On May 5, 2020, the highest judicial body in Germany, the Federal Constitutional Court ruled that the European Central Bank (ECB)’s asset- purchasing programme could be unconstitutional under German law, while giving the ECB three months to justify its decision for introducing the programme.
By way of background, the case relates to the asset-backed securities programme (PSPP) introduced by the ECB back in 2015 which was aimed at buying government debts and keeping borrowing costs low across the eurozone.
The decision of the ECB’s Governing Council to introduce such a programme had already been challenged in the German Grand Chamber in 2017. At the time, a team of economic professors and lawyers had alleged that this progamme was unconstitutional as the ECB had gone beyond its mandate and powers granted by the Treaties, acting ulta vires of its powers. The Grand Chamber held that the CJEU had manifestly violated methods of legal interpretation, as it had failed to apply the principle of proportionality correctly.
In a preliminary ruling decided in 2018, the Court of Justice of the European Union (CJEU) declared the ECB had in fact acted within its powers and that such measure fell within the scope of the proportionality principle.
However, just last week, the German Constitutional Court brushed aside the CJEU’s judgement and held that the ECB had failed to “conduct the necessary balancing of the monetary policy objective against the economic policy effects arising from the programme” and expressed that it will not be honouring the CJEU’s decision.
It went on to order the German government to ensure the ECB carries out a proportionality assessment of its government-debt purchases to prove that they were economically necessary, while also threatening to opt out of the bond-buying unless such assessment is carried out within three months.
This implications of such a judgement are significant. By choosing to go directly against the CJEU’s decision, the German Constitutional Court chose to ignore the principle of EU supremacy over national law and questioned the application of EU law across the bloc.
This decision is nothing short of ‘a declaration of war’
Undoubtedly, the Constitutional Court’s decision has not gone down well. Clemens Fuest, the head of the Institute for Economic Research in Munich has stated that this decision is nothing short of “a declaration of war”.
The CJEU has also hit back at this decision, claiming that the power to rule that an act of an EU institution is contrary to EU law, is its prerogative. This emanates from article 267 of Treaty on the Function of the European Union (TFEU) which affords to the CJEU the exclusive power to interpret EU law.
It further warned that the decision of the Constitutional Court, in defying the CJEU, could place the unity of the EU legal order in jeopardy and is a detraction from the principle of legal certainty. The CJEU went on to make it clear that its decisions were binding on all 27 member states of the bloc.
The former president of the European Commission, Jean-Claude Juncker, has also expressed his concerns at these developments. During an interview aired last week, he held this was the first time in the EU’s jurisprudence history that a national court has decided to break rank and openly attack the European jurisdiction.
The European Commission, the EU’s executive arm, has expressed that it will not accept the decision taken by the German Constitutional Court lightly.
While reiterating the primacy of EU law over national law, the European Commission president, Ursula von der Leyen also held that the Commission is currently analysing the German court’s ruling and has indicated that the option of opening infringement proceedings against Germany is very much on the table. Should the CJEU confirm that Germany is in violation of EU law, the Court can order it to make amends or face hefty fines.
The implications of the decision that the German Constitutional Court has taken will undoubtedly have far-reaching consequences. Having a national court challenge the CJEU could set a dangerous precedent as other member states might decide to follow suit in ignoring or challenging the decisions that the CJEU takes. This could lead to a destabilisation in the EU which is already facing its own problems with Hungary and Poland.
The fact that the European Commission has shown that it will investigate and that it is ready to open infringement proceedings is welcomed since it will help guarantee legal stability. As Juncker rightly pointed out, failure to remedy the situation would be a grave mistake.
On a final note and for clarity’s sake, this decision does not affect the measures that the ECB has taken in relation to the corona-related relief measures, such as the €750 billion asset purchase programme it announced in March.
Chris Grech is fourth year LL.B Hons student