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The Judgment of the German Constitutional Court on the ECB’s Bond Buying Programme: The Beginning of the End or Making the EU Stronger?

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In a Judgment of 5 May 2020 Germany’s Federal Constitutional Court (Bundesverfassungsgericht) Second Senate ruled on several constitutional complaints directed against the Public Sector Purchase Programme (PSPP) of the European Central Bank (ECB). The Court found that the Federal Government and the German Parliament (Bundestag) violated certain complainants’ rights under German Constitution (Grundgesetz). The rationale for the decision is that both of these national institutions have failed to take actions to establish that the ECB has not justified the proportionality* of the measures concerning the adoption and implementation of the PSPP. The Federal Constitutional Court launched a request for a preliminary ruling before the Court of Justice of the European Union (CJEU), which concerns the validity of Decision (EU) 2015/774 of the European Central Bank of 4 March 2015 on a secondary markets public sector asset purchase programme (ECB/2015/10).

In response to the request for a preliminary ruling the Court of Justice of the European Union (CJEU), informally known as the European Court of Justice (ECJ), in its Judgment of 11 December 2018, has taken a different stance. In the consideration to the questions referred to it, it underlined that the ECB and the central banks of the Member States whose currency is the euro, are to conduct the monetary policy of the Union (Article 282(1) TFEU), adding that the ECB is to adopt such measures as are necessary to carry out its tasks arising from and in accordance with Treaty of the Functioning of the EU (TFEU), and other relevant EU legal acts (Article 282(4) TFEU). After having recognised the objectives and frames of the bond buying programme as a part of monetary policy, ECJ found that Decision 2015/774 of the ECB does not infringe the principle of proportionality and confirmed its validity.

The German Constitutional Court defined the review undertaken by the CJEU with regard to whether the ECB’s decisions on the PSPP satisfy the principle of proportionality as not comprehensible. It held that the CJEU decision is not binding, as it infringed the methods of legal interpretation by failing to apply the EU's “principle of proportionality” correctly.

The Court ruled that the ECB had acted ultra vires (beyond its powers/its mandate) regarding its PSPP and provided that the central bank of Germany (Bundesbank) should suspend the implementation of the bond-buying programme unless the ECB (within no more than three months) proves the proportionality of its monetary stimulus, aimed at supporting the Eurozone’s economies.

“As a result, the ultra vires act is not to be applied in Germany, and has no binding effect in relation to German constitutional bodies, administrative authorities and courts. These bodies, courts and authorities may participate neither in the development nor in the implementation, execution or operationalisation of ultra vires acts”.

The Federal Constitutional Court. Judgment of 05 May 2020 – 2 BvR 859/15.

As regards the complainants’ challenge that the PSPP effectively circumvents Art. 123 of the TFEU, the Federal Constitutional Court did not find a violation of the prohibition of monetary financing of Member States’ budgets.

The judgement, pronounced at the height of Europe’s lockdown during the outbreak of COVID-19, provoked conflicting opinions and raised a number of legal, economic and political questions. The judgement could have significant consequences for the unity and the future of the European Union and therefore deserves a broader analysis.

*The principles of subsidiarity and proportionality govern the use of Union competences, which means that the EU should not get involved in matters that do not concern it. For further details, see: Bradley, C. (2016). “EU Legal Principles”. European Law Monitor, 4 January 2016.

The Federal Constitutional Court – status and powers

The Federal Constitutional Court is composed of 16 Justices. Half of them are elected by the Bundestag, and half by the Bundesrat, in both cases – by a two-thirds majority. The Justices’ term of office is 12 years and they can’t be re-elected. The Court exercises jurisdiction over constitutional matters at national German (federal) level. Its decisions are based on the provisions of the German Constitution (the Basic Law). The proceedings include, in particular, the abstract and specific judicial review of the constitutionality of a law, and procedures to examine whether constitutional authorities have exceeded their mandate.

The statistics shows that most of the proceedings before the Federal Constitutional Court are instituted on constitutional complaints. At the beginning of the Court’s work, in 1951, less than 500 constitutional complaints per year were brought before it. By 1980, this number increased to 3,107, reaching its all-time peak in 2013 with 6,477 proceedings.* These complaints are filed by citizens or legal persons claiming that a judgment, government action or legislative act violates their fundamental rights (or certain rights that are equivalent to fundamental rights).

The Federal Constitutional Court, being both a court and a constitutional body, is not subject to any administrative supervision by a ministry or control by any other constitutional body and some of its decisions may acquire the force of law. The special and unique status of this institution in the political system of Germany as well as its broad powers have allowed it to establish itself as an independent and authoritative body, defender of the Constitution and its core values of the last and highest instance in the country.

Since its founding in 1951, the Federal Constitutional Court has played an important role to strengthen and secure the respect for and the effectiveness of the free (liberal) and democratic basic order (“freiheitliche demokratische Grundordnung”) in Germany, and particularly the enforcement of fundamental rights. Any conflict in this respect falls under the jurisdiction of the Federal Constitutional Court. Its decisions are final. All other government institutions are bound by its case-law.

