Prior to commenting on theRuling of the EUCJ of 11 December 2018 and the reaction of the BvfG whichfollowed on 5th May 2020, it is appropriate to discuss the basis of theirmutual relationship and the roles the two play in relation to each other. Theseare at the heart of the narrative. Once the relationship is understood, thecontrary judgement given by the BvFG as a reaction to the Preliminary Ruling isno longer so contrary and the excitement surrounding its ‘revolutionary act ofdisobedience’ should soon disappear.
The Respective Roles of both courts
The application andinterpretation of EU law, including the application of the methodologicalstandards, is conferred upon the CJEU by mandate of the European Treaties.Article 19(1) of the Treaty of the European Union (TEU) provides that the CJEUobserves the law when interpreting the Treaties. It is to ensure conformity andcoherence of EU law. The application by the CJEU of the methods and principlescannot and need not completely correspond to the practice of domestic courts.The CJEU may not entirely disregard such practice. Yet, the mandate conferredin Article 19(1) is exceeded where the traditional European methods ofinterpretation or, more generally, the general legal principles common to thelaws of all Member States are manifestly disregarded. As long as the CJEUapplies recognised methodological principles and its decision is not arbitraryfrom an objective perspective, a court of a Member State must respect itsdecision even if it holds a view against which ‘weighty arguments’ could belevelled. Generally, provided the CJEU honours those safequards, its rulingshave precedence over the judgments of the national courts.
The BvfG’s duty is toensure that the Constitution of the Federal Republic is obeyed. It helps tosecure respect for and the effectiveness of the German democratic order. Thisapplies particularly to enforcement of the fundamental rights. The BvfG’sdecisions are final and all other government institutions are bound by its caselaw. The work of the BvfG may also have political effect which occurs when theCourt declares a law to be unconstitutional. Within the EU context, its role isto test substantiated ultra vireschallenges regarding acts of institutions, bodies, offices and agencies of theEuropean Union. Whether Germany has effectively transferred a mandate to aEuropean body can only be determined by the BvfG and not by the CJEU. Accordingto the BvfG’s own case law it helps to ensure that both courts’ mandates areexcercised in a ‘coherent’ and co-operative manner in keeping with the spiritof European integration. One Court does not toe the line to the other but theycooperate. At least that is the intention.
The Preliminary Ruling of the European Court of Justice
In its Judgment of 11thDecember 2018 (ECLI:EU:2018:1000),the CJEU held that the Decision of the ECB Governing Council on the PSPP andits subsequent decisions were withinthe ambit of the ECB’s competences, were not ultra vires and did not infringe the principle of proportionality.The answers to three of the five questions which the BvfG had raised in theirrequest for a Preliminary Ruling are discussed below:
The EUCJ first ruled thatthe statements of reasons (behind the initiation of the PSPP) given by the ECBfulfilled the safequard measures in place to ensure a review of proceduralsteps taken and a careful and impartial examination of all the relevantelements and possible (side)effects of the Decisions. It did however, admitthat “ in the case of a measure intended to have generalapplication, which makes clear the essential objective pursued by theinstitutions, a specific statement of reasons for each of the technical choicesmade by the institutions cannot be required”. Nevertheless, it ruled thatthe ECB had published sufficient information at the time of the initiation ofthe PSPP and the intervening years, that its Decision 2015/774 was notinvalidated by any defect in the statement of reasons so as to render theDecision invalid.
Secondly,going back to 2003 when the ECB adopted the specific objective of maintainingprice stability and the maintenance of inflation rates at levels below butclose to 2% over the medium term, it determined that this monetary policycontained no manifest error of assessment and did not go beyond the frameworkof the TFEU. Thus it attached the specific objective of the ECB’s Decision(s)to the primary objective of the ECB’s monetary policy. Here also, the Courtmade an admission: ”In the present caseit is undisputed that, by virtue of its underlying principle and procedures,the PSPP is capable of having an impact both on the balance sheets ofcommercial banks and on the financing conditions of the public deficit of theMember States covered by the programme and that such effects might possibly besought through economic policy measures”.
Thirdly, theCourt addressed proportionality in relation to objectives of monetary policy.
As regards compliance withthis principle, the CJEU began by allowing the ECB considerable leeway, statingthat when preparing and operating open market operations of the kind providedfor in Decison 2015/774, the ECB had to make choices of a technical nature andundertake complex forcasts and assesements :”….it must be allowed a broad discretion”. From the CJEU’s extensive and praising reviewof the economic policies of the ECB and the mechanics generally for assistingthe Member States’ economies, it is clear that the Court never seriouslyconsidered inviting a discussion of the importance, scope and legality of thesubject ‘proportionality’ with the BvfG.
In this respect anecessary review of the division of competences between the ECB and the MemberStates was also conveniently overlooked. Instead, the ECJ limited the scope ofits review to whether there was a ‘manifesterror of judgement’ on the partof the ECB when initiating the PSPP, whether the PSPP had manifestly gone beyond what was necessary to achieve it’s objectiveand whether the disadvantages were manifestlydisproportionate to the objectives persued.
It concluded unequivocallythat the questions put to it by the BvfG had not ‘disclosed a factor of such a kind as to affect the validity of Decision(EU) 2015/774 of the European Central Bank of 4th March 2015 on a secondarymarkets public sector asset purchaseprogramme, as amended by Decision (EU) 2017/100 of the European Central Bank of11th January 2017’.
Clearly, the ECB’sobjective to stabilise the European economy is not obviously wrong in itselfbut by introducing the concept of a ‘manifest’(in law defined as ‘completely obviousor evident’) wrong, the CJEU deftlyside stepped the central question: Inintroducing the PSPP did the ECB manage to step outside and beyond its remit – whichis limited to monetary policy – thus subtly expanding its own field ofinfluence in matters of economic policy and without sufficient clarification ofthe basis for its first and subsequent decisions?
In legal circles theEUCJ’s Preliminary Ruling was generally accepted.Nevertheless, the Claimants in the joined actions, unabashed bylosing this battle, did not leave matters at that but returned to the BvfG fora final interim award in what was later to be described by legal commentatorsas the ‘War of the Courts’.
In the next article inthis series, we will discuss the Judgement of the BvFG which gave rise to thestorm in European legal and political circles.
ReinaMaria van Pallandt is a senior disputes resolution lawyer with dual British andDutch nationality. After obtaining an LLB Honors degree in Dutch Law and PublicInternational Law at the University of Amsterdam (UvA), Reina Maria studiedInternational Law of the Sea at London School of Economics (LSE). She wasadmitted as a Solicitor of the Senior Courts of England & Wales in 1979 andof the Law Society of Ireland in 2019. Reina Maria originally practised as asolicitor at Holman, Fenwick & Willan in London and Paris and thereafter atClifford Chance where she specialised in marine and general commercialarbitration and litigation representing shipowners, P&I Clubs,shipbuilders, repair yards and charterers such as oil and gas companies andcommodity traders.
ProspectLaw is a multi-disciplinary practice with specialist expertise in the energy,infrastructure and natural resources sectors with particular experiencein the low carbon energy sector. The firm is made up of lawyers, engineers,surveyors and other technical experts.
Thisarticle remains the copyright property of Prospect Law Ltd and ProspectAdvisory Ltd and neither the article nor any part of it may be published orcopied without the prior written permission of the directors of Prospect Lawand Prospect Advisory.
Thisarticle is not intended to constitute legal or other professional advice and itshould not be relied on in any way.
For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on [email protected].