes in the net real specific indicator measuring variations in the real incomes of national civil servants.

In addition, and still in accordance with that method, five regulations making interim adjustments to the weightings were adopted in the light of the substantial rise in the cost of living which occurred during the months following the date on which the previous annual adjustment of remuneration took place (1 July)

Between 1975 and 1979 real net Community remuneration showed an increase' of 4.4% whereas real net remuneration in the national civil services showed, for the same period, an increase of 4%. The difference, described by the Commission as negligible, was attributable to different staffing structures, and equally to the fact that in the Community less emphasis was placed on the linear principle designed to favour the middle and lower salary groups.

When Council Regulation (EEC/Euratom/ECSC) No 161/80 of 21 January 1980 adjusting the remuneration and pensions of officials and other servants of the European Communities and the weightings applied thereto (Official Journal L 20, p. 5) was adopted, some of the delegations from the Member States expressed reservations in the Council on the subject of the 1976 method, and consequently the Commission was asked to submit to the Council by 1 July 1980 a study of the results of the application of that method, together with a proposal for appropriate amendments.

At the end of June 1980 the Commission submitted such a study emphasizing a “most satisfactory result”. It did, however, propose two alterations, one concerning the interim adjustments and the other the annual adjustments: the Commission proposed that when the latter were calculated the rate of increase of the oil bill should be deducted from the specific indicator to the extent to which the oil factor represented more than 0.5% of the Community gross domestic product during the year of reference. The deduction was to be temporary, and repayable over a period of four years.

Before the Council had revised the method again, however, the Commission forwarded to it on 27 November 1980 its customary report on the annual review of the level of remuneration, together with the Statistical Office's report. The Council then adopted the Commission's report only for officials in the lowest-paid categories.

Moreover, at the same time as it adopted Regulation No 187/81 the Council declared that that regulation was the last one to be adopted on the basis of the 1976 method which must therefore be revised, and that the new method “will exclude, in particular, all automatic indexing and will adopt the principle of harmonization with national incomes” (statement recorded in the minutes of its 685th meeting).

That regulation and Regulation No 397/81 are those challenged by the Commission in this application, which was received at the Court Registry on 16 March 1981.

Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral procedure without any preparatory inquiry.

II — Conclusions of the parties

The Commission claims that the Court should:

“Declare that Council Regulation No 187/81 of 20 January 1981 is void in its entirety; Declare that Articles 1 (a), 2 (a), 2 (b) and the first paragraph of Article 11 of the supplementary Council Regulation No 397/81 of 10 February 1981, are void; Declare that the provisions of the regulations in question shall continue to have effect until the entry into force of the new regulation to be adopted consequent upon the judgment.”

The Council contends that the Court should:

“Dismiss as unfounded the Commission's application for a declaration that Council Regulation No 187/81 of 20 January 1981 is void in its entirety and that the supplementary Council Regulation No 397/81 of 10 February 1981 is void as regards Articles 1 (a), 2 (a), 2 (b) and the first paragraph of Article 11 thereof.”

III — Submissions and arguments of the parties

First submission: “Infringement of Article 65 (1) of the Staff Regulations inasmuch as in support of Regulation No 187/81 and consequently in support of various provisions of Regulation No 397/81 the Council took account of ‘the worsening of the general economic situation in the Community ..., brought about, particularly by the increased cost of energy’, whereas Article 65 (1) of the Staff Regulations required it to base its decision regarding the adjustment of remuneration and pensions not on ‘the economic situation’ but on the ‘economic and social policy of the Community’.”

The Commission points out that Article 65 (1) of the Staff Regulations requires the Council to consider “whether, as part of the economic and social policy of the Community, remuneration should be adjusted”. The economic situation comprises an array of facts and phenomena, whereas economic policy is the art, or the science, of guiding matters in a particular direction by the application of various techniques. Thus for the reference period July 1979 to June 1980 special attention should be given to the “guidelines for economic and social policy” set out by the Community in the Annual Economic Report for the year 1979—1980 (published in Economie Européenne No 4, p. 14). It is common ground that from July 1979 to June 1980 the direction taken by Community policy on pay, and the effects of that policy, resulted in a rate of increase in employees' real remuneration of the order of 1.35% per employee. That rate was only 0.65% for the reference period July 1976 to June 1977, and 0.95% for the period July 1977 to June 1978. Yet in both cases, the method of calculation adopted in June 1976 was applied in the usual manner and no decision was made to reduce the purchasing power of Community staff.

The Commission concludes that if Community policy on pay leads in the direction of even a modest increase in employees' purchasing power, a reduction in the purchasing power of Community staff must fall outside the terms of that policy. Consequently the reduction in the purchasing power of Community staff which was effected by the regulations at issue was not “part of the economic and social policy of the Communities” pursued between July 1979 and June 1980. A decision of that nature no longer satisfies the requirements of the Staff Regulations, according to which consideration is to be given to the question whether remuneration should be adjusted as part of (that is to say if appropriate, suitable or proper, regard being had to) such a policy.

The Council, maintains, first, that when it considered the deterioration in the general economic situation in the Community during the reference period it relied on point 4 of the method adopted in June 1976, which is headed “General Economic and Social Factors”. In the circumstances the inclusion of point 4 and consideration of the factors in question were consonant with the requirement contained in Article 65 (1) that decisions should be made “as part of [the] economic and social policy of the Communities”.

Moreover, to take such factors into account is compatible with the second sentence of the second subparagraph of Article 65 (1). On the wording of the article, which requires that “particular account shall be taken ...”, it is clear that consideration of general economic and social factors other than the two expressly referred to in point 4 of the method (gross domestic product per capita of the working population and aggregate emoluments per capita) is compatible with that part of the method.

The Council is also not bound to consider solely the information which is supplied by the Commission in its report for the annual review of the level of remuneration.

In any case, when the Council decides whether it should adjust remuneration in the light of the factors referred to in the method it must do so “as part of the economic and social policy of the Communities”. Since “as part of” has a flexible meaning and “the economic and social policy of the Communities” is a wide-ranging concept it would, the Council maintains, be contrary to the wording and logic of Article 65 (1) to claim that that expression, in conjunction with some sentence or other taken from the guidelines on economic policy addressed to the Member States, or with some figure or other representing variations in purchasing power recorded during the reference period, have the effect of restricting the Council's margin of discretion in a precise respect.

The Council reviews the relevant decisions of the Court concerning the scope of the discretion enjoyed by an institution when evaluating a complex economic situation, and the scope of a judicial review of the lawfulness of the exercise of such powers (see, in particular, the judgment of 25 May 1978 in Case 136/77, Racke [1978] ECR 1245).

