Karlsruhe revisited – challenging the ECB ‘in the name of the people’

Karlsruhe revisited – challenging the ECB ‘in the name of the people’

This summer, the German Federal Constitutional Court initiated its second ever preliminary reference to the CJEU, challenging the legality of ECB policies. This blog highlights its links to previous jurisprudence and its impact on judicial dialogue.

This summer, the German Federal Constitutional Court (Bundesverfassungsgericht) initiated its second ever preliminary reference (Joined Cases 2 BvR 859/15, 2 BvR 980/16, 2 BvR 2006/15, 2 BvR 1651/15) to the Court of Justice of the EU (CJEU). As in its first reference (OMT reference), the Bundesverfassungsgericht challenges the legality of ECB (European Central Bank) policies, this time in relation to the Quantitative Easing programme. This QE programme was initiated early 2015 to calm the tense financial and monetary situation amongst Euro-area countries.

Confronted with this new reference, this blog will address two interesting aspects: Firstly, the question of how the reference interlinks with previous jurisprudence and secondly, its implications concerning cooperation between the Bundesverfassungsgericht and the CJEU.

Considering the details: Business as usual?

The German Federal Constitutional Court has long-standing and well-established jurisprudence on the relationship between EU law and German constitutional law. In many regards, this new reference fits in the saga of (critical) German constitutional review.

On a procedural level, the German court considers the applications for constitutional complaint challenging the QE programme admissible, reiterating that individuals are entitled to object to EU measures based on their right to vote, as enshrined in the German constitution (namely Art. 38(1)(1) in conjunction with Art. 79(3) Basic Law). Despite the requirement that the very essence of democratic self-determination – and therewith of the individual right to vote – must be at stake, the wide locus standi opens the constitutional avenue for an almost unlimited number of individuals. The consequences of this have materialised: Almost 1750 applicants supported the constitutional complaints against the QE programme. Though criticised in the academic debate, the German court continues to establish relaxed standing requirements for constitutional complaints against EU matters, not requiring a specific risk for the constitutional right of the applying individual.

On a substantive level, the reference contains an assessment under the ultra-vires as well as the constitutional identity lock.

Regarding a potential ultra vires act, the German court highlights the prohibition on monetary financing (Art. 123(1) TFEU), arguing that the QE programme, due to the modalities apparent from the ECB’s conduct and the sheer size of the programme, might contradict Member State’s conduct towards ‘healthy budgetary policies’. Additionally, the German court sees severe indications that the QE programme is not covered by the monetary mandate of the ECB (cf. Arts. 119ff. TFEU). As a result, the programme might exceed the limits of conferred powers, and, in turn, potentially constitute an ultra vires act under German constitutional law, depending on the CJEU’s interpretation of EU law.

Furthermore, the German court highlights that all fundamental budgetary decisions, which are liable to affect the German budget, must be made by the German parliament. The German constitutional identity requires that parliament enjoys full budgetary responsibility, as protected by the eternity clause (Art. 79(3) Basic Law). Applying this review to the QE programme, the German court underscores the potential liability risk, which could negatively affect the budgetary prerogatives of the German parliament. At the same time, constitutional identity is only briefly mentioned; the focus of the reference clearly rests on the ultra vires review.

All this is not new: The German court was particularly concerned with measures taken during the single currency crisis (Eurocrisis), building an extensive body of case law. The three aspects mentioned, namely relaxed standing requirements, ultra vires and constitutional identity, are well-established. Hence, the QE reference is arguably an execution of the established jurisprudence – or in line with a continuation of the existing saga.

Initiating a (lasting) cooperative dialogue?

In light of this critical German jurisprudence, the relationship between the Bundesverfassungsgericht and the CJEU can be described as complex and tense. One notorious point of contestation is the proclaimed absolute primacy of EU law, which the German court never fully endorsed. The highlighted jurisprudence is the caveat, so to say, which aims to ensure that the German court has the final say and retains the so-called Kompetenz-Kompetenz. From the Bundesverfassungsericht’s perspective this finding is only correct, given that the EU legal order is perceived as a derived legal order.

Bearing this tense relationship in mind, the new reference contains an interesting element. The first reference (OMT) was drafted in a remarkably sharp tone, dictating to the CJEU the ‘proper’ interpretation of EU law. This dictate from Karlsruhe was not fruitful for cooperative dialogue. In contrast, the QE reference is framed in diplomatic language, illustrating the potential constitutional conflict and seeking an answer from the CJEU. In short, this softened diplomatic tone could be a German offering to the CJEU, suggesting that a new chapter of cooperative dialogue has now been opened.

A cooperative German court?

It might be too early to draw any final conclusions on the future relationship between the two courts. The evidently more diplomatic reference might be a peace offering. But it can equally be an immediate reaction to OMT, where the CJEU simply rejected the German criticism. Hence, the diplomatic tone could be a strategic move to reconstruct German influence in Luxembourg.

Despite the changed tone, the constitutional assessment remains largely unchanged. Here, the German court applies its by now established standard that prior to potentially declaring an EU act ultra vires or finding its incompatibility with the German constitutional identity, the German court will refer the matter to the CJEU under Art. 267 TFEU.

Finally, the consequences of declaring the QE programme anti-constitutional should be briefly considered. Bonds worth more than 2 trillion Euro were acquired and, as Mario Draghi announced, the programme will be continued until at least September 2018, albeit with a reduced monthly capacity of 30 billion Euro from January 2018 onwards. Declaring the programme anti-constitutional under German law would threaten its continuation – and with it financial stability in the Euro-area. Now, one might raise the question how a court of one Member State can threaten the stability of the whole Euro-area? The German Bundesverfassungsgericht can do so due to its prerogatives under the German constitution and ‘in the name of the people’.