Year LXII, 2020, Single Issue, Page 15

 

 

The Judgment of the
German Constitutional Court:
a Warning About the Future of the
Process of European Integration*

 

GIULIA ROSSOLILLO

 

 

Introduction.

The German Federal Constitutional Court’s judgment on the Public Sector Purchase Programme (PSPP)[1], delivered on 5 May, 2020, has prompted extremely negative reactions among many commentators, who have highlighted the devastating effects it could have on the process of European integration and on the measures, under discussion in recent months, to tackle the economic fallout of the ongoing public health crisis. The EU institutions have put up a united front against the Bundesverfassungsgericht, with the ECB declaring that the judgment in question will have no influence on its bond purchasing decisions and programmes,[2] the ECJ claiming to be the only body with competence for examining, and pronouncing on, the compatibility of acts of the European institutions with EU law,[3] and the European Commission even threatening to open an infringement procedure against Germany.[4]

All the above stances are intended to prevent the German court’s ruling from weakening the fragile balance that exists between the powers of the European institutions and the prerogatives of the member states — a balance that, in recent years, has survived only thanks to the institutions’ efforts to compensate, through their actions, for the paralysis of the member states, which have proved incapable of finding common positions on issues crucial for the advancement of the integration process and have failed to address the need to the modify the Treaties in such a way as to give the EU institutions the powers, at supranational level, necessary for Europe to act autonomously within its sphere of competence.

Yet although the tone of the sentence is categorical, with the German court failing to take into account the difficult role that the ECJ and ECB have had to play in times of crisis to save the single currency from collapsing, it is important to underline that the position of the German constitutional judges and the risks, for the EU, associated with their ruling are not the cause, but rather the effect of the problem at hand. This is because the contradictions inherent in the process of integration, which have been increasingly exposed in recent years by the impossibility of the member states ever reaching an agreement on the key issues they face (from immigration to the multiannual financial framework), are independent of the intervention by the Bundesverfassungsgericht. The German court has merely shone the spotlight on them, and if its words constitute a danger to the balance of the Union, this is simply because the current structure of the latter grants the member states, and their constitutional courts, a role that they would not be able to play within a federal system.[5]

The Principle of Democracy as a Structural Limit to the Primacy of European Union Law.

As the Bundesverfassungsgericht itself points out, this is certainly not the first time that member states’ constitutional courts have claimed the right to disregard the primacy of EU law over domestic law when fundamental principles of their national constitutions are at stake.[6] Similarly, clashes between member states’ constitutional courts and the ECJ are nothing new.[7]

However, ever since it was called upon to confirm the constitutional legitimacy of the law ratifying the Maastricht Treaty, the Bundesverfassungsgericht has held that the principle of democracy set out in Article 38 of the Grundgesetz (Germany’s Constitution or Basic Law) may be applied as a kind of structural limit to the primacy of EU law over domestic law. In fact, recourse to this principle can prevent the application of single rules of EU law that clash with the fundamental principles of the German Constitution; furthermore, by making it possible to verify whether or not the European institutions are acting within the competences attributed to them by the Treaties, it can also affect the EU’s mechanisms of operation.

Article 38 of the German Constitution states that “Members of the German Bundestag shall be elected in general, direct, free, equal, and secret elections [as] representatives of the whole people”. According to the Bundesverfassungsgericht, in addition to giving German citizens the right to elect their representatives in parliament, this article also implies that, through the body that represents them, they may influence and control the exercise of political powers. This provision, read jointly with Article 23 of the Grundgesetz — the one relating to limitations of national sovereignty in favour of the European Union —, implies that all transfers of competences to the supranational level that limit the fundamental powers of the Bundestag, and at the same time remove the exercise of these powers from the control of citizens, contravene the German Constitution. Such transfers would arise, in particular, were the Bundestag to be deprived of its budgetary powers, or of the right to make decisions on the tax burden borne by German citizens or on questions of national spending, and they would constitute a violation of article 20 of the Constitution, according to which “state authority is derived from the people [and] shall be exercised by the people”, a principle that, under the terms of article 79 of Grundgesetz, is immune to constitutional revision.