In reply to the Commission's line of argument that the guidelines on the economic and social policy set out by the Community in the Annual Economic Report for the year 1979/1980 indicate that the policy on pay is to be restricted to maintaining purchasing power, the Council points out that the guidelines lay down a maximum and there is nothing to prevent a Member State from pursuing a policy on pay leading to results below that maximum. Other extracts from the Annual Report might be cited, moreover, in support of that argument. The Council did, therefore undertake its consideration “as part of” the policy resulting from those guidelines.

The Commission first rejects the Council's argument that the method adopted in 1976 allows it to take into consideration “general economic and social factors”. Since the method does not constitute a rule incorporated in the Staff Regulations it cannot be construed in a sense contrary to the higher rule, in this case Article 65 (1) of the Staff Regulations. In addition the elements of fact referred to in this context by the Council, namely the gross domestic product per capita of the working population and the total emoluments, which are the reflections of a specific economic and social policy, run counter to the decision taken by the Council to reduce in real terms the total average remuneration of officials since those two indices rose during the reference period.

Aware of the contradiction, the Council sought to justify its decision by relying on “the deterioration in the general economic situation ... as a result of, in particular, the rise in energy costs”. However, the rise in energy costs is a matter of fact which is the result of the policy pursued by the oil-producing States and is not, therefore, characteristic of the economic and social policy of the Member States.

In the circumstances “facts unrelated to the policies pursued and applied within the Communities, in particular with regard to pay, must therefore be regarded as irrelevant.”

The Commission does not deny that other factors may be taken into consideration in the adjustment of remuneration, but only if they reflect the policy pursued by the Communities, which is not true of the increase in energy costs. The Commission recalls that no mention was made in 1976 of the first oil crisis.

As to the interpretation of the expression “as part of the economic and social policy of the Community”, the Commission submits that they imply the existence of certain restrictions, and that is also borne out by an analysis of the method adopted in 1976 (especially in section II, paragraph 4) as well as by the case-law of the Court (see, in particular, the judgment of 5 June 1973 in Case 81 172- Commissions Council [1973] ECR 575, especially paragraph 8 of the decision). On that basis the Commission concludes that the expression in question places a restriction on the Council's discretion. In this instance the Council “unquestionably” went beyond the confines of the Community's economic and social policy because in order to adopt its decision reducing officials' purchasing power it took into account a situation which was the result of a circumstance of fact — the cost of energy — not directly related to that policy, whereas the factors referred to in the 1976 method, which showed an increase in the gross domestic product and in purchasing power, were systematically ignored.

The Commission also takes issue with the lesson drawn by the Council from the judgment of the Court of Justice in Case 136/77. It maintains that the decision in question dealt with a case different from the present one. In this case it is not a question of assessing an economic situation but of taking note of the effects of, and the course followed by, economic policy. In any case even if the judgment cited by the Council were relevant here it must be noted that it indicates “that the Court has the power to review the Council's exercise of its power of appraisal to ensure that it is not vitiated by manifest error”. The Court would be forced to such a conclusion in this case, however, in view of the fact that the Council's decision results in an average decrease of 1.8% whereas the Communities' economic and social policy during the reference period was not directed to securing a reduction in real remuneration for employed persons.

As to the Council's last argument, finally, to the effect that it considered the matter “as part of” the Community's social and economic policy, not only is its contention, that the maintenance of purchasing power represents a maximum and does not preclude a reduction, a misinterpretation but, more important, the economic facts indicate that Member States did more than maintain purchasing power since the remuneration of employed persons rose in real terms by 1.35% during the reference period.

The Commission concludes that both the economic guidelines and the effects recorded during the period July 1979 to June 1980 confirm that maintenance of the purchasing power of employed persons was secured in all the Member States and that in not giving such a guarantee the Council disregarded the provisions of Article 65 (1) of the Staff Regulations.

The Council contends that there is no question of attempting to interpret the method adopted in 1976 otherwise than in accordance with Article 65. On the contrary, the second subparagraph of the introduction to Section II of the 1976 method contains implied recognition on the part of those responsible of the vagueness of the expression “as part of the economic and social policy of the Community”. To that extent, admittedly, the Council is obliged to have regard to principal trends in the Community's economic and social policy, but “to say that such a policy exists and is composed of precisely defined elements, and that such elements make up a rigid framework to which the Council is bound to adhere when making its decision appears to the latter contrary to the actual nature and aims of the Staff Regulations”.

The Council has not exceeded the bounds of its power of appraisal unless it can be determined that the decision is clearly incompatible with one of the major themes of such a policy, which is not the case.

Moreover, despite the Commission's statement to the contrary, there is no real economic and social policy of the Communities. There is merely a coordination of the general economic policies of the Member States, ensured by the Council pursuant to Article 145 of the EEC Treaty.

Point 4 of the 1976 method must not be construed so as to deprive the Council of any discretion whatsoever and introduce an automatic effect which would, in the Council's view, be “contrary to the letter, the logic and the spirit of the provision of the Staff Regulations which is at issue”. The two factors expressly referred to in point 4, the gross domestic product and the gross per capita emoluments, are not sufficient to give a full and accurate picture of the economic and social situation in the Community, or of the economic and social policies pursued within it. Thus, for instance, the increase in energy costs and in unemployment are factors which must be taken into account in the same way as increases in salaries in the national publio service and must modify the latter criterion.

In consequence, the Council maintains that it has not ignored the two factors expressly referred to in point 4 but “has had to give weight, at the same time, to other factors in order to establish a more balanced picture of the situation and of the policy affecting it”.

The Council goes on to contend that the judgment cited by the Commission is not germane to the case because it concern's the method adopted in 1972 which was very different from the 1976 method. As to the relevance of the Court's decision in Case 136/77 the Council insists that. contrary to what the Commission maintains, “it has a duty to assess all the general economic and social factors which may be considered relevant to its decision”.

Finally, the Council maintains its argument that the wording ot the reference to guidelines of economic policy for 1980 establishes the “target ceiling” which represents the average for the Community as a whole and thus allows for variations as against that average. The Commission is thus in error in claiming that real income levels must be maintained at all costs.

As a result, the Council considers that it has not exceeded the boundaries of the economic and social policy of the Communities merely because “it has progessively remained, while keeping pace with the level of remuneration, below the ceiling which it had itself fixed for the Member States”.

Second submission: “Infringement of Article 65 (1) of the Staff Regulations inasmuch as the contested regulations, which bring about a reduction in the purchasing power of European officials with effect from 1 July 1980, are contrary to the salaries policy pursued during the reference period July 1979 to June 1980 in the national public services, whereas the provision of the Staff Regulations in question required the Council to take account of ‘any increases in salaries in the public service’.”