“The Federal Constitutional Court is an important policy-making institution in the German political system. As the guardian of the Basic Law, the Constitutional Court has played a critical role in umpiring the federal system, resolving conflicts among branches of the national government, overseeing the process of parliamentary democracy, monitoring the financing of political parties, and reviewing restrictions on basic rights and liberties. In each of these areas, the Court's decisions have shaped the contours of German life and politics.”

Kommers, D. P. (1994). “The Federal Constitutional Court in the German Political System”. Comparative Political Studies. Vol.26, issue 4, 1 January 1994, pp. 470-491.

*See: The Federal Constitutional Court. Constitutional Complaint; Annual Statistics 2019.

Constitutional jurisdiction and jurisprudence in the EU context

The German model of constitutional justice, built after World War II in order to prevent any future abuses of human rights and democracy, has become a model in many foreign countries. It also served as an example for many Eastern European countries in constructing their new constitutional systems after the collapse of the socialist regimes. However, the German Constitutional Court remains the constitutional jurisdiction with the widest powers compared to other similar institutions in the Member States. Therefore, it is subject to in-depth observation and analysis, but also to criticism (Vanberg, 2004; Determann and Heintzen, 2018). The political consequences of its jurisprudence are among the most discussed. Political effects become particularly clear when the Court declares either a law to be null and void if it violates the Basic Law, or a political party to be unconstitutional, when solving the disputes between supreme federal bodies and disputes about the rights and obligations of the federation and the states (Länder), or when ruling in cases concerning the EU, international relations or foreign states.* Political effects are inevitable in the area of public (constitutional) law. Moreover, the broad competencies empower the Court to take an active part in the shaping of government policies (Barnstedt, 2007).

Regardless of the different scope of their powers, the constitutional jurisdictions in the Member States are national institutions and as such are obliged to apply and comply with European legislation as well as with rulings of the European Court of Justice. The administration of justice of the ECJ (in particular on questions referred for a preliminary ruling, as in this case of reference of the ECB programme to the Federal Constitutional Court) makes it possible to establish whether national law is in conformity with EU law and aims to ensure uniform interpretation and application of EU law throughout all Member States. This makes the ruling of the German Federal Constitutional Court problematic on a number of levels. By challenging ECB’s Public Sector Purchase Program for 2015 –2018 (2019) the decision can negatively affect the legitimacy of EU policy. Some analysts predict that this could have a negative legal, political and economic impact on the future of the EU, others – that it could set a precedent for national courts to question the ECJ's legitimacy and to overrule its rulings (Didili, 2020), and yet others – that this ruling risks weakening and even sacrificing the euro and the European Union (Pistor, 2020). Even more so that it comes at a time of considerable global uncertainty, renewed super power competition, the COVID-19 pandemic and EU’s own internal governance problems.

The positions of EU politicians on the judgement under consideration and its possible implications vary. Some see it as a reflection of the existing frustration of certain circles in Germany that it is not fair for them to continue paying the debts of other countries that fail to cope with the fiscal consequences of the monetary union. Others have expressed concerns about the future of the single market and investor confidence in Europe (EPP leader Manfred Weber) or, in an extreme reaction, have defined it as  "the beginning of the end of the EU" (ALDE MEP Guy Verhofstadt) (McCaffrey, 2020).

Such extreme gloomy predictions aside, the possible negative impact on Member States deserves to be considered, especially states ruled by Eurosceptic and populist politicians, irrespective of whether or not they are members of the Eurozone. Some of the motives of German judges can encourage countries like Poland, Hungary, etc., to seek to question the European Union law. Such attitudes have already been articulated. For instance, Polish Prime Minister Mateusz Morawiecki made a statement that the German court’s ruling established that the ECJ does not have unlimited power and called the verdict “one of the most important in the history of the EU.** This risk may also be increased by the fact that, unlike Germany, in these and many other Member States, the selection, election and work of constitutional judges are highly politicised. Reactions in this direction, especially in the field of political speaking and campaigns, can also be expected in other Member States with strong nationalist parties and movements (such as Italy, Belgium, Austria, etc.).*** 

In terms of possible future lawsuits in other countries, filed against the appropriateness of the EU decisions and measures, although hypothetically possible, it would depend on the specificities of the respective legal and institutional system. The proceedings before the German Constitutional Court were instituted on the basis of an individual complaint of a group of conservative German academics and politicians. In Bulgaria and in a number of other countries, for instance, there is no mechanism for individual constitutional complaints, and this significantly limits the possibility of applying the "German experience". Moreover, the threat of legal action against a Member State for such behavior is real. Germany potentially can also be threatened with infringement proceedings (McCaffrey, 2020). The Commission issued a Press Release warning of the possibility of bringing infringement proceedings against Germany if the Bundesbank fails to implement its obligations under the Eurosystem.

Although unlikely, the worst-case scenario would be if, under the pretext of protecting national constitutional traditions, national jurisdictions call into question certain European Union acts and each country chooses which elements of Union law to apply (Nikolova and Georgiev, 2020). The latter could substantially undermine the unity and common policy of the Union.

