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The German Constitutional Court struck a blow to EU integration. This is how we can save it ǀ View

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On 5 May, 65 years to the day that ended Allied Forces occupation of West-Germany, the German Constitutional Court declared the European Central Bank (ECB) public assets purchases program ultra vires (exceeding the competences of the ECB). This has been the cornerstone of the “whatever it takes” approach to preserve the euro set by the bank’s former president, Mario Draghi.

Before that, the German court took another extraordinary step. It disregarded the judgment of the European Court of Justice (ECJ) that validated the ECB decisions by labelling such a decision as ultra vires too. In its view, the ECJ manifestly went beyond the acceptable standards of legal interpretation.

The aggressive tone of the German court is unprecedented, calling the ECJ reasoning incomprehensible and arbitrary. In a single decision, two blows are being struck at the heart of European integration: its common currency and the primacy of EU law.

The challenge cannot be underestimated.

The German court does not have jurisdiction over the ECB. It therefore targets its judgment at German authorities requiring them to take all possible measures to reverse the policy of the ECB and not to take any implementing acts. For the Bundesbank, this will mean no longer participating in the ECB program, undermining its credibility and effectiveness.

Furthermore, the German Constitutional Court, while recognising that the new ECB Emergency Purchase Programme following the COVID-19 pandemic falls outside the scope of this judgment, provided an interpretation of Article 123 in the Treaty on the Functioning of the European Union (prohibition of monetary financing) that is incompatible with the new programme. This reinforces the credibility of the challenge to the ECB policy.

It is not the first time that constitutional courts have challenged the authority of the ECJ but never in such a way and with such potential consequences.
Miguel Poiares Maduro
European University Institute’s School of Transnational Governance

As to the primacy of EU law and the authority of the ECJ, this decision could set a precedent liable to undermine the foundations of EU law. It is not the first time that constitutional courts have challenged the authority of the ECJ but never in such a way and with such potential consequences.

Ironically, the German Constitutional Court could not have chosen a worst case to make the point that constitutional courts should play a role in overseeing the ECJ review of the boundaries of EU power. The court recognises that the programme pursues monetary objectives within the competences of the ECB. However, it claims that the ECB has not pursued them in a proportional way, failing to take into account the negative economic effects of the programme. But the effects mentioned are mostly those emphasised in Germany, a natural consequence of the national character of national judicial proceedings. The ECB or the ECJ are in a much better position to take the interests of all member states into account. This, together with the technical expertise to which courts normally defer, and the need to protect the independence of the ECB, are strong arguments against a proportionality review of an ECB measure by a national court.

The German Constitutional Court has suspended the effect of its decision for three months, giving German authorities time to obtain a new proportionality assessment by the ECB. While replying to the German court directly would open the door to multiple national legal challenges, the ECB can reply to requests for information from the German Federal Bank (Bundesbank) or Members of the European Parliament. That may be enough for the Bundesbank to be able to claim that the ECB has met the proportionality burden demanded by the court so it can continue to participate in the ECB programme.

Structurally, the challenge is much bigger, but it can lead to either disintegration or more integration.

In a catastrophic scenario, the precedent of the German Constitutional Court spreads like a virus among national judiciaries. Effectiveness and equality under EU law is undermined and conflicts among national interests will no longer be arbitrated by it but continue through national courts. At the same time, the ECB can’t reinstate its credibility on policy, financial markets become fragmented and we then face an existential threat to the euro.

Only illiberal regimes such as Poland or Hungary attempt to follow up on the German’s court precedent.
Miguel Poiares Maduro
European University Institute’s School of Transnational Governance

In a positive scenario, the Commission threatens Germany with an infringement action while not formally initiating it (to avoid an escalation). In the meanwhile, German authorities claim, as described above, that they are reassured of the proportionality of the ECB actions and no actual infringement occurs. The ECB credibility is preserved. At the same time, only illiberal regimes such as Poland or Hungary attempt to follow up on the German’s court precedent. They can relatively easily be brought “to submission” through ECJ imposed financial sanctions (as foreseen in the Treaty) and the German court’s isolation ends up reinforcing EU law and ECJ’s authority.

Finally, in this positive scenario, the limits set by the German Constitutional Court to Germany’s participation in debt mutualisation and fiscal transfers are used to push towards a genuine and independent fiscal and budgetary capacity for the EU, something that this week’s Franco-German proposal for a €500 billion post-COVID-19 relief fund seems, precisely, to do.

  • Professor Miguel Poiares Maduro is Director of the European University Institute’s School of Transnational Governance and a former Minister for Regional Development in Portugal.

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