The Commission submits that the provision in question is not a vague wish incorporated in the Staff Regulations and without much practical significance, but a well-defined obligation imposed by the regulations, whereby an increase in salaries in the national public services is a compelling factor in the annual adjustment to Community remuneration. If that parameter shows an improvement in purchasing power in real terms of the order of 0.2o/o on average, to reduce purchasing power in real terms would show a disregard of that fact, “and at the same time be in breach of the provision of the Staff Regulations which stipulates the use of that standard of reference”.

As to the Council's contention that where there is a discretion the duty to “take into consideration” a particular factor does not give rise to an obligation conferring on that factor a decisive influence on the decision to be taken, and that in addition the factor in question is not the only one to be taken into consideration, the Commission maintains that such an argument would imply that the Council must take account of any increase in remuneration in the public services which has taken place in Member States while denying it any influence on the fixing of remuneration for officials of the European Communities, since “it is quite obvious” that that factor was utterly ignored.

Nor can the argument relating to discretionary power be upheld, since Article 65 (1) “requires the Council to take certain factors into consideration”.

The Commission does not deny that the Council might have regard to other factors but it maintains, in the first place, that “the needs of recruitment” are not relevant in this instance to the reasons on which the contested regulations are based and, in the second place, that the Council failed at the same time to have regard to economic and social policy.

Lastly, the Commission is of the opinion that the judgment which was given in Case 72/74 is relevant to this case despite the fact that it was given under the 1972 method. According to the Commission, the Council itself admitted that the 1972 method met the requirements of Article 65 of the Staff Regulations of Officials and that it was a system designed to ensure parallel development with trends in salaries in the public services. Since that principle was abandoned in practice in January 1981, it follows that the decision which was adopted in the form of the regulations at issue no longer meets the requirements of the relevant provision in the Staff Regulations. Moreover, the fact that the judgment cited concerned the 1972 method is unimportant since in the 1976 method the Council readopted and confirmed the principle of parallel development.

The Council insists that its argument does not amount to saying that the expression “take into consideration” allows merely for regard to be had to increases in salaries in the public services in Member States without deducing the least consequence from that in specific terms, and reiterates its submission that it forms an important factor in the assessment to be made but that that factor is merely one of several and must not automatically prevail over the others.

It denies that the factor in question was wholly ignored, for the second recital in the preamble to Regulation No 187/81 referred to the proposals put forward by the Commission and the increase of 3.3% suggested by the latter was given to officials and other servants of the lowest-paid categories, the others having received an increase which was identical in absolute terms. According to the Council such a result is consistent with the economic and social policies pursued in the Community “since the rate of increase for persons with the highest remuneration has been reduced in most of the Member States”.

As to the relevance of the judgment in Case 72/74 the Council reiterates the fact that Article 65 of the Staff Regulations in no way implies that the 1976 method, which designedly allows the Council a wider margin of appraisal, is not likewise compatible with that provision or that it is not “in accordance with” the latter.

Finally, the Council challenges the Commission's argument to the effect that the wording of Article 65 (1) shows that the principle that parallel development must be absolute and effected annually is incorporated in the Staff Regulations, on the ground that were that so the 1976 method would be largely superfluous, and even in conflict with the Staff Regulations.

Third submission: “Breach of customary law arising from the application of Article 65 (1) of the Staff Regulations inasmuch as the contested regulations signify a departure from a longstanding practice, a source of customary law, which led the Council on the annual implementation of Article 65 (1) of the Staff Regulations to adjust remuneration at first in such a way as at least to safeguard the maintenance of purchasing power and then, even before 1970, in such a way as to vary that purchasing power in the light of the increase in the level of recorded real incomes in the Community, particularly in the public administrations”.

The Commission submits that the arguments set out under the two first heads of claim, taken together, show that the purpose of both the 1972 method and the 1976 method was to bring about the achievement of a double aim already acknowledged in previous practice, namely that the annual adjustments to remuneration “must not only endeavour to adjust salaries to take account of increases in the cost of living, but must also give officials and other servants the benefit of an increase in income levels recorded in the Community”.

Thus arose a body of customary law which was infringed by the regulations at issue inasmuch as that customary law required an increase in the real remuneration of Community officials, whereas the regulations reduced remuneration in real terms.

The Council concedes that unwritten law, which might be described as “customary law”, has a tendency to arise with the passage of time, but considers that until now the Court “has never expressly admitted the existence of customary rules of Community law arising from long practice”.

Moreover, in this instance, in view of the fact that written Community provisions exist — Article 65 (1) of the Staff Regulations, supplemented by the method adopted in June 1976 — the Council wonders whether the practice referred to by the Commission “has the effect of restricting the freedom of discretion enjoyed by the authority under the provision in question”. If that question is to be answered in the affirmative it must first be shown that there is agreement between the national laws of the Member States on the principle in question. That is for the applicant to show.

In any event, the fact that the Council has pursued a policy based on certain matters of fact cannot subsequently preclude it from having regard also to other matters which might modify the influence of the first. Moreover, in the 1976 method, which is more precise than the wording of Article 65 (1), the Council introduced point 4, entitled “General economic and social factors”.

The fact that this factor was not taken into consideration during the first four years of applying the method does not prevent it from being considered on the occasion of the 1980 review, since the Court has declared that “it cannot be presumed that provisions of the Treaty have lapsed” (judgment of 14 December in Case 7/71 [1971] ECR 1003). In any case a practice which was followed for such a short time cannot have created a legitimate expectation that such factors would be excluded from the review for 1980.

The Commission submits that there is no obstacle to the Court's drawing on the national legal systems in order to establish the concept of customary law, a process which is in any case acknowledged by legal writers and to which reference was made in the judgment of 17 December 1970 (Case 30/70 Scheer [1970] ECR 1197, in particular paragraph 15 of the decision) where an argument relating to the unfairness of a procedure was rejected by the Court on the basis of “the consistent practice of the Community institutions”. Custom is “a general practice responding to the requirements of the social group within which it is applied, longstanding, consistent and well-known”. In this case the practice, which has existed for over 10 years, amounts to a custom.

The Commission submits further that as a matter of principle custom may be contrary to statute, but that here in any case the custom accords with the terms of Article 65 (1).

