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 GermanGovernment and the second Chamber of Parliament had indeed violated theClaimants constitutional rights by failing to take steps challenging the ECB.
In what can only be described as a withering section of the Judgement itadjudicated that the CJEU had itself acted ‘ultra vires’ beyond its mandate onthe grounds that its judgement had strectched the legal limits within which theBank was meant to be operating, so as to permit the Bank to conduct an economicpolicy all its own beyond the responsibility of the Member States. As aconsequence, the leeway granted to the Bank encroached upon the economiccompetence and jurisdiction of the German state. The BvfG concluded that theCJEU’s Judgement had not been ‘comprehensible’ and as a result ‘objectivelyarbitrary’.
In its key considerations, the BfvG makes clear that if any MemberState could invoke the authority to decide through its own courts on thevalidity 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 notable to conduct an ultra vires review of an EU act, they would grant EU institutionsexclusive authority over the Treaties and their implementation even if amanifest wrong occurred. After all, the EU is not one federal state and as theLisbon Treaty declares the Member States remain the “Masters of the Treaties’.Conceptually, one recognises an area forconsiderable tension between Member States and EU organs. This tension has now overboiledin the case before the BfvG.
The BfvG further held that disregarding the overall effects of the PSPPin its assesment of the programme’s proportionality and refraining fromconducting an in-depth assesment and appraisal of its effects does not satisfythe ECB’s monetary policy mandate. Here the principle of proportionality cannotfulfill its corrective function which is to safeguard the Member States owncompetences rendering the principle of conferality entirely meaningless. “Therefore, the interpretation of theprinciple of proportionality undertaken by the CJEU, and the determination ofthe ECSB’s mandate based thereon, exceed the judicial mandate conferred uponthe CJEU in Article 19(1) TEU” and is as a result ultra vires. It also held thatthe BfvG was not bound by the EUCJ’s Preliminary Ruling but should conduct itsown review to determine whether the adoption and implementation of the PSPP “remained within the competences conferred onit 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 balancingexercise substantiated with comprehensible reasons, did take place, it would inany event be impossible to carry out the judicial review necessary to establishwhether the ECB had stayed within its mandate and the PSPP had in fact beenproportional and not adversely affected the German Consitution.
Addressing itself to the Bundesregierung and the Bundestag in slightlymore conciliatory tones, the BfvG indicated that a conclusive decision in thematter could only be reached after they had themselves taken active stepsagainst the PSPP in its current form by taking suitable action to limit thedomestic impact as much as possible. Based on their responsibility to ensureadherence to the European integration agenda, this meant specifically that theymust urge the ECB to conduct its assesment as well as continue monitoring itsdecisions on the purchases of government bonds under PSPP, closely.
Next, the BvfG addressed the Bundesbank stating that Germanconstitutional organs, administraticve authorities and courts may notparticpate in ultra vires acts. Accordingly,after a transitional period of no more than three months, the Bundesbank wouldno longer be allowed to participate in the PSPP unless the ECB adopted a freshdecision which demonstrated in a convincing manner that the ECB’s monetarypolicy objectives as persued by the PSPP were not disproportionate to the economicand fiscal policy effects resulting from the PSPP. Finally, the Bundesbank alsohad to ensure that the bonds it had already purchased and held in its portfoliowere 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, theECB, but also defied the EUCJ which had ruled that its actions were permissibleunder the EU treaties. This defiance caused a storm of excited reactionsprimarily from the anti-European front. “TheBfvG has constitutionally taken a step further in the European ‘desintegration”tweeted Yannis Varoufakis, the ex Greek minister of Finance, known for hisrather 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-presidentstated : “The difference which the BFvGmakes 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 Europeancountries might follow suit and ignore the verdicts of the ECJ in future afterthe Polish President Mateusz Morawiecki had praised the ‘disobedience’ of theBfvG on the previous day.
After more than a week of radio silence, the EU Commission finallyreacted – with dismay and a threat. Commission President Ursula von der Leyenassured the public that she was taking the matter seriously and was consideringinitiating infringements proceedings against the German Republic.
Conclusions
The BfvG’s judgement declaring (a) actions of EU organs to be contraryto a Member States’ legal order and best interests and (b) condemning theGerman Government and its Parliament for participation in the PSPP and orderingit 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 alla healthy testimony to the national courts continuing to play a pre-dominantrole within the European legal order and firmly retaining their independence.After all, the Member States are the ‘Masters of the Treaties’. In this contextit is right to point out that in the Treaties of Rome the primacy of EU law isnot be found, but is a legal paradigm only adopted by the CJEU in its early 1960-iescase law.
The EUCJ interprets EU law, as we have seen, including themethodological standards applied by EU organs. Domestic courts and the EUCJwould not need to clash, as they do in this instance, since each should be ableto operate freely and in parallel in their own domain. However, where there isconfusion (or a conscious overstepping of the mark) over the limits of thecompetences exercised by either party, it is no great surprise that at times theydo collide. Historically, this has happened before and the Karlsruhe judgementwill not be the last to have dealt with such a confrontation.
In my view what we see here is no ‘disintegration’ of the Europeanproject and no ‘bomb under the Monetary Union’. There is another characteristicof the EU at work. Although ever-present, it only at times emerges in the fullglare of day. As we have seen the EU is no federal state but a particularlydiverse group of sovereign nations. Each country has a distinct nationalidentity and culture. Since its beginnings but especially after its last enlargementwe have seen this grouping breaking up in various separate sectors in which themembers 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 theEurocrisis and beyond. As such it has also attracted public scrutiny as well asopprobrium. Particularly, its policy continuing the PSPP well into the economicrecovery ( NB leading to the resignations of three members of its Board insuccession), supported by the majority of southern European countries was seen as favouring the indebted Southernnations.
Adding to that, its accountability as the CJEU’s judgement makes clearis at least, dubious. As for the ECB’s true independence, it is worthmentioning that the Bundesbank is a 26% shareholder of the ECB … so much forindependence.
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 monetaryunion as some commentators do, these are not undermined by one judgment, evenif it comes from a highly regarded superiorcourt in a democratic and respected Member State such as Germany. On thecontrary, a full and frank explanation by the ECB of its motives and clarificationof its balancing act between the various considerations involved in itsmonetary policy may actually benefitthe monetary union. This is particularly so if the ECB takes more care to substantiateits 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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