German Constitutional Court Opinion on ECB decisions on the Public Sector Purchase Programme and EU competences

This note is written by Dr. Nadine Herrmann, Quinn Emanuel Urquhart & Sullivan

On May 5, 2020 the (German) Federal Constitutional Court's issued a scathing opinion rejecting the European Central Bank's PSPP program,[1] a 2 trn Euro government bond purchasing program as "ultra vires" or without legal basis in the EU's foundational documents. The decision was met with astonishment and, for the most part, profound scepticism. Then, this decision and its guiding principles have been a long time coming. German law students' first encounter with EU law has for decades been shaped by Constitutional Court opinions oscillating between outright hostility to the jurisprudence of the Court of Justice (so called "Solange I" opinion), judicial absenteeism ("Solange II" opinion) and an almost mystical embrace of the idea the CJEU would "cooperate" somehow with member states' constitutional courts. Against the backdrop of the Constitutional Court's past decisions, it is unsurprising that the Court ruled the way it did. It would have been surprising had it upheld the PSPP program.

The standard of review is the principle of democratic participation of the German people - no less. This is a core constitutional principle that could not be changed even by an amendment to the constitution with a 2/3 supermajority. Changing that principle, for instance if the European Union were to be transformed into a federated state, would require a referendum (one of only two instances in the German constitution permitting a referendum). This is important because the principle of democratic participation supersedes the German parliament's assent to the treaties establishing the European Union. Germany agreed to join an interstate organization with defined, enumerated powers, just like the 1777 Articles of Conferation and Perpetual Union that established a relatively loose confederation among the 13 original colonies in the United States with a weak central government that was later replaced by the U.S. Constitution. As far as Germany is concerned, the European Union only has those powers and competencies that Germany (and the other Member States) have lawfully ceded to it. 

With the PSPP the European Central Bank exercised its powers under Art. 19 of the EU Treaty (or so it said and believed it did) to ensure its monetary policy would function adequately in all member states. The German Court did not opine on the merits of the ECB's policies although the scepticism that purchases of sovereign bonds was an appropriate monetary policy instrument is palpable. The German Court did decide, however, whether the PSPP was a legitimate exercise of powers ceded to the EU. 

The scope of the ECB's powers and its limitations (including Art. 123 TFEU - the "no bail-out" clause) would seem a matter of EU law, for which the CJEU is the sole and final arbiter. Accordingly, in 2017 the Constitutional Court referred the EU law questions to the CJEU for a preliminary ruling pursuant to Art. 267 TFEU. When the CJEU opinion finding no violation of EU law came back, the Constitutional Court resumed its proceedings and held that the CJEU's opinion was fatally flawed from a methodical perspective and so incomprehensible as a matter of law that the Constitutional Court declared it "ultra vires", as exceeding the CJEU's mandate under the EU treaties. So much for the principle of collegial cooperation between the two courts! The Constitutional Court thus re-asserted the right to review acts by EU institutions (a right it always retained, verbally at least, but promised to only exercise in cooperation with the CJEU).

In its scrutiny of the ECB's asset purchasing program the Court held that in the absence of a reasoned analysis of the program's proportionality by the ECB, it failed to meet the requirements of EU law as understood and interpreted by the German Court. After a grace period of three months, the Bundesbank would thus have to withdraw from that program unless sufficient justification was provided. The German Court grudgingly accepted the CJEU's decision that Art. 123 TFEU would not prohibit the asset purchase program albeit with an ominous qualification that the CJEU's analysis was binding for the time being (suggesting that this may change).

At its core, the German Court denies the CJEU the right to independently determine the scope of the powers vested in the EU's institution. Only a truly sovereign organization (like a state) has the competence to determine the reach of its competences, because notionally a sovereign is omnipotent and holds all the powers. Germany is a state and enjoys sovereignty; the EU does not. The EU's institutions and the CJEU may only act "within" the competences ceded to them by the Member States. Whether that is the case cannot be determined from the inside but only by the outside powers ceding certain limited competences to the EU.

It is has been said that it would only take five minutes to write up the proportionality analysis for the asset purchasing program the German Court found missing. That is overly optimistic. Under the German Court's standard of review, the proportionality analysis itself would, of course, also be scrutinized. If that analysis did not stand up against the German Court's analysis of the scope of EU powers, it would not change the result.

Some commentators suggested that the German Court's decision could not stand because it usurped the right to bindingly decide whether certain measures complied with EU law. That is technically incorrect: The German Court only decided whether certain measures could even be qualified as an exercise of EU law. That distinction may be a very narrow or even artificial one. As a matter of German constitutional law it is unimpeachable.

The political consequences of the decision can be far-reaching, of course. Any Member State could exercise the same privilege and declare EU measures it dislikes as ultra vires. Only if the EU reached true statehood as a federal state could this change. EU statehood is not in the cards, of course. Although the theoretical gap between the German Court and EU institutions may seem wider than the Grand Canyon, the practical consequences could still be very limited. If, for instance, the ECB added a (more or less token) proportionality analysis of its asset purchases, this would take the edge of the German Court's opinion and asset purchases could continue. Should the same substantive issue arise over a future program, a debt mutualization, say, it would again take several years until the German Court would rule on such a program, bearing in mind that a further CJEU referral would have to precede any repeat of this opinion. The EU's preferred modus operandi - to muddle through without deciding matters of principle - would thus seem to remain viable unless, of course, a German court would retroactively rule EU measures unlawful (which the Court did not at this time).

[1] https://www.bundesverfassungsgericht.de/SharedDocs/Pressemitteilungen/EN/2020/bvg20-032.html