July 05
Anjum Shabbir
Anjum Shabbir
15th May 2020
Banking & Finance Institutional law Justice & Litigation

Op-Ed: “The Judgment of the Federal Constitutional Court of Germany on the Public Sector Asset Purchase Programme of the European Central Bank: Setting an Impossible and Contradictory Test of Proportionality” by Phedon Nicolaides

  1. Introduction

On 5 May 2020, the German Federal Constitutional Court (FCC) declared the ruling of the Court of Justice of the European Union (CJEU) in case C-493/17, Heinrich Weiss and others to be ‘incomprehensible’ and ‘ultra vires’ (case 2 BvR 859/15) (fn 1). It also found that the European Central Bank (ECB) had not demonstrated that its 2015 Public Sector Asset Purchase Programme (PSPP) conformed with the principle of proportionality and requested the ECB to submit evidence that the PSPP did satisfy that principle (fn 2).

The FCC judgment has already sparked a large amount of commentary in the press and on the blogosphere. This commentary has focused on the validity of the FCC invoking principles of the German constitution and case law, the consequences of the declaration of the CJEU judgment as ultra vires on the legal system of the EU, the risk of similar judgments in other Member States, the likelihood of the European Commission initiating infringement proceedings against Germany, the possible impact on the current ECB programme entitled Pandemic Emergency  Purchase Programme whose eligibility criteria are less strict than those of the PEPP, and the broader implications for the future of European integration (fn 3).

The purpose of this article is to analyse the part of the FCC judgment concerning the substance of the PSPP; i.e. the finding of the FCC that the PSPP was not in conformity with the principle of proportionality.

Judgments are typically evaluated according to the text of the relevant law or the explicit or inferred objectives of that law (fn 4). But how can the judgment of a judgment be evaluated? After all, it is the first time in the history of the EU that a national court refuses to comply with a ruling of the CJEU. In this case, it seems that the most straightforward approach is simply to examine the notion of proportionality applied by the FCC, compare it to the EU’s corresponding notion and assess its internal logic.

This article will argue that the analysis of the FCC on the substance of the case is wrong because it invents a new and impossible test of proportionality which is self-contradictory.

The paper is structured as follows. Section 2 below, presents the relevant issues of the ruling of the CJEU in Weiss. Section 3 reviews the relevant parts of the FCC judgment. Section 4 assesses the application of the principle of proportionality by the FCC. Section 5 concludes with a summary of the main points.


  1. What the CJEU said in Weiss on proportionality

The CJEU, first acknowledged that ‘(71) it follows from Article 119(2) TFEU and Article 127(1) TFEU, read in conjunction with Article 5(4) TEU, that a bond-buying programme forming part of monetary policy may be validly adopted and implemented only in so far as the measures that it entails are proportionate to the objectives of that policy’.

Then it recalled that ‘(72) according to settled case-law of the Court, the principle of proportionality requires that acts of the EU institutions should be suitable for attaining the legitimate objectives pursued by the legislation at issue and should not go beyond what is necessary to achieve those objectives’ (fn 5).

Article 5(4) TEU stipulates that ‘under the principle of proportionality, the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties’.

Indeed, whether a measure is proportional is assessed in relation to its objectives. In practice, it means that if there is a less interventionist or distortionary means of achieving the same objective, it should be preferred (fn 6). It does not mean that the effects in one policy area have to be balanced against the effects in other policy areas, unless the Treaties explicitly require so (see, for example, Article 106(2) TFEU or Article 107(3) TFEU). We will see later on that the FCC demanded proof from the ECB that it had carried out a balancing of conflicting policy objectives – a different test.

In fact, nowhere in Weiss (or in its judgment on the ECB’s Outright Monetary Transactions programme in case C-62/14, Gauweiler) did the CJEU refer to balancing between different policies or between the effects of different policies.

The CJEU concluded that ‘(81) in view of the foreseeable effects of the PSPP and given that it does not appear that the ESCB’s objective could have been achieved by any other type of monetary policy measure entailing more limited action on the part of the ESCB, it must be held that, in its underlying principle, the PSPP does not manifestly go beyond what is necessary to achieve that objective.” “(92) It is not apparent that a government-bonds purchase programme of either more limited volume or shorter duration would have been able to bring about – as effectively and rapidly as the PSPP – changes in inflation comparable to those sought by the ESCB, for the purpose of achieving the primary objective of monetary policy laid down by the authors of the Treaties’.

