Commission of the European Communities v Council of the European Communities (59/81)

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 0.2^o/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”^note 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.