German Constitutional Court Decision

Most of the focus of the German Constitutional Court decision has focussed on the ECB’s ability to continue its Public Sector Purchasing Programme (PSPP). The ruling does not relate to the latest €750bn Pandemic Emergency Purchase Programme (PEPP)

This court case raises serious issues about the consistent application of EU law across member states, as well challenging the role of the Court of Justice of the European Union (ECJ) in ensuring EU law is interpreted and applied the same in every EU country. It threatens the principle of supremacy of EU law and the relationship between national courts and the ECJ. 

The German court has rejected the ECJ’s 2018 ruling on the PSPP and specifically on whether the ECB’s “decisions on the PSPP satisfy the principle of proportionality”. The German court found that the ECJ ruling “is not comprehensible; to this extent, the judgment was thus rendered ultra vires”.  The Court states that the ruling is “ultra vires” and should not to be applied in Germany.

The main point of the German ruling is that the has ECB failed to put forward arguments demonstrating that (and that the ECJ failed to require them) the PSPP is proportional.

If any Member State could readily invoke the authority to decide, through its own courts, on the validity of EU acts, this could undermine the precedence of application accorded to EU law and jeopardise its uniform application. Yet if the Member States were to completely refrain from conducting any kind of ultra vires review, they would grant EU organs exclusive authority over the Treaties even in cases where the EU adopts a legal interpretation that would essentially amount to a treaty amendment or an expansion of its competences.

The court puts the onus on the Federal Government and the Bundestag to take steps to ensure that the ECB conducts a proportionality assessment.

It also precludes the Bundesbank (after a three-month transitional period) from participating in the PSPP until the ECB Governing Council “adopts a new decision that demonstrates in a comprehensible and substantiated manner that the monetary policy objectives pursued by the PSPP are not disproportionate to the economic and fiscal policy effects resulting from the programme.

“On the same condition, the Bundesbank must ensure that the bonds already purchased and held in its portfolio are sold based on a – possibly long-term – strategy coordinated with the Eurosystem.”

The ECB responded with a press release where it noted the ruling and remains fully committed to its mandate. It also pointedly states that the “The Court of Justice of the European Union ruled in December 2018 that the ECB is acting within its price stability mandate.”

Media reports quote several ECB Governing Council members stating that the will not respond to the German court. The ECB’s view is very clear that it does not fall under the jurisdiction of the German court. The ECB views this ruling as a challenge to its independence.

Indeed the ECB declined to appear in the German court which is its traditional stance. In Ireland, in 2016, the former ECB President Draghi responded to the Irish Oireachtas banking enquiry that the ECB is primarily held to account by the European Parliament and does not participate in parliamentary inquiries on a national level. But the ECB could take part in an “informal exchange of views”, “within the remit of its mandate”.

This decision has enormous implications on the principle of primacy of EU law over national law. This potentially has huge implications for the EU legal system, whereby a national court can overrule decisions by the ECJ. The German constitutional court has set a precedent whereby Member States can set aside EU law that it doesn’t like. This has set alarm bells ringing across Europe.