War of courts at the top of the European Union: The ruling of the German Federal Constitutional Court in Karlsruhe (BVerfG, Judgment of Second Senate of 5 May 2020, 2 BvR 85915)

On 5 May 2020, the German Federal Constitutional Court (Bundesverfassungsgericht, hereinafter the “BVerfG“) sitting in Karlsruhe adopted a Dr. W… e.a. ruling by seven votes to one which results in genuine declaration of war at the Court of Justice of the European Union (hereinafter the “ECJ”).

1. In 2016, a group of German citizens lodged four constitutional complaints, also called ultra vires appeals, with the BVerfG.  A constitutional complaint is an action brought directly before the BVerfG by any person who considers him or herself the victim of an infringement to the guarantees of the fundamental freedoms provided for the Basic Law for the Federal Republic of Germany (Grundgesetz für die Bundesrepublik Deutschland) by one of the bodies of the German federal government and by which the applicant claims the redress of this infringement by the court.

In the present case, the four constitutional complaints concerned not only the participation of bodies of the German federal government to the Public Sector Purchase Program (hereinafter the “PSPP“) initiated by the European Central Bank (hereinafter the “ECB ”) but also the ECB itself for having set up and implemented this program.

Among the signatories to these complaints were some of the founders of the Alternative für Deutschland (AfD).  Born out of a split from the Christlich Demokratische Union Deutschlands (CDU), the German Christian democratic party, the AfD was founded by Eurosceptic economists criticizing the PSPP on a political level as a state intervention contrary to the principles of laissez-faire and free competition and objecting the support of the CDU to this program.  Since then, the AfD has become a far-right party expressing neo-Nazi sympathies from time to time.

2. The PSPP was established in March 2015 by a Decision of the Governing Council of the ECB and expended by two other Decisions of the Governing Council of December 2015 and of March 2016 to respond to the public debt crisis in certain EU Member states, including Italy and Greece. These Decisions were repealed and replaced by a Decision of February 2020. Under this program, the Eurosystem buys debt securities issued by all entities of the public sector of the Eurosystem States on the secondary market, within the limit of thirty-three percent of the total volume of debt issued by all the public sector entities of the same State.

The Eurosystem is composed of the national central banks of the EU Member States having the Euro for currency and the ECB.  It is placed under the supervision of the latter.  The Eurosystem’s mission consists in being the monetary authority of the Euro area and its aim is the maintenance of price stability.

The Governing Council of the ECB is the body of this institution responsible for defining the monetary policy of the Euro zone and for taking the guidelines and decisions necessary for the fulfillment by the ECB and the Eurosystem of the mandates entrusted to them by the Treaty on the Functioning of the European Union (hereinafter the “TFEU“).  It is made up of the six members of the ECB’s Executive Board, including the President of the ECB, and the Governors of the national central banks of the EU Member States sharing the Euro.

3. Before adopting Dr. W… e.a, the BVerfG sought a preliminary ruling from the ECJ on five issues to determine whether the Decisions of the Governing Council of the ECB establishing and expending the PSPP had infringed the provisions of the TFEU defining the mandate provided to this central bank.

The ECJ replied to this application by its Heinrich Weiss e.a.ruling of 11 December 2018, (Case C-493/17).  In this decision, the ECJ adopted an interpretation of the TFEU comforting the action of the ECB and recognized the validity of the three Decisions creating and modifying the PSPP by an explicit mention in the operative part of the decision.

4. In Dr. W… e.a, the BVerfG purely and simply refused to apply the interpretation of the TFEU made by the ECJ in Heinrich Weiss e.a. as well as the validation of the Decisions of the ECB establishing the PSPP stated in this same ruling.  The German Court opted to replace it with its own assessment of the Treaty.  It based its analysis on the principle of proportionality to determine whether the ECB would have exceeded the mandate granted by the TFEU by setting up the PSPP.  According to this principle which is common to German constitutional law and EU law, a measure conforms to the German Basic Law or EU Treaties (depending of the case) if it is proportional, i.e. if no other less restrictive measure could be adopted to achieve the objective assigned to the challenged measure.

For the BVerfG, if the ECB had exceeded its mandate, it would have called into question the distribution of competences between, on the one hand, the European Union and, on the other hand, its Member States.  This distribution of competences is based on the principle of conferral, i.e. the European Union only exercises the competences which are conferred to it by the Treaty on the European Union (hereinafter the “TEU“) and the TFEU ​​and cannot exercise others.  However if this principle of conferral and more generally the distribution of competences provided for by the EU Treaties had been called into question by the ECB, this situation would have resulted in a violation of the principle of democracy, which include the principle of the sovereignty of the people, and the distribution of powers, in particular the budgetary powers of the German Federal Diet (Bundestag) and the competences allocated to the German States (Länder), enshrined in the German Basic Law, according to the BVerfG.

