On 5th May 2020, the Second Senate of the BvfG returned its verdict and granted the constitutional complaints of the claimants against the PSPP (C 2BvR 859/15, 2BvR 980/16, 2BvR2006/15, 2BvR 1651/15) in a 100-page, painstakingly detailed judgement.
Pronouncing itself against the findings of the EUCJ, it ruled that the German
Government and the second Chamber of Parliament had indeed violated the
Claimants constitutional rights by failing to take steps challenging the ECB.
In what can only be described as a withering section of the Judgement it
adjudicated that the CJEU had itself acted ‘ultra vires’ beyond its mandate on
the grounds that its judgement had strectched the legal limits within which the
Bank was meant to be operating, so as to permit the Bank to conduct an economic
policy all its own beyond the responsibility of the Member States. As a
consequence, the leeway granted to the Bank encroached upon the economic
competence and jurisdiction of the German state. The BvfG concluded that the
CJEU’s Judgement had not been ‘comprehensible’ and as a result ‘objectively
arbitrary’.
In its key considerations, the BfvG makes clear that if any Member
State could invoke the authority to decide through its own courts on the
validity of EU acts this could undermine the precedence of EU law and moreover,
harm the uniformity of its application. By contrast, if a Member State were not
able to conduct an ultra vires review of an EU act, they would grant EU institutions
exclusive authority over the Treaties and their implementation even if a
manifest wrong occurred. After all, the EU is not one federal state and as the
Lisbon Treaty declares the Member States remain the “Masters of the Treaties’.
Conceptually, one recognises an area for
considerable tension between Member States and EU organs. This tension has now overboiled
in the case before the BfvG.
The BfvG further held that disregarding the overall effects of the PSPP
in its assesment of the programme’s proportionality and refraining from
conducting an in-depth assesment and appraisal of its effects does not satisfy
the ECB’s monetary policy mandate. Here the principle of proportionality cannot
fulfill its corrective function which is to safeguard the Member States own
competences rendering the principle of conferality entirely meaningless. “Therefore, the interpretation of the
principle of proportionality undertaken by the CJEU, and the determination of
the ECSB’s mandate based thereon, exceed the judicial mandate conferred upon
the CJEU in Article 19(1) TEU” and is as a result ultra vires. It also held that
the BfvG was not bound by the EUCJ’s Preliminary Ruling but should conduct its
own review to determine whether the adoption and implementation of the PSPP “remained within the competences conferred on
it by EU primary law”.
Essential was it for the ECB to weigh and balance the economic policy effects inherent in and direct consequences of the PSPP against the monetary policy objective. From the information known about the consideration the ECB had given to the balancing exercise, it was not acertainable whether the ECB Governing Council had prudently carried out this exercise either at the onset or later.
Unless the ECB provided documentation evidencing that such balancing
exercise substantiated with comprehensible reasons, did take place, it would in
any event be impossible to carry out the judicial review necessary to establish
whether the ECB had stayed within its mandate and the PSPP had in fact been
proportional and not adversely affected the German Consitution.
Addressing itself to the Bundesregierung and the Bundestag in slightly
more conciliatory tones, the BfvG indicated that a conclusive decision in the
matter could only be reached after they had themselves taken active steps
against the PSPP in its current form by taking suitable action to limit the
domestic impact as much as possible. Based on their responsibility to ensure
adherence to the European integration agenda, this meant specifically that they
must urge the ECB to conduct its assesment as well as continue monitoring its
decisions on the purchases of government bonds under PSPP, closely.
Next, the BvfG addressed the Bundesbank stating that German
constitutional organs, administraticve authorities and courts may not
particpate in ultra vires acts. Accordingly,
after a transitional period of no more than three months, the Bundesbank would
no longer be allowed to participate in the PSPP unless the ECB adopted a fresh
decision which demonstrated in a convincing manner that the ECB’s monetary
policy objectives as persued by the PSPP were not disproportionate to the economic
and fiscal policy effects resulting from the PSPP. Finally, the Bundesbank also
had to ensure that the bonds it had already purchased and held in its portfolio
were sold based on – “possibly long term” – strategy coordinated with the entire Eurosystem.
The Consequences
The BfvG did not only condemn the actions taken by an EU organ, the
ECB, but also defied the EUCJ which had ruled that its actions were permissible
under the EU treaties. This defiance caused a storm of excited reactions
primarily from the anti-European front. “The
BfvG has constitutionally taken a step further in the European ‘desintegration” tweeted Yannis Varoufakis, the ex Greek minister of Finance, known for his
rather ignominious defeat at the hands of the ‘Troika’ in the summer of 2015.
Lorenzo Smaghi, a retired director of the ECB exclaimed :”This is the end to the independence of the ECB” and Vitor Constáncio, retired vice-president
stated : “The difference which the BFvG
makes between economic and monetary policy is ridiculous”.
Even the Eurominded foresaw problems with the Judgement. Angela Merkel,
the German Chancellor, no less, warned for the possibility that other European
countries might follow suit and ignore the verdicts of the ECJ in future after
the Polish President Mateusz Morawiecki had praised the ‘disobedience’ of the
BfvG on the previous day.
