Superb and … not helpful: The German federal constitutional court ruling on ECB bond-buying programme

7 May 2020

Referring to the German Federal Constitutional Court's ruling on the European Central Bank's much-disputed bond purchasing programme, CESI Secretary General Klaus Heeger warned that the judgment could lead to a weakening of the EU´s legal order – a bazooka judgement, extensively substantiated, and ... not helpful in these difficult days.

Superb and … not helpful: The German federal constitutional court ruling on ECB bond-buying programme

In a much-awaited decision, the German Federal Constitutional Court ruled on Tuesday 5th of May that Germany’s central bank (Bundesbank) should suspend the implementation of the European Central Bank’s critical bond-buying programmes, the Public Sector Purchase Programme (PSPP), as long as the ECB does not sufficiently assess the proportionality and economic policy effects of its monetary stimulus when shoring up the eurozone’s economies.

The Court underlined that the decision ”does not concern any financial assistance measures taken by the EU or the ECB in the context of the current coronavirus crisis”, i.e. the recently announced 750 billion Pandemic Emergency Purchase Programme (PEPP).

Democratic principles, i.e. the ‘democratic power of action of the (German) citizens’, are breached in cases in which EU institutions act beyond their competences (ultra vires). In the specific case, the Court deplored that the German Government and Bundestag did not “actively take steps” against the ECB which acted beyond its competence when it failed to “conduct the necessary balancing of the monetary policy objective against the economic policy effects arising from the programme (PSPP)”. Noteworthy: The ECB exceeded its monetary policy mandate only by failing to do so; the German Federal Constitutional Court did not question the PSPP itself.

In December 2018, the Court of Justice of the European Union (CJEU) had found that the  PSPP “falls within the area of monetary policy, in respect of which the EU has exclusive competence for the Member States whose currency is the euro, and observes the principle of proportionality.” According to the CJEU, the ECB had hence not acted beyond its competences. The German Court´s is as a slap in the face of the Eu Court, since it qualified the CJEU´s 2018 review of the PSPP as ‘not comprehensible’ and hence ‘ultra vires’. “The CJEU´s view manifestly fails to give consideration to the importance and scope of the principle of proportionality … and is simply untenable from a methodological perspective given that it completely disregards the actual economic policy effects of the programme”.

These additional requirements from the ECB -namely to carefully assess whether a programme is proportionate, taking into account adverse other effects, including of social nature- should remain rather a formality to fulfil. After all, it is the daily work of the national banks to weigh the pros and cons of monetary decisions, and clearly deliberations took place within the ECB as well as in public fora and the media. They were just not formalised. So this judgment does not mean the end of the eurozone, as some commentators proclaim. And, certainly not marginal in our days: The judgment neither declares the PSPP as ‘ultra vires’ nor does it concern the current ECB Corona programme. Accordingly, financial markets largely remained relaxed.

The downsides of this judgment are salient. As we know, one of the fundamental principle of the EU as a supranational is the uniform application of EU law which requires EU law to prevail over national (even constitutional) laws (as long it guarantees a sufficient level of fundamental rights protection). And it is up to the CJEU “to interpret and apply the Treaties so to ensure uniformity and coherence of EU law”. Nonetheless, the Member States remain ‘Masters of the Treaties’, and national constitutional courts maintain the right to review EU acts on grounds of “ultra vires”; especially, so the German Court, when the job is not done by the EU Court.

It will have implications on the question which court (national or EU) has the last say in EU/national competence disputes, possibly leaving a weakened EU legal order behind. A shift of power back to the national legal orders could be the consequence. This gives rise to two major concerns: Firstly, denouncing national practices (let us just think of Poland or Hungary) for violating EU fundamental rights and principles or for defying the supremacy of the jurisprudence of the CJEU will be increasingly difficult to maintain. Secondly, the currently so strongly needed and invoked unity of the EU in face of the pandemic suffers a blow; a boost for Eurosceptics in these difficult times.

A superb judgement. Not helpful in these days.