*Steinz, R. (2014). “The Role of the German Federal Constitutional Court, Law and Politics”. Ritsumeikan Law Review, No 30, p. 117.
**“Polish and German constitutional courts in war of words”. PolandIn, 13 May 2020.
***“Europe and right-wing nationalism: A country-by-country guide”. BBC News, 13 November 2019.

The primacy of EU law

EU law has primacy over the national law of Member States. Within the EU treaty framework, the CJEU has the exclusive power to interpret EU treaty law (Article 267 of the Treaty on the Functioning of the European Union) and to adjudicate matters concerning the ECB (Article 35 of Protocol 4 to the TFEU). Thus, the CJEU has superiority over all national courts.

If national jurisdictions have doubts or questions regarding the acts of the EU institutions (including ECB) or the interpretation of EU law, they need to approach the ECJ and to make a reference for a preliminary ruling. National courts, as is also the case in Bulgaria, are not empowered to rule against EU policy. However, if the interpretation of a provision of European Union law or the interpretation and validity of an act of the institutions of the European Union is relevant to the proper resolution of a court case, the respective court hearing the case, must refer the matter to the Court of Justice of the European Communities. The ruling of the latter would be legally binding.

Therefore, it is not surprising that after the decision of the German Constitutional Court was pronounced, the ECJ announced in a press release on 8 May 2020 that it would not comment on the decision and that national courts were not allowed to review acts of the EU institutions.

“The Directorate for Communication of the Court of Justice received many enquiries concerning the judgment delivered by the German Constitutional Court on 5 May 2020 regarding the European Central Bank’s PSPP programme.

The departments of the institution never comment on a judgment of a national court.

In general, it is recalled that the Court of Justice has consistently held that a judgment in which the Court gives a preliminary ruling is binding on the national court for the purposes of the decision to be given in the main proceedings. In order to ensure that EU law is applied uniformly, the Court of Justice alone – which was created for that purpose by the Member States – has jurisdiction to rule that an act of an EU institution is contrary to EU law. Divergences between courts of the Member States as to the validity of such acts would indeed be liable to place in jeopardy the unity of the EU legal order and to detract from legal certainty. Like other authorities of the Member States, national courts are required to ensure that EU law takes full effect. That is the only way of ensuring the equality of Member States in the Union they created.

The institution will refrain from communicating further on the matter.”

Court of Justice of the European Union. Press Release No. 58/20, 8 May 2020. Press release following the judgment of the German Constitutional Court of 5 May 2020.

The official political reaction was expressed by the President of the European Commission Ursula von der Leyen. She commented that the Commission would analyse the German court ruling and look into possible steps, which "could include the option of infringement proceedings", but added that the "final word on EU law is always spoken in Luxembourg. Nowhere else." (Gill, 2020).

The ECB after the Federal Constitutional Court’s judgment

Although the German court claimed that the decision does not concern any financial assistance measures taken by the European Union or the ECB in the context of the current coronavirus crisis, there are concerns that the Federal Constitutional Court will look at the virus stimulus program in the future and a lingering doubt that such judicial practice might not remain a precedent. Therefore, some analysts fear the decision could ultimately restrict the ECB’s ability to help the Eurozone throughout the current pandemic or in case of similar crises in the future (McCaffrey, 2020). Another potential fallout could be the strengthening of the arguments of Eurosceptic German politicians, who could make further attempts to press the Bundesbank into blocking ECB decisions.

Nevertheless, following Germany’s Constitutional Court’s ruling against the bank’s asset-purchase programme, on 4 June the European Central Bank announced that it will add €600 billion to its €750 billion bond-buying response against the coronavirus (Valero, 2020). In parallel, the Governing Council of the Bank announced that it will consider to make its action “proportionate to the risks that we face” (Smith, 2020).

In the meanwhile the German Bundestag in a decision on July 2 with the votes of Chancellor Angela Merkel's coalition parties together with the Greens and the Liberal Democrats supported the ECB's PSPP. The majority of lawmakers accepted that the ECB has complied with the requests of the Federal Constitutional Court to justify the proportionality of the measures and that the Bundesbank may continue to participate in the implementation and execution of the programme.

This decision shows the will of Germany's political establishment to support a united Europe, but does not cancel out any similar risks and  crises in the future.

The way forward

In conclusion, the judgement in its essence directly addressed the responsible national institutions, which, according to the Court, had not taken the necessary actions to prevent the implementation of an ECB programme. In the German context, this would have a disciplinary effect on the activities of the institutions in the name of the basic constitutional principles and for better protection of human rights. At the same time, it addressed the ECB and indirectly the EU decision making bodies. As a result, they should carefully consider the limits set by the European integration agenda and comprehensively justify their acts, especially when the latter may affect the rights of individuals and individual nation states. And this is its positive side.

In order to provide a unified response to the COVID-19 crisis, as well as to other global threats, the European Union needs the support of its main institutions (e.g. the central bank, the supreme court, etc.), whose decisions should be justified, indisputable and implemented by the Member States. And the risks outlined above are not to be overlooked.

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