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The German Constitutional Court and the European Court of Justice (ECJ) have been exchanging ‘messages’ for decades now. The German Constitutional Court is not just one among the other Member State constitutional courts. Being the constitutional court of a large founding Member State of the EU which possesses high intellectual and moral capital, the Karlsruhe body has been attracting the attention of other constitutional courts since decades, and it has been providing a ground for the political, legal and scientific discourse about constitutional relations between Member States.
We highlight two aspects of the Federal Constitutional Court’s decision taken on January 14, 2014: the first one, which is more significant for us, is the request for the preliminary ruling itself, while the other one is the subject of the proposal, which sheds light on the problematic nature of the European Monetary Union’s legal regulation.
Proposal for ultra vires examination
The German Constitutional Court, as the guardian of a modern, democratic system, declared that Germany, being a Member State of the European Union, retains its sovereign statehood. It is willing to ensure the fundamental rights provided by the German Constitution and the non-transferable rights of the German state, and protects them against the European machine driven by the European Court of Justice (ECJ). („Maastricht decision” ultra vires control- Brunner v European Union Treaty, BVerfGE 89, 155, October 12, 1993.)
This ‘sovereignist’ approach is in stark contrast with the vision of the ECJ, which declares the primacy of sui generis EU law over national law, including constitutional provisions (C-11/70. Internationale Handelsgesellschaft [1970] ECR 1125.). It retains the competence provided equivocally by the Treaty to review the legality of acts issued by the Union legislator on the basis of lack of competence. (C-188/10 és C-189/10. Melki és Abdeli [2010] ECR I-5667., para 54. )
The final arbiter question in EU-Member State constitutional dilemmas is a chicken-egg question in the legal discourse, which can only be answered through cooperation based on recognition. (M.P. Maduro: ’Contrapunctual Law: Europe’s Constitutional Pluralism in Action’ in N. Walker: Sovereignty in Transition, Oxford, Hart, 2003, pp.501-537; Mattias Kumm, 'Who is the Final Arbiter of Constitutionality in Europe? Three Conceptions of the Relationship Between the German Federal Constitutional Court and the European Court of Justice' (1999) 36 Common Market Law Review, Issue 2, pp. 351–386.)
The jurisprudence of the German Constitutional Court has, in several stages, been advancing towards a system of constitutional cooperation based on recognition. (András Sajó: Learning Co-operative Constitutionalism the Hard Way: the Hungarian Constitutional Court Shying Away from EU Supremacy. Zeitschrift für Staats- und Europawissenschaften, Vol 2 (3) 351-372.)
While it never gave up its theoretical possibility, it has never declared a legal act of the Union ultra vires. It held that the EU’s (ECJ’s) protection of fundamental rights was satisfactory. (Solange II, Re Wünsche Handelsgesellschaft, 2 BvR 197/83, 22 October, 1986., Banana decision 2 BvR 1/97, 7 June 2000, Alcan decision 2 BvR 1210/98, 17 February 2000). In the 2010 Honeywell decision, on the one hand it decreased the level of scrutiny under the ultra vires test and on the other hand it proclaimed that during the examination the ECJ’s opinion has to be requested prior to its own decision in the spirit of the ‘Europarechtfreundlichkeit’.
The current decision, in which the German Constitutional Court asks for a preliminary ruling from the ECJ concerning the validity of the decision (ultra vires act or not) of the Governing Council of the European Central Bank (ECB), can be seen as the manifestation of this theoretical self-restriction from the German Court. With this act, the Karlsruhe body has provided an example for those constitutional courts which support the unconditional primacy of national constitutions, as well as for those courts which have so far refrained from openly expressing their opinion about turning to the ECJ on questions of conflict between EU and domestic constitutional law (for example Hungary).
In this decision the German Constitutional Court does not simply give primacy to the ECJ in the subject of whether the EU has exercised its powers ultra vires. In fact it is far from doing so because once the preliminary ruling arrives from Luxemburg, the Court itself will make the final decision. The request to the ECJ gives an indication that the ultra vires doctrine of the German Court is interpreted in the context of a discursive relationship with the ECJ. That discussion could enable both the ECJ and the German Court to provide a comprehensive examination of the factors which may affect the legality of the ECB decision, This, necessarily, depends on the willingness of the ECJ to engage in a dialogue and consider the constitutional issues emerging in both the EU and the German constitutional order.
Is the ECB’s ruling compatible with EU law?
The Governing Council of ECB decided that the European System of Central Banks (ESCB) is eligible to the unlimited purchase of those Eurozone Member States’ government bonds on the secondary market which struggle with severe national budgetary difficulties (the Outright Monetary Transaction – OMT decision). These Member States are under the framework of the European Financial Stability Facility or the European Stability Mechanism.
This means that the ESCB, as the central bank system of the Eurozone, indirectly supports the financing of a given Member State’s budget. (Primary buyers are ensured to be able to sell the state bonds at a reasonable price, therefore, the national budget deficit will be able to be financed from the market.)
The ECB’s decision explains that this method is needed for the proper functioning of the monetary policy transmission mechanism and because of the singleness of the monetary policy.
We consider this mechanism problematic supporting the reasoning of the German Constitutional Court, because this situation represents the violation of TFEU 123 (1) about the prohibition of the state budget being financed by the central bank. This also seems to collide with the requirements of TFEU 119 and 126 about maintaining price stability, avoiding excessive budget deficit and maintaining the ESCB’s functioning based on the principle of market economy.
Why did the ECB decide to introduce a mechanism, the problematic nature of which is most probably acknowledged by the ECB itself?
Firstly, the root of the problems lies within the fact that the creators of the European Monetary Union ‘forgot’ to add the lender of last resort function when they created the system. Hence the law of the Monetary Union does not appoint a bank, which would provide surplus liquidity in case of a severe, systematic disorder of the commercial bank system. The current crisis showed that such a situation, closely related to turmoil in the national budget, can easily happen, and results in a choice which has to be made between the crash of the banking system or public intervention.
Secondly, it is similarly problematic that the creators considered the prohibition of excessive budget deficit sufficient for the adequate functioning of the Monetary Union, and on this basis they ignored the hard system of economic policy coordination and also the differing crisis-handling capacities of the participating countries. The crisis drove some states into such situation where the capital market funding of their national budget became impossible, and the commercial banking system overloaded with state bonds came under significant pressure. In this situation, a hard choice was required to be made among severe social conflicts, the disintegration of the euro-system and some form of legally controversial public intervention.
(Another ‘systematic problem’ is that the German Constitutional Court’s resistance can only prevent the Bundesbank, as part of the European System of Central Banks, from fulfilling the ECB’s instructions (purchasing the state bonds in question). This does not prevent the OMT from functioning because the other banks of the Eurosystem (the ECB itself as well) can also purchase these funds.)
The primary goal of the ESCB is to preserve the purchasing power of the euro (TFEU article 127 (1)). We should not forget that in order for it to be able to fulfil this purpose, as a central banking system, it has to monitor the monetary system itself. (Based on TFEU 127 (2) the basic task of the ESCB is to facilitate the smooth operation of payment systems. This is why several central banks are legally empowered to exercise the lender of last resort function and this is why it is common for a central bank to function as a supervisor of the financial system as well. The questionable decision of the Governing Council falls within this basic function of central bank operation, which should be one of its primary tasks.
The ECJ’s situation is not easy because it has to transform the triangle of economy, law and politics into a circle.
The views expressed above belong to the author and do not in any way represent the views of the HAS Centre for Social Sciences.