By Otmar Lahodynsky
The European Union should now be concerned with revitalising the economy shaken. On May 6, however, the German Federal Constitutional Court fired a warning shot when it classified the multi-billion dollar purchase of government bonds by the European Central Bank as partially unconstitutional.
The second senate, chaired by the court’s president, Andreas Vosskuhle, ruled that the purchases of the ECB violated Germany’s Basic Law on several points. From the point of view of the court, the German government should have taken actions to ensure that the ECB checked its decisions for their proportionality.
Germany’s Notenbank should also have considered the economic consequences for savers and property prices. The Governing Council must now show in a new decision that the purchasing programme is proportional. Otherwise, the Bundesbank is prohibited from participating in the programme after a transition period of no more than three months.
Several constitutional complaints were partially successful with the court-ruling. These came from former Christian Social Union-politician Peter Gaulweiler, and the founder of the right-wing populist party, Alternative für Deutschland (AfD), Bernd Lucke.
“For the first time in its history, the Federal Constitutional Court found that the actions and decisions of European institutions are obviously not covered by the European system of powers and therefore cannot be effective in Germany,” said Vosskuhle. As a result of their responsibility to the process of integration, the German government and the Bundestag are obliged to oppose the previous handling of the ECB buy-out programme.
The Constitutional Court ruled that the earlier ECJ judgment was no longer comprehensible and therefore not binding.
The Federal Constitutional Court, which is based in the city of Karlsruhe, admitted that her judgment could cause irritation in the face of the corona crisis. The court also found that there was no improper government funding in the ECB’s purchase programme. The judgment also does not affect the current ECB decisions on the occasion of the corona crisis.
The German supreme judges, who have often rated European integration as a restriction of national sovereignty, have done serious damage to the European Union.
The EU has been pushed aside in the face of the corona crisis by unilateral actions of the bloc’s 27 sovereign nations. With stereotypical German arrogance, the judges found that they could ignore the judgments of the European Court of Justice. The ECJ had already rated the ECB’s purchase programme as legal at the end of 2018, which was non-binding for the German Supreme Court. The ECJ however, acted outside of its competencies.
As a result of its decision, the Federal Constitutional Court is putting the foundations of the EU legal order to a violent stress test. Prominent German journalist Herbert Prantl explained the situation as “The principle of the primacy of EU law, which is interpreted by the EU Court of Justice, was overruled by the constitutional court. If you think of Europe as a house with many rooms, where there is a common set of house rules, but one in which each room also has room rules, then the Constitutional Court has now declared the German room’s rules to be the house rules.” The applause from other EU rooms, especially from Poland and Hungary, for the judgment was not long in coming. If Germany is allowed to ignore the judgments of the EU Supreme Court, then the same scenario also applies to the right-wing authoritarian governments in Warsaw and Budapest, both of which have repeatedly been punished by the EU for violations of the bloc’s rules.
The German court has often criticised steps to transfer power to EU institutions and Germany’s highest judges have always pointed out that Article 23 of the country’s Basic Law provides for Germany’s participation in the development of the EU according to the principle of a subsidiarity, but this must guarantee the protection of fundamental rights comparable to the German Basic Law. This information always served the Constitutional Court as a mandate to intervene in European case law in the event of such perceived misconduct by the EU institutions. “An absolute priority for European law without any ifs and buts is not compatible with the Basic Law”, German Court Supreme Judge Peter Michael Huber said when defending the judgment he co-authored.
Within their jurisdiction, Germany’s judges rarely pay attention to the welfare of the entire European Union. Instead, they mostly only consider the interests of Germany’s institutions, such as the Bundestag. It does come across as unusual when the Constitutional Court judges emphasise the interest of German account holders, tenants and pensioners and not the financial problems of EU states, which have had to fight with constantly rising interest rates on their loans. The Constitutional Court, for example, did not really care about the existential problems of Greeks, who were driven into poverty because of cuts in the social system, which was imposed by their EU partners or through pension or wage cuts.
Under President Mario Draghi, the European Central Bank unpacked its heaviest weapons against internationally networked speculators. With seemingly unlimited purchases of government bonds from countries threatened by the financial crisis, including Greece, Italy, Spain, Portugal, and Ireland, the ECB also saved the euro, which was also in the interest of Germany as the latter reaped the benefits of being a world export champion from the single market.
In 2012, the Supreme Court approved a euro bailout fund, but soon afterwards, the European Court of Justice asked for preliminary rulings. The plaintiffs again argued that the Public Sector Purchase Programm bond purchase crossed the line from monetary to economic policy. By reliably buying up government bonds, the central bank deprived states of incentives to operate sensibly. This has also led to prohibited monetary government financing.
Representatives of the German government argued that the ECB’s actions made sense and that there would be no illegal debt communisation. For the European Commission, the German judgment comes at a very delicate time. The Commission has announced an aid package worth over €700 billion to revive the economy.
After hours of shock, Commission President Ursula von der Leyen made it clear that European law should only be considered binding by the EU Court of Justice. The Commission has also threatened infringement proceedings against Germany, but that would be an escalation of the dispute, which would force the German government to point out the separation between the executive and the judiciary.
Former Austrian EU Commissioner Franz Fischler described the situation as ‘extremely dangerous’ as it allows the Constitutional Court to present itself as ‘above the European Court of Justice’. Fischler also noted that the EU’s common legal order is in jeopardy if national courts now think that they no longer have to comply with the judgments of the EU Supreme Court. Politicians who act increasingly authoritarian, such as Viktor Orban in Hungary or Mateusz Morawiecki in Poland, would then be content to let only their own supreme courts assess their policies.
Exactly how independently these courts can still decide needs to be known to the German Constitutional Court.
As if to prove its independence, the ECB has continued to buy bonds. Just one week after the Constitutional Court’s ruling, bonds were was bought for around 45 billion, a record, in bonds were bought, mostly as part of the current Pandemic Emergency Purchase Programme.