BVer Judgment of the Second Senate German Constitutional Court 5 May 2020 2BvR 859/15

The German Constitutional Court has recently given its judgment on the drawn out case of 2BvR 859/15, a challenge by a large number of organisations and individuals to the lawfulness of monetary measures (Quantitative Easing) undertaken by the European Central Bank (ECB). The claim included a challenge to the action, or inaction, of German institutions, including the Bundesbank, in the context of the ECB’s Public Sector Programme (PSPP), an asset purchase programme launched in 2015 and still in force.  The PSPP aimed to increase money supply and thereby ease monetary conditions, seeking to increase inflation rates and to ease borrowing conditions of households.  It was a monetary measure with a direct economic effect.  The measure enabled bonds to be purchased by weaker southern Member States, having the effect of maintaining the value of the euro, benefitting the stronger Member States with a positive balance of payments.  

The German Constitution Court had referred the issue to the Court of Justice of the European Union (CJEU) in C-493/17 Weiss which concluded that the measures taken by the ECB were lawful. The matter came back to the German Constitutional Court.  The latter declared on revisiting the issue that the CJEU’s ruling itself was ultra vires due to its inadequacy of reasoning in its proportionality assessment of the impacts of the measure and the poor review it undertook in assessing if the measures were proportionate. 

The judgment has the potential of undermining the European Union as it currently exists. The Court held:     

(i) The PSPP measures taken by ECB are ultra vires EU law and German constitutional law;

(ii) The German Government, in particular the Bundesbank, failed to control the ECB’s power grab;

(iii) The CJEU was wrong in its judgment which held that the measures were legal within the EU legal framework.

The Court went on give the ECB three months to provide a new decision in line with the judgment and if no such decision is forthcoming the German Bundesbank, the German central bank, could no longer participate in the ECB measures.   

The Court considered that the QE programme and decisions taken by the ECB were ultra vires as they violated fundamental principles of European and German law such as the principles of conferral and proportionality.   The Court noted the restrictions in the treaties on the power of European institutions to create new competencies for themselves.  For the competencies to be lawful they must be founded in the treaties which set out the extent of conferral by Member States.   The principle of conferral was breached, the Court held, as the ECB exceeded the limits of its  competencies conferred by the treaties. The Member States remain ‘masters of the Treaties’. The EU is not a federal state, the Court warned.    The prior judgment of the CJEU in Weiss, the Constitutional Court held, gave rise to the unlawful ‘continual erosion’ of Member State competencies.  The ECB’s role was limited to monetary policy. The QE programme went well beyond that, into the field of economic policy, according to the Court.

lmplications of the judgement

First, the German Court lays down a challenge to the belief that European Union law, including judgments of the Court of Justice, over-rides domestic law in all relevant areas.  This is the most surprising outcome of the judgment and disturbs the well-embedded contrary rule of law (Costa v E.N.E.L, Factortame). The Constitutional Court did not shrink from considering for itself the legality of the acts of an EU institution.  Indeed, it did so after a preliminary ruling by the CJEU on the very issue, the matter having been referred to it by the Constitutional Court. 

It is not the first time a domestic court has taken a similar approach and held a judgment of the Court of Justice to be ultra vires.  The Czech Constitutional Court in PI, US5/12 held that the Landtová case of the CJEU C-399/09  was not applicable (it held that Czech rules as regards old age pensions affecting adversely Czech beneficiaries who had worked in Slovakia for some period at least were discriminatory and contrary to EU law and so a domestic rule to the contrary was unlawful).   The Miller (No.1) case ({2017] UKSC 5) emphasised the limitations of EU law, restricted to the scope expressly endorsed by domestic law, giving support, if only indirectly, that principles rather than rules of EU law might have to give way to express domestic law to the contrary, an approach already adopted controversially by the Danish Supreme Court in Dansk Industri, case no.15/2014, judgment 6 December 2016.    The Danish Court stressed that the Law of Accession of the Kingdom of Denmark to the European Union does not cover general principles of EU law and a national provision to the contrary cannot be disapplied. 

The German Court unilaterally granted itself the power to decide on the validity within Germany of the PSPP decision of the ECB, an EU institution under the exclusive jurisdiction of the CJEU.  The Court had some two decades earlier held that it had jurisdiction to consider the validity in Germany of EU rules, laws and measures.  It went further in this case by rejecting as ultra vires the CJEU’s proportionality approach in the Weiss case, concluding that its review ‘does not satisfy the requirements of a comprehensible review as to whether the ECB observes the limits of their monetary policy mandate’. The ECB had failed to ‘give consideration to the importance and scope of the principle of proportionality’ and ‘was no longer tenable from a methodological perspective given that it completely disregards the actual effects of the PSPP’ (para.119). The Court proceeds at para.173 to outline the adverse economic effects of such measures on substantial parts of the economy.  Such matters were central to the issue of proportionality.  This demanding approach of proportionality contained in the judgment of the constitutional court goes well beyond what has come to be accepted as necessary to satisfy the principle.

Thirdly, the independence of the ECB is challenged by the court.  It went beyond its powers and there seems to be no authority to control it, the Court found.  The Court held that the German Bundesbank should have acted and its failure to do so in so far as the measures of the ECB affected it and the financial interests of the German State was an unlawful act.

Fourthly, even following Brexit and consideration of the ongoing relevance of CJEU’s judgments on relevant issues, parties before domestic courts including those of the UK,  will be emboldened to argue that a judgment of the CJEU is ‘manifestly wrong’, the test applied by the Constitutional Court at paras.111-113.  While the Court was at pains to stress that a direct challenge by a domestic court to a decision of the CJEU will be rare, the actual approach it took to the decision in Weiss was somewhat less restrictive.  It considered that the actual economic impacts of the measures on various groups and entities was an essential requirement of the proportionality exercise and a failure to expressly consider them in the judgment was an error, rendering the judgment unlawful.  

While European law does not abide by such a limitation as stare decisis it is surprising that a domestic court of such standing as the German Constitutional Court should choose to depart from a judgment of the CJEU on an issue it (CJEU) has specifically ruled on a referral.    

Fifthly, it is ironic that one of the main reasons for Brexit, namely the asserted overbearing power of the CJEU, is found by a confident domestic court to be limited, not so overbearing after all.  Member States and their institutions including their domestic courts are no longer obliged it seems as a result of this judgment to follow  judgments of the CJEU which they consider are plainly wrong, absent a federal system.  It would be good and some fun to be around to see Factortame relitigated.

John Walsh

10 June 2020