5. However, in Dr. W… e.a, the BVerfG refused to sanction the German federal government and the ECB at this stage and for this reason, dismissed the complaints which had been lodged with it.

The BVerfG stated that it did not consider itself to be convinced by the proportionality assessment made by the Governing Council of the ECB in the reasons for its Decisions establishing the PSPP.  Consequently, it imposed on the Federal Diet and the German Federal Cabinet (Bundesregierung) to take all measures so that the ECB carried out a new proportionality assessment of the PSPP within three months and to forward this new analysis to the Court.

The BVerfG also specified that if no new assessment was provided to it at the end of this three month period or if the new analysis was insufficient to establish adequately the proportionality of the Decisions establishing the PSPP, the German Basic Law would prohibit the bodies of the German federal government, including the Federal Bank (Bundesbank), to maintain its participation to the PSPP and to purchase new public debt securities under this program and would require them to resell the securities already held.

6. With Dr. W… e.a, the BVerfG objected to two cardinal principles of EU law whereas this organization is a construction based on law.

First, the BVerfG gave precedence to the German Basic Law over EU Law.  In doing so, it violated the principle of primacy of EU law.  Of federal essence, this general principle of EU law is one of the oldest and most important since it establishes that any Act of the European Union takes precedence over the national law of the EU Member States and that if a national provision contradicts an Act of the Union, the national court shall set aside the concerned national provision and apply the concerned Act of the Union instead.

Second, the BVerfG granted to itself an authority superior to the one of the ECJ to construct the EU treaties whereas the EU Treaties provide the second with an exclusive jurisdiction to ensure the respect of the law in the interpretation and the enforcement of these treaties.  As a result of this exclusive jurisdiction, a preliminary ruling adopted by the ECJ binds the national court having sought the concerned preliminary ruling at all points.

However, the BVerfG set aside the preliminary ruling which it sought from the Court of Justice in the present case, considering that in Heinrich Weiss e.a, the ECJ had engaged in an incomprehensible interpretation of the mandate granted to the ECB by the TFEU, which therefore had to be deemed arbitrary.  The BVerfG concluded that for this reason, the ECJ had exceeded its power to ensure respect for the law and that therefore its decision lost all authority and no longer bound it.

7. In law, the position adopted by the BVerfG calls for at least two responses from the institutions of the European Union.

First, it seems to be unlawful under the TEU and the TFEU and inappropriate for the ECB to reply to the indirect request from the BVerfG to carry out a new proportionality assessment.  According to the EU Treaties, the ECB is an independent institution of the European Union, i.e. its Acts are not subject to any national or European supervision and can only be subject to a legal review conducted by the ECJ solely and not by a national court.

8. Second, EU case law has consistently recognized that a failure of an EU Member State to comply with its obligations under EU law can result from a decision of a national court infringing EU law.  Consequently and obviously, Dr. W… e.a. would constitute a failure of Member State to comply with EU law and should be sanctioned as such, from a legal point of view.

Only the ECJ has jurisdiction to sanction a failure of an EU Member State to comply with EU law.  Only the European Commission or another EU Member State can initiate a procedure before the EU Court for this purpose.  If the ECJ decides that Dr. W… e.a. results in a failure of Germany to comply with the EU Treaties, Germany would have the obligation to take all measures to put an end to it within a reasonable time, including an amendment to its Basic Law.  Otherwise and upon a referral of the European Commission only, the ECJ could impose on Germany a fine and/or periodic penalty payment.

To date, no EU Member State Union has initiated a procedure for failure of an EU Member State to fulfill its obligations under EU law and it seems unlikely that one of them will take such an initiative against Dr. W… e.a.  As for the European Commission, it is caught between the strong German influence which would prevent it from acting against Dr. W… e.a and the need to preserve its authority and the general interest of the European Union, the defense of which it is in charge, which it would require action on the contrary. However, it seems that the Commission contemplates the possibility to initiate a procedure for failure to fulfill its obligations under EU law against Germany based on Dr. Weiss e.a.

Jérémy BERNARD

Partner - Competition law
Attorney at the Paris Bar, Jérémy Bernard is a partner of Delcade Avocats & Solicitors.

He has developed a practice covering EU and French competition and distribution law as well as the regulation of liberalized sectors, litigation and arbitration.

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