After more than a week of radio silence, the EU Commission finally
reacted – with dismay and a threat. Commission President Ursula von der Leyen
assured the public that she was taking the matter seriously and was considering
initiating infringements proceedings against the German Republic.
Conclusions
The BfvG’s judgement declaring (a) actions of EU organs to be contrary
to a Member States’ legal order and best interests and (b) condemning the
German Government and its Parliament for participation in the PSPP and ordering
it to take active steps to ensure constructive action by the ECB as well as (c)
instructing the Bundesbank to refuse the further implementation of PSPP, are all
a healthy testimony to the national courts continuing to play a pre-dominant
role within the European legal order and firmly retaining their independence.
After all, the Member States are the ‘Masters of the Treaties’. In this context
it is right to point out that in the Treaties of Rome the primacy of EU law is
not be found, but is a legal paradigm only adopted by the CJEU in its early 1960-ies
case law.
The EUCJ interprets EU law, as we have seen, including the
methodological standards applied by EU organs. Domestic courts and the EUCJ
would not need to clash, as they do in this instance, since each should be able
to operate freely and in parallel in their own domain. However, where there is
confusion (or a conscious overstepping of the mark) over the limits of the
competences exercised by either party, it is no great surprise that at times they
do collide. Historically, this has happened before and the Karlsruhe judgement
will not be the last to have dealt with such a confrontation.
In my view what we see here is no ‘disintegration’ of the European
project and no ‘bomb under the Monetary Union’. There is another characteristic
of the EU at work. Although ever-present, it only at times emerges in the full
glare of day. As we have seen the EU is no federal state but a particularly
diverse group of sovereign nations. Each country has a distinct national
identity and culture. Since its beginnings but especially after its last enlargement
we have seen this grouping breaking up in various separate sectors in which the
members each favour each other, alternatively nurture a deep distrust of each other.
This dynamic plays a role in this narrative.
The ECB has been a very high profile EU organ particularly so in the
Eurocrisis and beyond. As such it has also attracted public scrutiny as well as
opprobrium. Particularly, its policy continuing the PSPP well into the economic
recovery ( NB leading to the resignations of three members of its Board in
succession), supported by the majority of southern European countries was seen as favouring the indebted Southern
nations.
Adding to that, its accountability as the CJEU’s judgement makes clear
is at least, dubious. As for the ECB’s true independence, it is worth
mentioning that the Bundesbank is a 26% shareholder of the ECB … so much for
independence.
It is against this background that the senior court of an EU Member State has had the courage to stand up and say “Enough is enough. Either the ECB explains on substantiated and convincing grounds how it conducts its PSPP assuring us all that it does not intend to make inroads in our national economic policy and or sovereignty or this country will no longer particpate in its schemes no matter the attendant risk of infringement proceedings and a substantial fine at the end”.
Instead of fearing, however, for European integration and the monetary
union as some commentators do, these are not undermined by one judgment, even
if it comes from a highly regarded superior
court in a democratic and respected Member State such as Germany. On the
contrary, a full and frank explanation by the ECB of its motives and clarification
of its balancing act between the various considerations involved in its
monetary policy may actually benefit the monetary union. This is particularly so if the ECB takes more care to substantiate
its various schemes and programmes in the future.
As for the European ‘desintegration’ predicted, since the outbreak of the Coronavirus in Europe there are hotter issues of European solidarity under discussion, than the outcome of one Judgment of which we shall only see the full impact in August when the transitional period which the Bundesbank has been granted to scale down its particpation – and implementation and execution of the ECB’s decsions on PPSP, expires.
At least until August 2020, the writer views the furore which the BvfG has caused as a storm in a tea cup, rather than as a bonus for all those who, with undisguised glee, have welcomed its Judgement as being another nail in the European coffin.
Finally, in a positive speech to the European Parliament on 8th June, ECB President Christine Lagarde came down from the sidelines on which the ECB had stayed until then. She promised that the “ECB would provide any support and assistance that can be helpful” to help resolve the ‘German Court problem’ and constructively diffuse the crisis, adding tactfully that “the Bundesregierung and the Bundestag must take the lead in this….”.
The Learned Judges of the BvfG will doubtlessly have been very pleased to take note of her words.
About the Author
Reina Maria van Pallandt is a senior disputes resolution lawyer with dual British and Dutch nationality. After obtaining an LLB Honors degree in Dutch Law and Public International Law at the University of Amsterdam (UvA), Reina Maria studied International Law of the Sea at London School of Economics (LSE). She was admitted as a Solicitor of the Senior Courts of England & Wales in 1979 and of the Law Society of Ireland in 2019. Reina Maria originally practised as a solicitor at Holman, Fenwick & Willan in London and Paris and thereafter at Clifford Chance where she specialised in marine and general commercial arbitration and litigation representing shipowners, P&I Clubs, shipbuilders, repair yards and charterers such as oil and gas companies and commodity traders.
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