Germany’s Failing Court? – A Defence of the Bundesverfassungsgericht

Even now, it is not clear whether the saga that resulted in the historic PSPP decision in which the Bundesverfassungsgericht (the German Constitutional Court) overruled the CJEU judgment in Weiss, is truly over. As Judge Huber of the Bundesverfassungsgericht noted only last month, the legality of the PSPP, even after assessment by the German Bundestag, has yet to be confirmed, with a further challenge being brought against the PEPP, the ECB’s coronavirus emergency programme. Thus, the decision and the constitutional principles used in the German court’s ultra vires review remain highly relevant as they will likely be applied again in the near future.

In his article, ‘Germany’s Failing Court’, Eleftheriadis offers the arguably harshest criticism of the constitutional principles the Bundesverfassungsgericht relied on in the PSPP judgment. His conclusions are quite damning for the German court, arguing that it developed ‘surprising and ultimately indefensible doctrines’ based on ‘Schmittian principles’, a characterisation that seems especially strong given Schmitt’s active involvement and support of Nazism. In this post, I examine his analysis of the concerned German constitutional principles and argue that Eleftheriadis exaggerates the scope and application of the specific German norms and principles. Though I agree with him that the proportionality analysis of the German court was quite strained, I contend that the constitutional principles are justified and warrant further scrutiny of the de-politicisation of monetary policy and the limits of the ECB’s mandate. 

The first principle Eleftheriadis criticises is the ‘constitutional identity’ doctrine outlined in the PSPP judgment: ‘The democratic legitimation by the people of public authority exercised in Germany belongs to the essential contents of the principle of the sovereignty of the people and thus forms part of the Basic Law’s constitutional identity protected in Art. 79(3) GG; it is therefore beyond the reach of European integration’ (para 101). For him, this paragraph equates a new doctrine protecting the self-expression of ‘the unidentified object of a supposed German “people” supposedly in control of “popular sovereignty”’. Crucially, he argues this turns the European integration clause of the Grundgesetz (German Basic Law) (Article 23 GG) into ‘an insignificant footnote’, and that even the smallest transgression of EU competences will lead to the conclusions the Bundesverfassungsgericht reached in PSPP.

It is, however, not clear on who, if not the German people, democratic legitimacy in Germany might be based on. The ‘supposed German people’ have been the basis of German state sovereignty since the inception of the Grundgesetz in 1949. ‘All state authority is derived from the people’, as stated in Article 20(2) GG. This principle of democratic legitimation is not novel or outside the European mainstream. The EU treaties themselves provide that Member States’ executive branches are to be ‘democratically accountable either to their national Parliaments, or to their citizens’ (Article 10 (2) TEU). To take this principle as part of a nation’s constitutional identity, especially in light of Art. 20(2) GG, is thus not a new or radical doctrine peculiar to the German legal system. Indeed, the concept of constitutional identity review is not an exclusively German invention either, but can be found in other Member States’ jurisprudence such as Italy or Spain, and was first developed by the French Conseil constitutionnel in 2006.

Specifically, it is untrue that the constitutional identity review doctrine after the PSPP judgment ignores Article 23 GG, the clause in the Basic Law which requires Germany to participate in and further the European integration. For one, the PSPP judgment does not suggest the German court will conduct an ultra vires review in every case where there is but a suspicion of the EU exceeding its competences. This will only be done where an EU measure ‘manifestly exceeds EU competences, resulting in a structurally significant shift in the division of competences (…)’ which would normally require amendment of the EU treaties or an evolutionary clause (para 110). In other words, an ultra vires review will be conducted where the EU manifestly exceeds its competences without authorisation by the German parliament. Crucially, even Article 23 GG does not give rise to an unconditional obligation to blindly follow the CJEU and support any and all developments of the European Union. Rather, it is specifically tied to a vision of the EU that guarantees broadly the same rights afforded under the Art 23(1) GG, which requires parliamentary approval of changes to EU competences (Article 79 GG), an issue on which the decision in PSPP crucially turned on. Thus, the PSPP judgment does not link ‘the German Constitution to an ideal of the collective self-expression of the German people that see any external legal obligation as a threat’, as argued by Eleftheriadis. The PSPP decision does not advance a Brexit-type notion of sovereignty which is hostile to any transfer of sovereignty, but outlines conditions under which a transfer of sovereign powers is permissible.

Next to the conditions in Article 23 GG, there is also the principle of budgetary autonomy (Art. 109ff GG), which broadly holds that the German parliament, being democratically accountable, is to be in charge of ‘all essential decisions on revenue and expenditure’. Eleftheriadis criticises this too as a misguided ‘invention’ of the PSPP ruling. However, the principle of budgetary autonomy is not novel but a longstanding German constitutional principle that goes as far back as the 18th century, which is the reason why even today the control of budgetary questions is termed the Königsrecht (‘right of the sovereign’) of parliament. The logic behind this notion is fairly simple: without control over its fiscal means, governments would not be able to exercise political functions in pursuit of the interests of their electorate, making the entire point of elections rather superfluous. In short, there is no proper policy-making power without control over the fiscal means to do so.