As to the Council's submissions concerning the way in which the 1976 method was applied between 1976 and 1980, the Commission maintains that despite the Council's statement to the contrary “general economic and social factors” were indeed taken into consideration during that period. All the decisions concerning remuneration were adopted on the basis of the two criteria of gross domestic product per head of the working population and gross wages per person employed. In 1981, by contrast, the Council exceeded the bounds of legality by relying exclusively on a factual situation unrelated to the trends in economic and social policies, when all the criteria militated against the decision which was adopted.

Furthermore, the use of the expression “à la lumière de” in the 1976 method instead of the expression “sur base de” which appears in Article 65 of the Staff Regulations cannot extend the scope of the Council's discretion defined by Article 65. Even if the Council has the power to determine the relative importance of each item of information, how is it to be explained that “the final decision leads to a reduction in purchasing power, when none of the relevant data points in that direction?” Moreover, the fact that energy costs have risen appreciably cannot avail against customary law.

The Council points out, with regard to the existence of customary law in this matter, that in its view “in the legal systems of certain Member States the practice followed by an administrative authority cannot alter the clear meaning of a legislative provision”. It also maintains that in this instance such a custom conflicts with Article 65 (1).

As far as the application of the 1976 method is concerned the Council points out that, whilst it took such factors into consideration during the four years, it did not deem them to be of such a nature as to induce it to alter the consequences which it had drawn from the other factors in the method; in January 1981, however, the deterioration of the general economic situation led it to act otherwise.

The use in the 1976 method of the expression “à la lumière de” conferred on the Council complete freedom, in fact, to decide the relative importance to be attached to each of the factors and such freedom does not conflict with the terms of Article 65 of the Staff Regulations. Furthermore, the fact that the Council did not react to the first oil crisis of 1973/1974 is not “a good reason for saying that it could not do so in the circumstances which obtained when it adopted its decision in January 1971” inasmuch as it envisaged that such factors might have to be taken into account in the future by approving a method which left it a wider margin of discretion than the much narrower one of 1972.

Fourth submission: “Infringement of the terms of the 1976 method and frustration of the legitimate expectation which it engendered inasmuch as the contested regulations, allegedly adopted (even though for the last time) pursuant to that method, have the effect of setting at naught the ‘basic principle’ of parallel development laid down in the method.”

The Commission considers that the methods drawn up by the Council have a mandatory effect. Thus, the staff have the right to obtain an adjustment of their financial entitlements subject to conditions which satisfy both the basic principle set out in the preamble to the 1976 method and the criteria and methods for adjustment which are defined in that document for the purpose of ensuring that the basic principle is observed when the method is put into practice. Even if the Council were authorized, as it contends, to derogate in certain circumstances from its earlier commitments embodied in the method, the Commission considers that the power to derogate is irrelevant in this instance “since the Council maintains that it has not derogated from its commitments and has expressly declared that the regulations at issue were adopted on the basis of the present method, that of 1976”.

Since the Council is thus bound to abide by the criteria laid down, it follows that the staff are entitled to enjoy remuneration which is determined on the basis of those criteria.

As to the Council's argument that this submission does not raise a question as to whether legality has been observed as far as the implementing measures are concerned, on the ground that the method and the annual decisions are both implementing measures adopted solely on the basis of Article 65 of the Staff Regulations, the Commission maintains that the 1976 method and the annual decisions are not provisions of equal rank.

In addition the Commission considers that the principle of parallel development amounts to more than a mere declaration of intent inasmuch as the Council itself has stated that the principle gives rise to legitimate expectation on the part of officials. By incorporating the principle in the 1976 method, therefore, “the Council has merely confirmed the existence of a pay policy based on the provisions of the Staff Regulations and confirmed by long practice, as the Court has noted on two occasions”.

In reply to the Council's argument that principle must allow for flexible appraisal in the medium term the Commission maintains that inasmuch as the principle in question is based on Article 65 of the Staff Regulations which provides for an annual review of remuneration, it must be applied at the same intervals of time. The requirement of parallel development is therefore to be applied annually. The theory of “parallel development in the medium term” is equally untenable in view of the fact that it is clear that a departure from the principle of parallel development cannot be subsequently remedied. According to the Commission it is obvious that the reduction of 1.8% applied to remuneration in 1980 will not be compensated for later. Admittedly, the increase during the period 1976/1979 was made by applying both a percentage increase and a linear one, yet the principle of parallel development of salaries for the officials as a whole was respected since the “net package” to be distributed was calculated on the basis of a percentage fixed in accordance with the principle of annual parallel adjustment. The reason for the proportionately greater increase which was given on several occasions to officials and other servants in the lower categories was not the need to be flexible in applying the principle of parallel development but the desire to keep the salary range within certain limits.

The Commission goes on to add with regard to review of the principle in the medium term that the Council intends in future to apply a different principle, namely the principle of harmonization with remuneration in the national administrations. As a result the reduction of 1.8% for the year 1980 cannot be made good. Otherwise the Council would have to undertake immediately to arrange for the percentage increase not given in 1981 to be repaid over the next five years.

Lastly, the Commission submits that the Council's argument that it is entitled to depart from the method on grounds of some overriding public interest conflicts with the Council's statement that in adopting the regulations at issue it merely applied the method in force at the time. Moreover, there is no reference to such an overriding public interest in the preamble to Regulation No 187/81, and as a matter of substance the Commission wonders whether from the economic point of view a measure reducing the purchasing power of some 20000 officials and pensioners is capable of altering the rate of inflation in any way whatsoever.

The Council concedes that the staff were entitled to protection of the legitimate expectation to which the adoption of the method of 1976 gave rise, and that a corresponding obligation was placed upon it. Nevertheless, it does not accept that it was an absolute one. The Council leaves the issue to be settled by the Court but points out that regardless of what may be the correct analysis of the rights and duties in question the issue of substance — whether or not the basic principle of the method was breached — remains in any case the same.

The Council observes that in the opinion the Staff Regulations do not provide for a system of automatic indexing. Therefore, it “does not agree that the principle of annual parallel development is incorporated in Article 65 of the Staff Regulations”. The Council maintains that paragraph (1) of the method is merely a declaration of intent regarding the policy to be adopted — the aim to be achieved in the medium term. It thereforce claims that the principle must be interpreted with flexibility and reviewed over a period of at least five years.

In concluding that Article 65 requires parallel development to be effected annually the Commission is ignoring the words “in the medium term” which appear in the principle as it was stated in December 1972 and in the 1976 method. The Council also reiterates the fact that the principle of parallel development in the medium term cannot, by its very nature, be specifically applied on an annual basis.

As regards the method for the future the Council confirms that the system of a “crisis levy” is to be introduced over a period of five years but such a levy must be disregarded in any review of the application of the principle of parallel development during the period of application of the new method. The Council also considers that it is not required to guarantee immediately that the percentage increase in remuneration which was not given in 1981 will be made good over the next five years for, it maintains, it must be seen how application of the new method progresses during that period.