Given that the EU, under the current Treaties, is an organisation built on cooperation among sovereign states, which remain the masters of the Treaties, and the German electorate — through ratification of the same by its representatives in the Bundestag — has accepted solely those limitations on national sovereignty that are necessary in order to create an organisation that lacked the means to autonomously determine its own sphere of action, the Bundesverfassungsgericht considers undemocratic any attempt by the Union and its institutions to deviate from this model without going through the procedure for revising the Treaties, and thus without obtaining the consent of the national parliaments. On the one hand, therefore, the German court maintains that sovereign powers cannot be transferred from the member states to the Union covertly, since this transfer would need to be a conscious choice by the citizens, made through their representatives; indeed, unless this condition were respected, the Bundesverfassungsgericht would regard any act of the European institutions that goes beyond the limits of the competences attributed to them as an ultra vires act, and therefore not applicable in Germany. At the same time, any transfer of sovereign powers to the EU institutions through a decision involving the Bundestag would be deemed compatible with the principle of democracy only if this act in no way diminished German citizens’ entitlement to influence and control the exercise of political powers, i.e., only if they could exercise this influence and control at supranational level through the European Parliament.

The German Constitutional Court and the Contradictions of European Integration.

The fact that this application of the principle of democracy to the process of European integration began with the Treaty of Maastricht is no accident. It was, in fact, in Maastricht that the member states, by deciding to create an economic and monetary union based on a common currency, while allowing economic and fiscal policies to continue to be managed at national level (and simply coordinated at European level), created a basic contradiction that has become increasingly apparent over the years since.[8] In other words, the transformation of the European Union from an organisation with a purely economic remit into one endowed (at least for some member states) with competence for monetary policy, an area traditionally linked to sovereignty, has increasingly exposed the inadequacy of rules designed for the single market, but instead applied in sectors that demand political decisions. This contradiction is closely linked to the German judges’ criticisms of the ECB and ECJ, and it is a crucial element of the conflict between the German court and the EU institutions.

The constitutional judges’ reasoning, in particular, is based on an alleged violation, by the ECB and the ECJ, of the principle of proportionality, that is, the principle, enshrined in Article 5 TEU, according to which “the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties.”

The Bundesverfassungsgericht argues that, contrary to what was established by the ECJ in its judgment on the Weiss case,[9] the BCE, in adopting the PSPP, went beyond the scope of what is necessary to ensure the monetary policy objective of maintaining price stability and supporting the general economic policies of the Union, and in so doing, entered the area of economic policy, which is the prerogative of the member states. It also argues that the ECJ, for its part, violated the principle of proportionality by presenting an incomplete and superficial analysis of the arguments concerning the instruments used by the ECB, and their proportionality with respect to the objectives pursued; this, it is maintained, had the effect of blurring the distinction between monetary and economic policy, and therefore affected the division of competences between the Union and the member states. Since the acts of both these institutions can, on the basis of what has been said above, be qualified as ultra vires, they cannot, the court argues, produce effects in Germany.

It must be pointed out that the Bundesverfassungsgericht states its case in cautionary terms, stressing that conflicts of this kind should be exceptional. After all, the uniform application of EU law would be fundamentally undermined, and the principle of primacy of EU law over domestic law nullified, should member states, through their courts, feel able to routinely disregard acts of the EU institutions that they deem illegitimate. That said, the German court challenged the ECJ not so much for having affirmed a substantive principle in conflict with the fundamental principles of a legal system, as for having violated the terms of its mandate, by limiting itself to what, in the Bundesverfassungsgericht’s view, was an unsatisfactory verification of the work of the ECB. Without dwelling here on the problematic aspects of the application of the principle of proportionality in this case,[10] it should nevertheless be noted that this position is dangerous, since it suggests that the ECJ’s behaviour should be open to scrutiny not only in cases in which it fails to adequately justify a decision, but also when it reaches a decision on the basis of assessments not shared by national constitutional judges.[11]