This is why budgetary autonomy is inextricably tied to the right to vote: should external bodies be able to impose obligations on the German state or its citizens without consent, the point of voting to influence political action would be unduly restricted as the elected body would not actually be in charge. Eleftheriadis contends that granting all German voters an entitlement to influence is ‘obviously false’ as ‘only the majority rules’. He uses the example of AfD voters who, as an opposition party, supposedly have zero influence over government. This is doubtful given that the right to influence the composition of the opposition still impacts government politics via accountability and scrutiny mechanisms (e.g. Art 44 GG). German MPs would likely also refute the claim that the AfD’s presence as the largest opposition party has not influenced German politics. Arguably, Eleftheriadis interprets the ‘right to vote’ as a ‘right to govern’, whereas the link to budgetary autonomy goes back to the point made above: if democratically elected bodies do not actually have any substantive fiscal control within a state, it would be absurd to ask individuals to participate in elections where their vote does not actually mean anything or is severely restricted by the decisions of another unaccountable body. To say that having options to choose from suffices, without a parliament or government having any real political power, would indeed set the bar for what counts as ‘democratic’ at a worryingly low point.

To stretch this right and the budgetary autonomy principle so far as to prohibit any kind of budgetary risk-sharing would indeed contradict the EU’s sharing of economic burdens and decision-making. However, Germany can share such powers and undertake financial liabilities as it does in the EU budget plan and most recently in the Recovery fund agreement in July 2020, which shares risks under a scheme totalling €1.82 trillion. Crucially, these obligations are both authorised by the German government (based on a majority in parliament) and are not of a carte blanche nature, meeting the constitutional requirements in the Grundgesetz. Consequently, it would be wrong to conclude that the Bundesverfassungsgericht either prohibits the undertaking of external legal obligations, or even sees such obligations as a threat, be it by virtue of its constitutional identity review, the principle of budgetary autonomy, or the individual right to vote.

Eleftheriadis seems to be aware of this when he notes that constitutional limits on such power transfers are principally sensible, as doing otherwise might turn national political structures into a joke. However, he contends this only ‘applies to important constitutional transformations, not to any error supposedly committed by an international body to which we have delegated powers. Without tolerating such errors, no delegation is possible anywhere’. This distinction, however, ignores the possibility of international bodies leading to major unauthorised constitutional transformations, and also dismisses the possibility of permitting minor transgressions – as the Bundesverfassungsgericht has done by setting the bar for review of EU acts quite high.

In the PSPP case itself, the claimants argued that the mass-scale lending of monies under the ECB’s monetary programme did ‘essentially amount to an assumption of liability for decisions taken by third parties with potentially unforeseeable consequences, which is impermissible under the Basic Law’ (para 227). It is clear why the German court chose to review the case: if the PSPP did impose severe unauthorised financial obligations unto the German state and/or German citizens, it would indeed bypass the democratic accountability mechanisms guaranteed in the Grundgesetz. Overbearing monetary policy would turn national fiscal policy into a joke, making democratic elections lose their importance. Importantly, this is not an approach that will find ‘even the simplest mistake by the EU’ to violate the Grundgesetz.

As Högenauer and Howarth point out,  the ECB has gradually expanded its range of policies and pushed its role well beyond the role originally envisaged by the EU treaty provisions. Most indicative of this fact is that Mario Draghi himself, the former ECB President, initially insisted that quantitative easing programmes purchasing sovereign debt (thus impacting the fiscal liabilities of Member States) were not permitted by the EU treaties and did not fall under the ECB’s mandate. Indeed, as Yowell outlines, programmes such as the PSPP appear to exceed the ECB’s mandate, given Council Regulation 3603/93 noted that ‘the prohibition on monetary financing of public debt may reach transactions conducted with third parties, such as ECB loans to banks or purchases of government bonds in open markets’. This is precisely what the PSPP does. That the EU has moved far beyond this original mandate becomes especially clear when realising that the ‘Eurosystem is now the largest holder of Member States’ government bonds’, which may result in a conflict of interests between the ECB’s pursuit of monetary aims, as it is now inextricably tied to Member States’ fiscal policy as a main creditor.

This is exactly why Eleftheriadis’ characterisation of ‘budgetary autonomy’ as a contradiction to the idea of the European Monetary Union needs further examination: the original mandate of the ECB was in large parts based on the strict and hawkish Bundesbank regulations, and did not give rise to constitutional concerns as in the PSPP case. The unconventional policies necessitated by the financial and Euro crisis, however, heavily politicised the ECB’s external perception and led to internal divisions, raising the question whether the depoliticization of monetary policy is still ‘democratically viable’. For instance, Avbelj suggests to shift focus to more extensive economic programmes on the basis of limited liabilities, authorised by national governments rather than the ECB.  This would reduce the need of the ECB to venture ‘with its monetary mechanisms into fiscal and hence democratic domains, for which it is neither competent nor accountable’. Such an approach would satisfy what Yowell calls law’s basic purpose of promoting ‘co-ordinated action around agreed, specified norms’ rather than replacing the rule of law by a ‘rule of experts’ and undercutting ‘attempts to address the Eurozone crisis through negotiation’.

In conclusion, whilst not denying that there may be ample ground to criticise the PSPP judgment, I contend that the underlying German constitutional principles are the wrong object to target. Instead, further analysis is required on how to address the ECB’s democratic legitimacy within the existing European legal framework, for which work by de Boer and Van’T Klooster provides a valuable starting point. Such focus would be more conducive to avoiding norm clashes as witnessed in PSPP and securing the EU’s long-term future.