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5th May 2020
Banking & Finance Institutional law Justice & Litigation

Analysis: “Karlsruhe bites with a vengeance” by Marijn van der Sluis

The decision today by the German Bundesverfassungsgericht (BverfG) holding that the ECB and CJEU acted ultra vires is obviously one for the books. It touches upon a wide variety of topics, both specific to EMU and EU law more generally, such as the nature of proportionality review, the role of courts in reviewing expert bodies, blackout periods and the holding until maturity of government bonds. As the ECB has been a central actor in the euro-crisis, and now in countering the economic effects of the measures against the coronavirus, this is a decision that is going to shape the future of the euro, and thus the EU.

This review, based on a reading of the English translation of the decision, thus serves to point towards areas of particular interest. It is aimed at the relation between EU and national law, rather than the importance of the decision for German constitutional law.

A first thing to note is that the main issue at stake for the BverfG was the lack of a proper review of the ECB’s measures by the Court of Justice of the European Union (CJEU). Already in its reference, the BverfG asserted that a review of the measures by the ECB must take into account the economic effects of the measures. A proper review cannot be based solely on the stated intent of a measure and the tools used. The BverfG now finds after a lengthy assessment of the Weiss-decision that the CJEU indeed placed too much faith in the statements by the ECB about the purpose of the measure. Although the legitimacy of the BverfG to scrutinize the ECB is of course heavily debated, it must also be observed that the CJEU rejected the invitation of the BverfG to further develop a crucial area of law.

Second, the issues raised by the BverfG regarding the PSPP (Public Sector Purchase Programme) are relatively broad, in the sense that they capture the programme as a whole, rather than specific aspects. The BverfG maintains that the PSPP goes beyond the competence of the ECB, as it is better qualified as an economic policy, rather than a monetary policy. However, what the BverfG later demands is mostly related to proportionality, as it requires the ECB to make a new decision (within three months) that better explains the relation between economic and monetary effects. Although it will by no means be easy for the ECB to draft such a decision, the narrowing down of the problem to proportionality offers a (very narrow) path towards a solution, as regards PSPP.

Thirdly, although the BverfG finds that it is ultimately not ascertainable that PSPP manifestly violates the prohibition of monetary financing, its reasoning will spell trouble for the current efforts of the ECB in the corona crisis. In the announcement for the Pandemic Emergency Purchases Programme (PEPP), flexibility is key. On the aspects where flexibility is deemed most needed, such as the issue/issuer limits and the use of the capital key for the allocation of purchases, the BverfG names these as ‘crucial safeguards’ with regard to the prohibition of monetary financing. Expect the saga to continue.

Lastly, the devil will be in the detail, and this is a highly detailed judgement. The original German language version spans 110 pages. On many issues, the BverfG strikes a less than conciliatory tone. For example, on the issue of whether bonds may be held until maturity, the BverfG finds it problematic that it is a merely theoretical option that bonds can be sold. It suggests that a concrete ‘exit strategy’ would minimise the risk of violating Article 123 TFEU. Another issue is risk-sharing. Where the CJEU accepted the decentralised setup of PSPP with limited risk-sharing, the BverfG finds that that no rule may be created under EU law providing for risk sharing by national central banks for losses incurred in open market operations. Here, the question is how this might impact OMT. On many of these issues, there is enough ambiguity for the BverfG to accommodate other interpretations, but it is clear that the BverfG seeks to take a different approach to EU law. Although the Bundesverfassungsgericht was long seen as the dog that barks, but doesn’t bite, it has now bitten with a vengeance.

Dr. Marijn van der Sluis is Assistant Professor in Constitutional Law at Maastricht University. He writes on constitutional law, European integration and economic law. In 2017, he defended his thesis at the European University Institute: ‘In Law We Trust: The role of EU Constitutional Law in European Monetary Integration’. Recent publications include a case note of the Weiss-case (availablehere) for Legal Issues of Economic Integration and a working paper on the ongoing negotiations of the Eurozone budget (the Budgetary Instrument for Convergence and Competitiveness) for the Maastricht Working Paper Series, availablehere.

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