On those grounds the Council “concludes that the question raised in this submission cannot be definitively resolved at present, and that it is therefore premature”. In the circumstances the theory concerning the Council's power to depart from the method on the ground of an overriding public interest is mere speculation.

Fifth submission: “Breach of the method adopted in June 1976 and frustration of the legitimate expectation which it aroused inasmuch as the contested regulations, allegedly adopted (even though for the last time) pursuant to that method, whilst avoiding the application of the first three criteria laid down by the method, give precedence to the fourth criterion in conditions which are wrong in law.”

The Commission repeats its arguments on the first and second submissions concerning the difference between the “economic and social policy” of the Member States and the “general economic situation”. Relying on those conclusions, it claims that the manner in which the fourth criterion — general economic and social factors — was applied by the Council appears to be vitiated by abuse of powers and error in law. The abuse of powers is thus connected with the defectiveness in law of the statement of reasons upon which the disputed regulation is based. In invoking such reasons the Council has failed to comply with the rule that legitimate expectation must be protected. It is pointless for the Council to attempt to justify its disregard of the criteria laid down in the method by arguing that the discretion conferred upon it by Article 65 of the Staff Regulations justifies its consideration of other economic and social factors. The criteria not envisaged by the 1976 method were, moreover, incorrectly interpreted by the Council in circumstances which were wrong in law, especially as regards the alleged desire to take into account the increase in the rate of unemployment and to fight inflation.

Finally, the Commission observes that such criteria could not in any case be taken into consideration by the Council in order to bring about adjustments in remuneration in a direction contrary to both the trends and the effects of the economic and social policy of the Communities.

The Council repeats that it was legally entitled to have regard not only to the two criteria expressly referred to in point 4 of the method but also to other factors of a macroeconomic nature indicative of the economic and social policy of the Member States, especially as the two criteria do not give an appropriate picture of the economic and social situation and the policies pursued in order to deal with it. It was thus entirely logical and reasonable to take into account the increasing rate of employment and the rise in energy costs, in particular for petroleum products, during the reference period.

Accordingly, the Council contends that the manner in which point 4 of the 1976 method was applied was in no way vitiated by abuse of powers or manifest error of law and that it did not fail to have regard to the rule that legitimate expectation must be protected.

Furthermore, the Council maintains that its assessment of the general situation, described in the third recital in the preamble to Regulation No 187/81, to the effect that the general economic situation in the Community had deteriorated in the course of the reference period, “was undoubtedly correct”.

Sixth submission: “Incorrect assessment of the facts and breach of the principle of proportionality inasmuch as the deduction made by the Council, particularly on account of the increase in the costs of energy, from the rate of increase in remuneration proposed by the Commission is out of proportion to the actual extent of the increase in the cost of energy (related to the average gross domestic product of the Community) during the reference period July 1979/June 1980; in any event, lack of a precise statement of the reasons on which the measures were based, which would permit a review of their legality by the Court, in the event of a proportion of that deduction corresponding to factual circumstances contributing to the worsening of the economic situation but distinct from the increase in the cost of energy.”

The Commission makes this submission in the alternative. It offers to show, if necessary by means of expert evidence, that during the reference period the increase in energy costs compared to the average increase of the gross domestic product in Europe was far short of 1.8% of the gross domestic product, the rate represented by the deduction made by the Council. It maintains that the increase in energy costs amounted, at most, to 1.17% of the annual gross domestic product. In those circumstances, either the 1.8% deduction made by the Council was the result of a wrong appreciation of the facts and was in breach of the principle of proportionality, or it “embraced, besides the increase in energy costs, other factual circumstances contributing to the worsening of the economic situation, but not expressly referred to”.

In the latter circumstance, Regulation No 187/81 was supported by an inadequate statement of reasons since the Council did not explain what were the factual circumstances, other than the increase in energy costs, which it considered to have contributed to the deterioration of the economic situation.

As to the Council's argument that the increase in energy costs was merely the principal cause of the worsening of the general economic situation and that it was of that deterioration as a whole that account was taken, the Commission insists that the concept embraces factors — especially the trend of the unemployment and inflation rates — whose influence was not explained and which, moreover, even considered separately, in no way justified the decision which was adopted.

The Council's attempt, whilst acknowledging the succinctness of the statement of reasons, to justify it by pointing out that the Commission participated in the process of drafting the decision is irrelevant in this case for the following reasons. First, the statement of reasons ought to have indicated not only the factors which were taken into consideration but also the manner in which their incidence was reflected in the figures; secondly, there is no reference to the aims pursued, in particular to the campaign against inflation; thirdly, the requirements laid down by the case-law of the Court concerning the statement of reasons were not fulfilled; and, fourthly, the Commission's participation in the process of drafting the decision was not such as to enable it to learn either the precise factors taken into consideration by the Council or the method by which their incidence was reflected in the figures.

The Council contends, first, that the third recital in the preamble to Regulation No 187/81 shows clearly that the increased cost of energy is mentioned only as the principal cause of the deterioration of the general economic situation and that the main factor taken into account by the Council was that deterioration in all its aspects. The Council insists in that context that the growth in the rates of unemployment and inflation provides ample evidence that the general economic situation deteriorated seriously during the reference period. It did not, therefore, disregard the principle of proportionality, because the deterioration in question provided ample justification for limiting the adjustment of salaries which it was obliged to make in January 1981. Admittedly, that limitation represented a departure from the way in which adjustments were made in the preceding years, but in the circumstances of the case, since the situation had developed gradually the difficulty faced by the authority responsible for taking periodical decisions was to know at which moment it should take action in response to the change. The Council is of the opinion that in proceeding as it did in the regulation at issue it ensured that the limitation which was imposed was not out of proportion to the gravity of the deterioration in the general economic situation.

As to the alleged inadequacy of the statement of reasons the Council contends, after analysing the recital in question, that it was not necessary either to refer expressly to particular aspects of the deterioration in the general economic situation, the broad characteristics of which are well known, or, above all, to attempt to quantify their repercussions on the adjustment to officials' remuneration. The statement of reasons was thus succinct, but adequate. Its adequacy is shown particularly by the fact that the Commission participated in drafting the decision at issue (see in that context the judgment of 14 January 1981 in Case 819/79 Federal Republic of Germany v Commission of the European Communities [1981] ECR 21).