Most significantly, however, it should be noted that the real risk of the ECB’s action thinning the boundary between monetary policy and economic and fiscal policy actually stems from the nature of the Economic and Monetary Union,[12] which has left the ECB obliged to step up its mission. Indeed, rather than simply guaranteeing the maintenance of price stability, it has had to go much further, even to the point of bailing out the single currency. Europe’s original decision to transfer only monetary policy to supranational level, leaving economic and fiscal policy management in the hands of the member states, with these policies only coordinated at European level, has, in fact, been the cause of increases in disparities between the member states that, if pushed beyond a certain limit, will become incompatible with the very existence of the single currency. In the absence of a European economic and fiscal policy, and therefore of an adequate budget financed by own resources and independent of the member states — one that might allow the creation of European solidarity instruments designed to correct the imbalances between the states —, the ECB has indeed had to assume responsibility for bailing out the currency, which it has done through the bond purchasing programmes announced in recent years. Measures of this kind inevitably produce redistributive effects,[13] because to an extent they have to compensate for a non-existent European political power; accordingly, in the context of the current public health crisis they have played, and continue to play, an indispensable role. In short, faced with crisis circumstances, the ECB had no choice but to adopt these measures, and the ECJ no choice but to justify their adoption.

The judgment in the Weiss case thus seems to have put the ECB in an impossible situation: having, in fact, been forced by the member states’ inertia, and their willingness to delegate this role, to assume functions that should rightly fall to democratically legitimised bodies (specifically with regard to fiscal decision making), the ECB now finds itself accused, by the Constitutional Court of one of these very states, of lacking democratic legitimacy, and criticised for playing a role that it has no right to play.[14]

Future Perspectives.

The problem just outlined is highly topical, considering all that Europe has been going through in recent months. In the face of the Covid-19 crisis, the ECB (as in the past) proved to be the first institution capable of acting quickly and taking the action necessary to prevent a collapse of the eurozone. It did so by launching the €750 billion Pandemic Emergency Purchase Programme (PEPP), designed to support, in the main, the countries in particular difficulty. Although the Bundesverfassungsgericht has made it clear that the judgment in the Weiss case does not extend to these measures,[15] there is nevertheless a risk that they might produce redistributive effects seen as excessive, and thus assume the value of economic policy measures. This risk can be averted only by combining them with an instrument capable of intervening with huge resources, sufficient to guarantee the issuance of European debt securities capable of supporting the EU economy, and especially the economies of those states that struggle most to sell their bonds. The future Recovery Fund, whose methods of operation and financing are to be set out in a proposal being drawn up by the European Commission upon the request of the European Council, will be such an instrument. The size of this fund, as made clear by the European Parliament resolution of 15 May 2020,[16] is closely dependent on the outcome of the discussions on the new MFF and on own resources, given that both these instruments would need to be increased in order to guarantee an adequate level of bond issuance.

And this brings us right back to the link between taxation and democracy highlighted by the German Constitutional Court in the judgment herein discussed.[17] Indeed, in the view of the German constitutional judges, the power to make decisions on the tax burden to be borne by the citizens, or on questions of national spending, is one of the essential prerogatives of the Bundestag. Partial transfer of this power to supranational level can be deemed compatible with the principle of democracy only if the body that represents the citizens at this level, i.e., the European Parliament, is guaranteed full control of the exercise of this transferred power.

Thus, in order to free the action of the European institutions from the constraints highlighted by the Bundesverfassungsgericht, and create truly European forms of risk sharing, the EU must assume the power to make its own decisions on its income and expenditure, independently of the member states. This means two things: first, that the EU budget must be financed by own resources[18] as opposed to contributions from the member states (which currently account for approximately 70% of it); and second, that the budgetary resources (their amount and type) can no longer depend on a unanimous decision by the Council, approved by the states according to their respective constitutional rules, as provided for by art. 311 TFEU, but must instead be decided through a procedure that fully involves the European Parliament. In other words, it means that some fiscal and budgetary decision-making power must be transferred to truly democratic European institutions.[19]

In this sense, the judgment in the Weiss case offers us some indications as to what the future might hold.

