The German Constitutional Court Decision on PSPP

Media commentators’ concern over the German Constitutional Court (BVG) ruling on the European Central Bank’s (ECB) Public Sector Purchase Programme (PSPP) appears to have been replaced by concerns over the consideration by the Bank of England over the potential introduction of negative interest rates, another of the ECB’s monetary policy instruments. However, the implications of the BVG ruling are potentially highly significant. Now that the partial hysteria about the decision (e.g. reflected in Martin Woolf’s FT article) appears to have subsided, it seems useful to review the importance of the decision.

For the British – unused to public discussion of constitutional issues, until the ruling last year on the unlawful prorogation of Parliament – it may come as a shock that the constitutional legality of the ECB programme does matter to Germans, even if, as in the UK, we only have an uncodified set of legal acts and historic conventions.

The BVG is not challenging the competence of the CJEU to rule on the ECB legal action, only claiming that it failed to take the constitutional principle of ‘proportionality’ sufficiently into account when it did so, and failed to provide sufficient evidence in justification of its ruling. The CJEU ruling simply stated that:

“It does not appear that the ESCB’s specification of the objective of maintaining price stability as the maintenance of inflation rates at levels below, but close to, 2% over the medium term, is vitiated by a manifest error of assessment and goes beyond the framework established by the EU Treaties.”

And again “the PSPP programme, in its underlying principle, does not manifestly go beyond what is necessary to raise inflation rates”

The use of the word manifest here is another way of saying that ‘this is so obvious that we do not need to spell out why we consider it so’, i.e. something a student might state when they do not know the answer to a question. The BVG objected, correctly in my view, to this sweeping assessment without any published evidence to back it up.

The constitutional test applied by BVG, for whether a secondary legal action is ‘proportionate’ is whether it: a) has a legitimate purpose b) has to be necessary c) has to be suitable, d) has to achieve its purpose by striking a proper balance between the competing legal objectives. Effectively any adjudication has to involve a socio-economic cost-benefit impact analysis in the same way which the Commission does prior to submission of legislation. It is not clear whether the ESCB and/or the CJEU did so, before the ECB action, or the CJEU ruling, in relation to PSPP. BVG appears to think not and there is no published written evidence that it was done. Without such detail, the BVG suspects that ‘mission creep’ has led the ECB to take significant measures which may challenge national competences and prejudice individual democratic rights. In effect, the BVG ruling requests reassurance from the CJEU, though its ‘request’ was couched in somewhat aggressive terms!

It should be noted that the BVG justification for raising the question of ultra vires is only possible ‘if the act of EU law in question is first ‘manifestly in violation of competences’ and secondly ‘structurally significant’, i.e. ‘highly significant in the structure of competences between the Member States and the Union with regard to the principle of conferral and to the binding nature of the statute under the rule of law’. The term ‘conferral’ is important because, via the Treaties, powers are conferred on the EU not transferred. (N.B. It should also be noted that, in the current case challenge, the BVG accepted the other CJEU ruling that the ESCB purchase of bonds on the secondary market did not constitute monetary financing).

More generally, the BVG maintains that the EU is a confederation and that there is an inherent danger in pursuing too aggressively further integration without Treaty change. It should be noted that Article 4(2) TEU obliges the European Union to respect the national identities of the Member States inherent in their fundamental political and constitutional structures. Given the confederal nature of the EU, it is difficult to see how this can be done democratically or constitutionally, without the intervention of ultimately national courts interpreting their own national constitutions.

National constitutional courts are, in the current developing state of the EU, effectively the only bulwark against unwitting abuse of the democratic potential of the EU. This situation will obtain until the European Parliament and the political parties therein begin genuinely to address, effectively, the concerns of EU citizens as members of an EU polity, and there is the development of an EU demos. In reference to the PSPP case it would have been useful for the European Parliament to have requested the above socio-economic cost-benefit analysis. From now on these issues should not simply be a matter for jurists to address, whether at national or at EU level.

The BVG is not trying to bring down the whole edifice of the EU. It is a well-reasoned judgment in the main, if overlong and not especially economically literate. The idiosyncratic nature of some of the specific characteristics of the German constitution are evident. One of which amplifies the point that BVG is not seeking to ‘bring the house down’: namely the reference to the use of Article 23 of the German Basic Law to open the German state to European integration and European law. There are, however, questions as to how BVG interprets this openness, including reserving the right to not only review EU law against the national constitution, but also to review the consistency of secondary law with primary EU law. This latter claim is at least challengeable.

On the specific PSPP issue it may be possible to reach a compromise, by carefully defining the proportionality of the PSPP. However, the ECB will have to take care in not pushing monetary policy too far into becoming an overtly fiscal policy. This may be problematic.

The judgement has made it clear, as GPI has argued previously, that further integration can only take place via treaty change. Full integration – a Federal EU is some years away. For Germany, this would entail the convening of a Constitutional Assembly to amend the Basic Law, probably followed by a referendum. In this regard Germany would be in line with all other EU Member States. The position taken by the BVG is not so exceptional after all, just clearer about how to achieve change, both  in constitutional terms and democratically.

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