Seventh submission: “Infringement of Article 65 (2) of the Staff Regulations and disregard of the principle of equal treatment of officials and of the obligation arising therefrom to ensure for them by means of their remuneration an equivalent purchasing power whatever their place of employment inasmuch as the contested regulations, uniformly adjusting remuneration and pensions with effect from 1 July 1980 and consequently adjusting with effect from that date the weightings valid for countries other than Belgium and Luxembourg do not give effect to the Commission's proposal for the adjustment from 1 April 1980 of the weightings valid for 11 countries with high inflation.”

The Commission claims that by refusing to adopt its proposal at the end of 1980 to adopt every quarter weightings applicable to 11 countries with a particularly high cost of living (10% or more in 6 months) the Council failed to comply with Article 65 (2) as it is to be interpreted in the light of the practice followed until then.

The Council's decision in the matter amounts to equally grave disregard of the principle of equal treatment which, as one of the fundamental principles of Community law and thus a superior rule of law, places upon the administrative authority a duty not to apply any specific provision of the Staff Regulations which would conflict with the principle of equality. It is especially important to apply the principle in the circumstances of this case, where the Council is adopting “an implementing measure which is more administrative than legislative”, which is what the Commission claims the adjustment of remuneration or of the weightings to be.

The Commission observes further that the problem which has arisen in this case is not to establish that the general practice has been to make adjustments merely every six months, rather than every quarter, but “to determine whether such a practice is lawful in the light of Article 65 (2) of the Staff Regulations and, in particular, the principle of equal treatment”.

Accordingly, the Commission maintains that the Council's argument with regard to the need to combat inflation has no bearing on the case.

The Council endeavours principally to show that it is not possible to trace the existence of any consistent practice with regard to quarterly adjustments, and that even if in the past the Council has considered an increase of x% over six months to be a substantial variation justifying a six-monthly adjustment of the weightings to match, nevertheless it is not bound to consider a quarterly rise of the same magnitude as necessitating a quarterly adjustment of the weightings; were it otherwise, its discretion to decide what measures to take and when they should take effect would be reduced to nothing.

Furthermore, while the Council admits the necessity of maintaining equal purchasing power regardless of the place of employment it considers itself entitled to adjust the salaries of officials and other Community servants no more than twice a year because, first, it has never accepted a system of automatic indexing of salaries and, secondly, were compensation for the rate of inflation to be introduced in one or more Member States there would be no reason to refuse the adoption of a similar practice in the countries in which the institutions have their seat; however, the Council considers that it is not bound under Article 65 (2) to compensate for rises in the cost of living at such short intervals even if the result might be temporary disparities in purchasing power.

IV — Oral procedure

At the sitting on 11 May 1982 the Commission of the European Communities, represented by Joseph Griesmar, acting as Agent, assisted by Daniel Jacob, of the Brussels Bar; and the Council of the European Communities, represented by David Gordon-Smith, Director General of the Legal Department at the General Secretariat of the Council, acting as Agent, presented oral argument and their replies to questions which had been put to them by the Court.

The Court also heard, in response to questions put by it, Mr Werden, head of Division at the Statistical Office whose responsibility it was each year to make the report referred to in Article 65 of the Staff Regulations for the Commission, as a technical expert.

The Court also decided that the parties should submit within 15 days, if possible in a joint statement, a reply, with figures, to the following question: “What would be the cost to the budget, in figures, were the Court to adopt the arguments advanced by the Commission?”

The Advocate General delivered his opinion at the sitting on 29 June 1982.

Decision

1. By application lodged at the Court Registry on 16 March 1981 the Commission of the European Communities brought an action under the first paragraph of Article 173 of the EEC Treaty for a declaration that the following are void: first, Council Regulation (Euratom/ECSC/EEC), No 187/81 of 20 January 1981 adjusting the salaries and pensions of officials and other servants of the European Communities and the weightings applying thereto (published in Official Journal L 21, p. 18, and replaced by the text published in Official Journal L 130, p. 26); and, secondly, Articles 1 (a), 2 (b) and the first paragraph of Article 11 of Council Regulation (Euratom/ECSC/EEC) No 397/81 of 10 February 1981 fixing the tables of salaries and other components of remuneration consequent on Regulation No 187/81 (published in Official Journal L 46, p. 1, and replaced by the text published in Official Journal L 130, p. 28).

2. The table of salaries drawn up by the Council therein indicates that the institution decided on an increase in the basic monthly salary for all officials and other servants amounting to BFR 1107 net from 1 July 1980; in making that decision the Council adopted only a small part of the proposal put forward by the Commission. The latter had suggested incorporating into the scale of basic salaries an increase for each salary step of 3.3%, that is to say, 3.1% for the increase in the cost of living recorded in the Kingdom of Belgium and the Grand Duchy of Luxembourg and 0.2% for the average increase in purchasing power which had been recorded in the remuneration of national civil servants for the period from 1 July 1979 to 30 June 1980. The Council adopted the Commission's proposal only with regard to the lowest paid officials and servants, that is to say, those in Step 1 of Grade D 4, and gave other members of the staff only the same amount, thus reducing the general average increase in nominal salaries for all officials and other servants to 1.5%. Furthermore, the Council rejected the Commission's proposal for a quarterly adjustment of the weightings for various countries of employment where rises in the cost of living were particularly large.

3. The Commission maintains that by adopting that course the Council broke with a longstanding practice based on observing the terms of the method for adjusting remuneration drawn up by the Council on 20 June 1976, and thereby infringed Article 65 (1) of the Staff Regulations, committed a breach of the principle of the protection of legitimate expectation and the principle of proportionality, and failed to satisfy the requirement of a precise statement of the reasons on which the measures were based; in addition as far as Regulation No 397/81 was concerned, it infringed Article 65 (2) of the Staff Regulations and failed to have regard to the principle of equal treatment of officials.

4. Before the various arguments relied upon by the Commission in support of its application are considered, it is appropriate to review the background to the dispute.

The background to the dispute

5. Article 65 (1) and (2) of the Staff Regulations of Officials reads as follows:

“(1) The Council shall each year review the remunerations of the officials and other servants of the Communities. This review shall take place in September in the light of a joint report by the Commission based on a joint index prepared by the Statistical Office of the European Communities in agreement with the national statistical offices of the Member States; the index shall reflect the situation as at 1 July in each of the countries of the Communities. During this review the Council shall consider whether, as part of [the] economic and social policy of the Communities, remuneration should be adjusted. Particular account shall be taken of any increases in salaries in the public service and the needs of recruitment.

2) In the event of a substantial change in the cost of living, the Council shall decide, within two months, what adjustments should be made to the weightings and if appropriate to apply them retrospectively.”