In fact, the Bundesverfassungsgericht argues that ultra vires acts committed by the European institutions could be legitimised ex post through Treaty revision according to the procedure provided for in Article 48 TEU. This suggests that the German court may be willing to be more tolerant of the measures taken, and being taken, in order to deal with the economic consequences of pandemic, providing these are set within the framework of an imminent revision of the Treaties that will see the EU creating an embryo of fiscal capacity capable of wresting part of its financing from the grasp, and will, of the single member states, and therefore becoming capable of guaranteeing a genuinely common debt issuance.

If the judgment of the German Constitutional Court finally raises awareness of the need to complete Europe’s economic and monetary union and adopt solutions that represent a radical break with the current order, the shock it caused will have been worth it.


* A version of this essay without notes has previously been published in Italian on the blog of the Italian Society of International Law (SIDIBlog)

[1] The PSPP is one of the four so-called Quantitative Easing tools.

[2] ECB takes note of German Federal Constitutional Court ruling and remains fully committed to its mandate, European Central Bank Press Release, 5 May 2020.

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

[4] Ursula von der Leyen’s reply to Sven Giegold. https://twitter.com/sven_giegold/status/1259141585595437056?fbclid=IwAR0NLisDbWbAPW3Z5WXU9GVuYFnNqfGrXOVLkiQFNtqZoHp7xgFv3_aRyC0.

[5] On this point, cf. R. Müller, Was gesagt werden muss, muss gesagt werden, Frankfurter Allgemeine Zeitung, 8 May 2020. https://www.faz.net/einspruch/kritik-an-ezb-urteil-was-gesagt-werden-muss-muss-gesagt-werden-16760755.html.

[6] In 1973, in the Frontini case (183/1973), followed the next year by a judgment, along similar lines, by the German Constitutional Court (the Solange I judgement of 29 May 1974). In the former judgment, the Italian Constitutional Court stated that in the event of a provision of Community law being found to have violated the fundamental rights guaranteed by the Italian constitutional order or the inalienable rights of the human person, it would declare the law implementing the Treaty of Rome constitutionally illegitimate, and so provoke Italy’s withdrawal from the European Economic Community. This is the “counter-limits” theory, and it was reaffirmed by the Italian court, albeit in a more attenuated form, in subsequent jurisprudence.

[7] In fact, when asked by the Italian Constitutional Court to clarify whether, contrary to the ECJ’s own statement in the Taricco I judgment (of 8 September 2015, case C-105/14), the Italian judges could rule that the constitutional principle of legality prevailed over Article 325 TFEU and therefore avoid disapplying some provisions of Italian law concerning statutes of limitations, the ECJ (judgment of 5 December 2017, case C-42/17, Taricco II) admitted that, even though a domestic rule in conflict with a rule of European Union law should not be applied, this non-application must be overridden if the case involves “a violation of the principle of legality of crimes and penalties” guaranteed by the Italian Constitution. As for the German Constitutional Court, the possibility of departing from the jurisprudence of the ECJ had already been raised in the case of its request for an ECJ ruling on the Outright Monetary Transactions (OMT) programme.

[8] On the fundamental error of believing that the first new currency of the modern era could be created in the absence of a state, cf. M. Dani, J. Mendes, A. J. Menendez, M. Wulkinson, H. Schepel, E. Chiti, At the End of the Law, Verfassungsblog. https://verfassungsblog.de/at-the-end-of-the-law.

[9] Court of Justice, judgment of 11 December 2018, case C- 493/17, Weiss and others.

[10] On this point, cf. F. Martucci, La BCE et la Cour constitutionnelle allemande: souligner les paradoxes de l’arrêt du 5 mai de la Cour constitutionnelle allemande, Le club des juristes. https://www.leclubdesjuristes.com/blog-du-coronavirus/que-dit-le-droit/la-bce-et-la-cour-constitutionnelle-allemande-souligner-les-paradoxes-de-larret-du-5-mai-de-la-cour-constitutionnelle-allemande; P. Meier-Beck, Ultra Vires?, in D’Kart, Antitrust Blog. https://www.d-kart.de/en/blog/2020/05/11/ultra-vires/?fbclid=IwAR2F3MEJOgvFone4f8atEB3uvx0-tA8loIL49C-IlDCYFEsxVLJR-ad0ne4; J. Ziller, L’insoutenable pesanteur du juge constitutionnel allemand. A propos de l’arrêt de la deuxième Chambre de la Cour constitutionnelle fédérale allemande du 5 mai 2020 concernant le programme PSPP de la Banque Centrale Européenne, Eurojus 2/2020, pp. 151 ff., especially pp. 155 ff.

