The last few weeks have been rife with reporting and outright handwringing about an inevitable “crisis” brewing between European Union judicial institutions, on the one hand, and the German Constitutional Court on the other. Much of the discussion has been admittedly difficult to follow and it can be easy to get bogged down in the details that involve not just the onion-like layers of the EU’s federal architecture but of its financial institutions as well. This article will give an overview of who the actors are in this story, what is the nature of the dispute(s), and what are some predictions for how this tension may—or not—be resolved.
What is the Federal Constitutional Court?
Most Americans would probably view Germany’s Federal Constitutional Court – or Bundesgerichtshof – as analogous to the United States Supreme Court. In the sense that each court acts as a final arbiter of questions of constitutionality that view is fairly accurate. But there are some significant difference in how both courts fit into their respective legal systems that are worth noting when considering this latest ruling.
The first salient difference is that the German Constitutional Court is, strictly speaking, not the highest court in the land—rather it is one of five Federal supreme courts. Those other courts—spread throughout Germany in the cities of Leipzig, Munich, Erfurt, and Kassel—each have their own specific bailiwick such as administrative law, finance, or labor law. The Constitutional Court (located in the southwestern city of Karlsruhe) adjudicates matters in which there was an alleged violation of a fundamental right guaranteed by the Basic Law (or Grundgesetz.) It can also review the constitutionality of laws of the individual German Länder, or states, even before a law takes effect.
The Federal Constitutional Court is also not an appeals court; an individual alleging a violation of his or her basic rights can bring a case directly to Karlsruhe, unlike in the United States in which generally the Supreme Court reviews the decisions of lower courts. (This particular difference is of particular import for understanding the nature of this controversy.) The Constitutional Court is seldom the subject of political controversy, in part because the 16 judges that serve on the court for a single 12-year term are chosen by supermajorities in the upper and lower houses of the German legislature.
The Euro Stops Here—The European Court of Justice in Luxembourg
The other actor in this brewing saga is the European Court of Justice, located in Luxembourg. Whereas the German Constitutional Court, like all other national courts, is concerned principally with interpreting and applying national laws, the ECJ’s authority is over European Union law—including ensuring that EU law is being properly applied by the respective member states. The ECJ can therefore sue the national government of a member nation if that government fails to comply with EU law. The national courts of EU member states can also petition the ECJ to interpret EU law in cases where the EU law being applied in a case in a member state might be vague or appear to be invalid, even though that case is not being adjudicated before the ECJ.
What is the European Central Bank, and What Were They Accused of Doing?
The essence of this controversy lies in actions taken in the last decade by the Frankfurt-headquartered European Central Bank, which sets monetary policy for the Euro zone and whose primary task is to ensure price stability within the 19 countries using the Euro. In response to the financial crisis that started in 2007, the ECB launched in 2015 a program called the Public Sector Purchase Program (PSPP). This program consisted of the Bank purchasing bonds issued by Euro-zone national governments and agencies as well as regional and local governments within those countries. One of the banks participating in the PSPP is Germany’s central bank, the Bundesbank.
It was the Bundesbank’s participation in the bond-purchasing program that drew complaints by a group of German citizens who claimed that the implementing the PCPP was beyond the powers of the European Central Bank. Specifically, the complaint stated that the PCPP appropriated the power of the German government to set its own monetary policy and thus violated the section of the German Basic Law that states that all state authority is derived from the people. By essentially transferring German budgetary policy to the European Union, as the complaint goes, the German government—and therefore the German people—cannot ensure that the PSPP would have a “proportional” impact on German fiscal and monetary policy. By “proportional,” the complaint here refers to the definition set out in the Treaty on European Union that states that the EU shall take only that action which is necessary to achieve its aims and no more.
How Did The European Court of Justice Rule in this Case?
The European Court of Justice took up these arguments after the German Constitutional Court had requested a ruling in the issues of EU law it was considering in a case that had been brought by around 1,750 German citizens. It is worth re-stating here two aspects of European court systems that contrast with the judicial system in the United States. The first is that the German high court consulted the ECJ and asked it to clarify a point of EU law in a case brought by German citizens. No such analogous situation could exist in the United States in which a state court requests the Supreme Court to clarify a point in Federal law even though there is no case before the Justices. The second is that, under the German system, a complaint can be made alleging a violation of constitutional rights even where has been no injury in fact that can be shown. None who brought the case to Karlsruhe—including Heinrich Weiss, chairman of SMS metals and Bernd Lucke, founder and former member of the populist Alternativ für Deutschland party—alleged that they had personally suffered an injury due to the PSPP. Rather, the complaint was founded on the structure of the program itself.
In December 2018 the ECJ issued a ruling that stated that the PSPP did not exceed the mandate of the European Central Bank since the EU has exclusive competence for setting monetary policy for Euro-zone members. Since under the Treaty of the European Union the ECJ adjudicates questions of European law, it is expected that members’ national courts will incorporate the ECJ’s reasoning into their own rulings.
And What Did the Bundesgerichtshof Say?
The essence of the controversy lies precisely in that the German court did not incorporate the ECJ’s reasoning into its own ruling on the case before it. In fact, it rejected it outright (and practically ridiculed it.) While the court stated that “as long as the [ECJ] applies recognized methodological principles and the decision it renders is not objectively arbitrary . . . the Federal Constitutional Court must respect the decision.” However, since the opinion handed down from Luxembourg was, as the judges in Karlsruhe characterized it, “absolutely incomprehensible,” and since the ECJ failed to take into account a balancing of competing interests, its proportionality review was “meaningless.”
Autsch, as a German might say.
Quo Vadis, Europa?
With the Bundesbank comprising 26 percent of the shares in the PSPP, an exit by Germany’s central bank (Gerexit? Deutxit?) would have massive consequences for not just this program but for the stability of the Euro zone as a whole. Indeed, the Bundesbank has suspended PSPP auctions until further notice, and the Constitutional Court ordered the bank to wind down its purchases within three months.
But most of all this ruling could set up a battle for which instances have supremacy within the EU. It is possible the European Commission could take legal action against Germany and insist on fines for its judicial “intransigence,” even if the final judgment of the Federal Constitutional Court cannot be changed. There has been the almost inevitable speculation that this ruling will embolden countries like Poland and Hungary—both of which having been butting heads with Brussels on questions of the rule of law lately—to disregard the ECJ when they please.
On the other hand, the uproar of the last few weeks will likely die down if Brussels decides (wisely, in my opinion) that it isn’t worth the trouble to go after Germany on what is, after all, an outlier of an outcome. Brussels would regardless crack down on Eastern European nations if they violate judicial independence and press freedoms. This approach would avoid the risk of the European Union appearing even more dictatorial than it is sometimes portrayed, instead saving more of its bureaucratic might to be a guarantor of human rights where they may be threatened. As it is, Chancellor Merkel (and French President Emmanuel Macron) seem to be getting ahead of economic uncertainty by announcing a massive rescue package that would at least appear to be taking future economic obligations away from central bankers, perhaps obviating the appetite for lawsuits based on defending national sovereignty.
GermanLegalBlog.com 