6. After the annual review of remuneration in 1966 it was agreed that such adjustments must seek not only to adapt salaries to the increase in the cost of living, but also to give officials and servants the benefits of the increase in the level of incomes recorded in the Community (see the judgments of 5 June 1973 and 26 June 1975 in Commission v Council, Case 81/72 [1973] ECR 575 and Case 70/74 [1975] ECR 795 respectively).

7. Pursuant to the first subparagraph of Article 65 (1) of the Staff Regulations the review must be based on a joint index showing the variations in remuneration in the Member States and thus until 1972 a Community specific indicator was used for this purpose, prepared according to a weighted average on the basis of national specific indices which were required to reflect, for a representative group of officials, the alteration in average nominal pay in relation to the increase in the cost of living.

8. Since application of that indicator gave rise to disagreement at the time of the annual review of the level of remuneration, the Council òn 20 and 21 March 1972, acting on a proposal put forward by the Commission, adopted a “system of adjustment of remuneration” in which it undertook, for a trial peripd of 3 years from 1 July 1972 to 30 June 1975, to fix the level of the real increase in Community remuneration within a bracket formed on the one hand by the specific indicator already used previously, but improved, and on the other hand, by an indicator called “total emoluments per head in public administration”, as published in national accounts, which was intended to reflect the variation in the total remuneration and other benefits given to national civil servants in each Member State, that is to say, giving a specific form to the increase in the level of incomes recorded in the Community. The Court stated in its judgment of 5 June 1973 that “by its Decision of 21 March 1972, the Council, acting within the framework of the powers relating to the remuneration of staff conferred on it by Article 65 of the Staff Regulations, assumed obligations which it has bound itself to observe for the period it has defined”.

9. At the end of the three years for which the first method, that of 1972, applied, the Council adopted on 29 June 1976 a new method for adjusting remuneration, known as the 1976 method. When it did so, the Council, after stating that it did not thereby intend to restrict its power of appraisal to a further extent than required by the applications of Article 65 of the Staff Regulations, defined a method of calculation to which no time-limit was attached, but which was open to review on a proposal by the Commission “in order to determine what improvements might be made subsequently and to adjust any inequalities”. That method was in force on the date when the regulations at issue in this applications were adopted.

10. The 1976 method comprises, first, a basic principle, as in 1972, according to which “the system of adjusting remuneration forms part of a policy aimed to guarantee, in the medium term, that the remuneration paid to European officials moves parallel to average salaries paid in Member States to the various grades of national civil servants”.

11. In order to achieve that aim, and in application of Article 65 (1) of the Staff Regulations, the Council is to decide, on a proposal of the Commission, whether in the context of the economic and social policy of the Communities it is appropriate for remuneration to be adjusted, and that decision is to be taken in the light of five factors.

12. Of those five factors, three are supplied by the Statistical Office of the European Communities: they are trends in the cost of living, trends in the real income of national civil servants and civil service per capita emoluments in real terms; the other two are supplied by the Commission and comprise, first, general economic and social factors — which concern “other macroeconomic information indicative of the economic and social policy of the Member States of the Community, such as the gross domestic product per head of the working population and total per capita emoluments in the economy as a whole” — and, secondly, recruitment needs and the structure of Community staff complements.

13. The method provides for the annual adjustment of remuneration to be made a posteriori and to take effect retroactively on 1 July of the year in which the end of the reference period used for the review of the level of remuneration falls, that period corresponding to the 12 months preceding 1 July of the year in which the review is carried out.

14. In accordance with that method the Council adopted four regulations providing for an annual adjustment of remuneration following proposals made by the Commission on the basis of information supplied by the Statistical Office. It also adopted, again on proposals put forward by the Commission, five regulations making interim adjustments to the weightings consequent upon a substantial rise in the cost of living.

15. However, by the time Regulation No 161/80 of 21 January 1980 (Official Journal L 20, p. 5) was adopted, reservations had already been expressed with regard to the 1976 method and the Commission was asked to submit to the Council by “1 July 1980 a study of the results of applying the method” together with an appropriate proposal for revising it. At the end of 1980 the Commission submitted to the Council the study which it had requested together with proposals for adjusting the method. However, the 1976 method had not been revised when the Council, on 20 January and 10 February 1981, adopted the regulations at issue, adopting the Commission's proposals only with regard to the lowest-paid officials.

16. The Commission challenges those regulations and seeks to have them declared void under Article 173 of the EEC Treaty on seven grounds; the first six submissions ask for a declaration from the Court that the Council was at fault in fixing a flat-rate increase of BFR 1107 for all European officials; the seventh seeks a declaration from the Court that the Council was at fault in refusing to adopt the Commission's proposal for a quarterly adjustment of the weightings for officials residing in countries with a high inflation.

Adjustment of salaries

17. In the first submission the Commission claims that the Council infringed Article 65 (1) inasmuch as it took into account the deterioration in the general economic situation in the Community, whereas that provision required it to make its decision adjusting remuneration and pensions in accordance with the “economic and social policy of the Communities”. In the second submission it maintains that by reducing European officials' purchasing power whereas that of national civil servants increased during the same reference period the Council again infringed the terms of Article 65 (1) which require it to take account, in particular, of “any increases in salaries in the public service”.

18. Since the two submissions are linked, they must be considered together.

19. The Council has submitted that these two submissions both concern the scope of its discretionary power under Article 65 (1). There is no doubt, it maintains, that the provisions accords it a wide discretion; thus the Court of Justice must confine itself, in its review of legality, to considering whether the regulation at issue is vitiated by mainifest error or by misuse of powers, or whether the institution in adopting it manifestly exceeded the bounds of its discretion. The Council points out also that there is no impenetrable dividing line between the concepts of “policy” and “situation” and that whilst it is admittedly bound to take fully into consideration the variation in salaries in the public service in the Member States, that is not the only criterion to be applied. In that regard the Commission's argument, it is claimed, amounts to incorporating the principle of annual parallel development in the Staff Regulations themselves, which would be contrary to the provisions in Article 65; hence that requirement of the Staff Regulations does not necessarily have a decisive influence on the decision to be adopted.

20. Whilst Article 65 leaves the Council free to choose the most suitable means and forms for implementing the policy with regard to remuneration, the first sentence of the second subparagraph of Article 65 (1) requires the Council to pursue its policy in adjusting remuneration “as part of the economic and social policy of the Communities”, and the second sentence of that subparagraph requires the Council to take “particular” account of “any increases in salaries in the public service”.

21. That second sentence indicates that when the Council exercises its discretionary power it must, when ma.dng the annual review of the level of remuneration, include any increases in salaries in the public service as one of all the factors to be taken into consideration.

