Tuesday’s judgment of the German Federal Constitutional Court (FCC, Bundesverfassungsgericht) was truly historic. After having claimed the theoretical competence to do so since its Maastricht-Decision of 1993, it for the first time declared an act of a European institution as being in breach of the Treaties and thus denied its legal effectiveness in Germany. The subject of the procedure was the so called “Public Sector Purchase Program” (PSPP) of the ECB in which the ECB bought public sector bonds in order to raise the inflation rate closer to its internal target of “below, but close to 2%”. Though being clearly rooted in traditional monetary policy the FCC found that the ECB had failed to prove the proportionality of this program. According to the FCC the ECB thereby was obliged to take the massive economic consequences into account: “Based on its own review, the Second Senate concludes that, due to the lack of sufficient proportionality considerations, Decision (EU) 2015/774 together with Decisions (EU) 2015/2101, (EU) 2015/2464, (EU) 2016/702 and (EU) 2017/100 are neither covered by the monetary policy competence of the ECB (Art. 127(1) first sentence TFEU) nor by its merely supporting competence regarding the Member States’ economic policies (Art. 127(1) second sentence TFEU.“
As a consequence “this ultra vires act does not partake in the precedence of application of EU law (Anwendungsvorrang)” and the ultra vires act is not to be applied in Germany, and has no binding effect in relation to German constitutional organs, administrative authorities and courts. The German Central Bank (Bundesbank) is thus also hindered to participate in any further purchases. However, this only applies if and as far as the ECB fails to adopt a new decision that demonstrates in a comprehensible and substantiated manner that the monetary policy objectives pursued by the ECB are not disproportionate to the economic and fiscal policy effects resulting from the programme“ within a transitional period of no longer than three months.
As far as its monetary policy is concerned, the decision of the FCC will therefore probably not hinder the ECB from continuing its PSPP in the coming months and will thus also not challenge the existence of the whole monetary union, as some commentators suspected. Proving the proportionality of the bond purchases in an economic surrounding of low inflation and with many other central banks acting the same way should indeed not be too difficult.
However, the judgment may have far more lasting effects on the European Union as a whole. Why? Because in order to claim the non-proportionality of the measures taken by the ECB the FCC first somehow had to circumvent the decision of the ECJ declaring the bond purchases legal – the ECJ had taken this decision due to a request for preliminary ruling according to Art. 267 TFEU initiated by the FCC itself. According to European rules, such a decision is of binding effect, especially for the requesting court (here thus the FCC). The FCC indeed acknowledged this binding effect in general, yet pointed out that such an effect could not be accepted, “where the interpretation of the Treaties is simply not comprehensible and thus objectively arbitrary.“ According to the FCC this was indeed the case for the decision taken by the ECJ as it had not sufficiently examined the question of proportionality: “This view manifestly fails to give consideration to the importance and scope of the principle of proportionality (Art. 5(1) second sentence and Art. 5(4) TEU), which also applies to the division of competences, and is no longer tenable from a methodological perspective given that it completely disregards the actual effects of the PSPP.“
Addressed to another supreme court, this is obviously no less than a direct declaration of war, which nevertheless puts a strain on the notorious “cooperation relationship” between national and EU judges. Unfortunately, the consequences that the judgment could have with regard to the European community of law as a whole are thus likely to be more serious. The fact that perhaps the most influential constitutional court in the world (next to the [US] Supreme Court) has attested to the ECJ a methodologically unacceptable way of proceeding will be noted with a certain satisfaction in Poland and Hungary. There, it will be easier to evade undesirable judgments from Luxembourg with this argument now given a noble status – and we have indeed already seen respective statements in Poland. That is actually the tragic aspect of the judgment: It will probably fizzle out quickly in the area of monetary policy, but it has (unnecessarily) opened the ultra vires-Pandora box to other areas and other Member States. Closing it again might practically be impossible.
Alexander Thiele is an Assistant Professor in Law at the Universität Göttingen
Image credit: Peter Lepping, German Constitutional Court, CC BY 2.0 license