[11] On this point, cf. M. Poiares Maduro, Some Preliminary remarks on the PSPP decision of the German Constitutional Court, Verfassungsblog,https://verfassungsblog.de/some-preliminary-remarks-on-the-pspp-decision-of-the-german-constitutional-court.

[12] In this sense, cf. P. De Sena, S. D’Acunto, La Corte di Karlsruhe, il mito della “neutralità” della politica monetaria e i nodi del processo di integrazione europea, SIDIblog. http://www.sidiblog.org/2020/05/14/la-corte-di-karlsruhe-il-mito-della-neutralita-della-politica-monetaria-e-i-nodi-del-processo-di-integrazione-europea.

[13] As noted by H-H. Kotz, Did Germany’s Constitutional Court Inadvertently Strengthen the Eurozone?, Project Syndicate, 11 May 2020 (https://www.project-syndicate.org/commentary/german-courrt-ecb-ruling-might-have-silver-lining-by-hans-helmut-kotz-2020-05?fbclid=IwAR2xqy12EV-D2zl-ufEb0oJSEnndiZ0FI9A_PbIlOuWsKnIY9tdiPoFBz0c), “even in calm economic conditions, monetary and fiscal policy cannot be neatly distinguished and cleanly separated. Both afflict the economy through a ‘common funnel’ as the Nobel laureate economist James Tobin never tired of explaining. In a time of crisis, the supposedly clear-cut boundary inevitably becomes indistinct.” Also cf. P. De Sena, S. D’Acunto, La Corte di Karlsruhe…,op. cit..

[14] As noted by J. Pisani-Ferry, The message in the ruling, Blog Bruegel. (https://www.bruegel.org/2020/05/the-message-in-the-ruling), “what the German judges are telling European leaders in their lopsided way is that decisions for which they ought to take ownership should not be delegated to an unelected body.”

[15] Bundesverfassungsgericht, Press Release No. 32/2020 of 05 May 2020, ECB decisions on the Public Sector Purchase Programme exceed Eu competences.

[16] New MFF, own resources and Recovery plan, European Parliament resolution of 15 May 2020 on the new multiannual financial framework, own resources and the recovery plan, (2020/2631 (RSP)),https://www.europarl.europa.eu/doceo/document/TA-9-2020-0124_EN.html.

[17] In this sense, cf. M. Poiares Maduro, Some Preliminary Remarks…, op. cit., according to whom, the judgment “may be the final wake up call for the importance to deal with risk sharing through genuine own resources”.

[18] On this point, cf. S. Cafaro, Quale Quantitative Easing e quale Unione europea dopo la sentenza del 5 maggio?, SIDIBlog, http://www.sidiblog.org/2020/05/08/quale-quantitative-easing-e-quale-unione-europea-dopo-la-sentenza-del-5-maggio; M. Poiares Maduro, Some Preliminary Remarks…, op. cit..

[19] Vanistandael et al., Op-Ed: European Solidarity Requires EU Taxes, EU Law Live, https://eulawlive.com/op-ed-european-solidarity-requires-eu-taxes/. In this sense, also cf. M. Avbelj, The Right Question about the FCC Ultra Vires Decision, Verfassungsblog, https://verfassungsblog.de/the-right-question-about-the-fcc-ultra-vires-decision, who says “if the EU fiscal union existed and if it was based on a meaningful EU budget, legitimated by a vibrant EU democracy, there would be no, or much less, need for ECB venturing with its monetary mechanisms into fiscal and hence democratic domains, for which it is neither competent nor accountable”; M. Dani, J. Mendes, A. J. Menendez, M. Wulkinson, H. Schepel, E. Chiti, At the End …, op. cit..

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