22. It is true that the word “particular” implies that Article 65 does not require the Council to take account exclusively of changes in the salaries of national civil servants when adjusting salaries for Community civil servants. Nevertheless the requirement imposed by that provision means that the Council cannot, by reason of the fact that it takes other criteria into consideration, omit to take account of one of the two criteria expressly referred to in the second sentence of the second subparagraph of Article 65 (1).

23. Moreover, it should be remembered that the adjustment of Community salaries takes place a posteriori, so that the various factors which the Council must take into consideration are those relating to the reference period.

24. It is common ground that during the reference period July 1979 to June 1980 salaries in the national public service showed an average increase in purchasing power of the order of 0.2%, and even 1.6% after correction of the figures for Italy. In addition, according to the Annual Report on the Economic Situation of November 1979 for the year 1979/1980 the Council, which is expressly required in the second subparagraph of Article 65 (1) to make its decision as part of the economic and social policy of the Communities, merely recommended to the Member States that for the period from July 1979 to June 1980 the average increase in real income in the Community must be virtually nil, that is to say, it must be restricted to maintaining purchasing power, and no more.

25. By contrast, the Council regulation at issue has the effect of reducing the purchasing power of Community salaries for the same reference period by an average of 1.6%. The Council has thus disregarded a criterion which by virtue of the second subparagraph of Article 65 (1) of the Staff Regulations it has a duty to apply, namely any increases in salaries in the public service in the Member States, whereas its assessment of “the economic and social policy of the Communities” for the period in question had led it to recommend that purchasing power be maintained.

26. It follows that in deciding to reduce the purchasing power of Community salaries by an average of 1.6% when for the same reference period that of salaries in the public services in the member States rose by 0.2% (and even by 1.6% after correction of the figures for Italy) the Council failed to comply with Article 65 (1) of the Staff Regulations.

27. In the circumstances it does not appear necessary to consider the other grounds advanced by the Commission to the like effect.

Adjustment of the weightings

28. In a seventh submission the Commission claims that by refusing to implement in December 1980 its proposal to adjust the weightings every quarter, and in particular to adjust them from 1 April 1980 for 11 countries, some of them Member States and some nonmember countries, with a particularly high rate of increase in the cost of living (10% or more in six months) the Council failed to comply with Article 65 (2) as it is to be interpreted in the light of previous practice and, in addition, the principle of equal treatment which requires the competent authority to guarantee equal purchasing power for all officials regardless of their place of employment.

29. The Council first denies the very existence of a practice and maintains that Article 65 (2) does not require it to compensate at such short intervals for increases in the cost of living. As to the alleged failure to observe the principle of equal treatment the Council, whilst recognizing the need to maintain equal purchasing power for all officials regardless of their place of employment, considers itself none the less entitled to adjust salaries as a whole no more than twice a year, since it has never accepted a system of automatic indexing of Community salaries. Such an approach does not conflict with Article 65 (2), even though it may lead to temporary distortions in purchasing power.

30. It must first be observed that, as the Court declared in its judgment of 19 November 1981 (Case 194/80 Paulo Benassiv Commission of the European Communities [1981] ECR 2815), the weighting mentioned in Article 65 is the means available to the Council for adjusting the remuneration of all officials and servants of the Communities.

31. In these circumstances the weighting constitutes, in the scheme of Article 65, in addition to the annual adjustment provided for in paragraph (1), a means whereby remuneration may be adapted whenever there is a substantial rise in the cost of living.

32. The drafting of paragraph (2) indicates that the Council's discretion is less wide in that matter than in relation to the annual adjustment of salaries. The provision reads: “In the event of a substantial change in the cost of living, the Council shall decide what adjustments should be made to the weightings”, which implies that when the cost of living rises substantially the Council has a duty to take steps to adjust the weightings.

33. Moreover, that provision, as the Council itself has acknowledged, is designed to guarantee, in accordance with the principle of equal treatment, the maintenance of equal purchasing power for all officials regardless of their place of employment.

34. It follows that the power available to the Council is not to determine whether weightings should be adjusted at intervals of six months or quarterly, but to decide whether or not there has been a substantial increase in the cost of living and, if there has, to draw the appropriate conclusions.

35. In this case the Commission proposed an interim, supplementary adjustment for countries in which inflation was at least 10% in six months, pointing out in its proposal that that was a substantial increase since annual inflation recorded in the European Community was in the region of 10.3% per annum.

36. The Council did not deny that such an increase in the cost of living was substantial and therefore was not entitled to refuse to take steps to adjust the weightings for the countries in question in accordance with Article 65 (2), and the absence of a practice regarding quarterly adjustments could not justify it, within the scope of its discretionary power as defined above, in refusing to take the measures necessary for the correct application of that provision.

37. In those circumstances the seventh submission put forward by the Commission must be upheld and Regulation No 187/81 must be declared void in so far as it implies a refusal on the part of the Council to adopt, as required by Article 65 (2) of the Staff Regulations, measures to adjust the weightings applicable in 11 countries in which the rate of inflation was particularly high.

38. It follows from all the foregoing considerations that Regulation No 187/81, together with Articles 1 (a), 2 (a), 2 (b) and the first paragraph of Article 11 of Regulation No 397/81, in so far as they are a consequence of the firstmentioned regulation, must be declared void.

39. However, in order to avoid any lack of continuity in the svstem of remuneration it is appropriate that the provisions in the regulations declared void concerning the adjustment of the remuneration of Community officials should continue to have effect until such time as the Council has adopted the measures incumbent upon it in order to ensure compliance with this judgment.

Costs

40. Article 69 (2) of the Rules of Procedure provides that the unsuccessful pam is to be ordered to pay the costs if they have been asked for in the successful party's pleading.

41. Since in this case neither of the parties has asked for costs they must be ordered to bear their own.

On those grounds, THE COURT hereby:

1 Declares void Council Regulation No 187/81 of 20 January 1981 (Official Journal L 21, p. 18, replaced by the version published in the Official Journal of 16 May 1981, L 130, p. 26), together with Articles 1 (a), 2 (a), 2(b) and the first paragraph of Article 11 of Council Regulation No 397/81 of 10 February 1981 (Official Journal L 46, p. 1, replaced by the version published in the Official Journal of 16 May 1981, L 130, p. 29) in so far as they result from Regulation No 187/81;

2 States that the provisions of the said regulations concerning the adjustment of the salaries of Community officials shall continue to have effect until such time as the Council has adopted the measures incumbent upon it in order to ensure compliance with this judgment;

3 Orders the parties to bear their own costs.

1 Translator's note: In the English versions both these expressions appear as “in the light of”.