The applicants also claimed that the PSPP was disproportional because the ECB ran the risk of making a loss and, consequently, it had undesirable side effects. The CJEU’s response was that ‘(94) open market operations authorised by the authors of the Treaties inevitably entail a risk of losses’.

Perhaps here the CJEU should have emphasised that the mission of central banks is not to make profit or avoid risk. It is to achieve their monetary policy objectives assigned to them by law. On the contrary, assuming risk or incurring losses may be necessary for the achievement of public policy objectives. In case T-79/13, Accorinti v ECB, paragraph 92, the General Court concluded that the ECB bought Greek bonds not to make profit as other private investors but to achieve ‘objectives in the public interest, as referred to in Article 127(1) and (2) TFEU’. The same conclusion was reached by the General Court in case T-749/15, Nausicaa Anadyomène and Banque d’escompte v ECB, paragraph 116.


  1. What the FCC said in Weiss on proportionality

First, it should be noted that in its judgment, the FCC also drew on German law ((125) In applying the principle of proportionality, German law distinguishes between the elements of suitability (Geeignetheit ), necessity (Erforderlichkeit ) and appropriateness (Angemessenheit ) …’) and on similar notions from other legal traditions. The CJEU also draws inspiration from national legal traditions when it tackles issues for which there is no case law. On the principle of proportionality, however, there is rich case law that was acknowledged by the FCC which identified its constituent components of suitability, appropriateness and necessity [para 126].

Then the FCC stated that ‘(127) the specific manner in which the CJEU applies the principle of proportionality in the case at hand renders that principle meaningless for the purposes of distinguishing, in relation to the PSPP, between monetary policy and economic policy’.

With this statement the FCC has subtly shifted the goalposts. It conceived proportionality as a means of identifying whether the ECB, through its monetary policy instruments, encroached on economic policy rather than as a test of determining whether the particular instrument of PSPP was the least interventionist for raising inflation to 2% and achieving price stability which is the objective of monetary policy.

‘(133) When applied in this manner, as undertaken by the CJEU, the principle of proportionality enshrined in Art. 5(1) second sentence and Art. 5(4) TEU cannot fulfil its corrective function for the purposes of safeguarding the competences of the Member States. The complete disregard of the PSPP’s economic policy effects means that already the determination of the ESCB’s objectives is not comprehensible from a methodological perspective (see below). As a result, the review of proportionality is rendered meaningless, given that suitability and necessity of the PSPP are not balanced against the economic policy effects – other than the risk of losses – arising from the programme to the detriment of Member States’ competences, and that these adverse effects are not weighed against the beneficial effects the programme aims to achieve.’ (emphasis added)

‘(138) As the economic policy effects of the PSPP are disregarded completely, the application of the principle of proportionality by the CJEU cannot fulfil its purpose, given that its key element – the balancing of conflicting interests – is missing. As a result, the review of proportionality is rendered meaningless.’ (emphasis added)

‘(139) Relying on the principle of proportionality to distinguish between monetary policy and economic policy (Art. 5(1) second sentence and Art. 5(4) TEU) implies that a programme’s effects can render it disproportionate. Thus, assessing the consequences of such a programme is a necessary step in the delimitation of competences. Nevertheless, the CJEU’s approach does not require weighing the PSPP’s actual contribution to achieving the objectives pursued, … Nor does the review of proportionality conducted by the CJEU give consideration to the economic and social policy effects of the PSPP. The fact that the ESCB has no mandate for economic or social policy decisions, even when using monetary policy instruments, does not rule out taking into account, in the proportionality assessment pursuant to Art. 5(1) second sentence and Art. 5(4) TEU, the effects that a programme for the purchase of government bonds has on, for example, public debt, personal savings, pension and retirement schemes, real estate prices and the keeping afloat of economically unviable companies, and – in an overall assessment and appraisal – weighing these effects against the monetary policy objective that the programme aims to achieve and is capable of achieving.’


  1. An assessment

It is rather obvious that the FCC applied a much more expansive test of proportionality than that of the CJEU and that the FCC understood proportionality to mean a balancing of monetary policy and economic policy. This is a new and impossible test that, in addition, contradicts the very logic of the FCC.

It is a new test because the notion of proportionality does not require balancing between ‘conflicting’ policy objectives but an assessment as to whether a certain policy objective cannot be achieved with less interventionist or distortionary means so that EU action ‘shall not exceed what is necessary to achieve’ the particular policy objective. Balancing is carried out only when the Treaty requires so, as for example, in Article 106(2) or Article 107(3) TFEU. No such balancing obligation is imposed on the ECB by the Article 127 TFEU.

The new test is in fact impossible to comply with. The Treaty does not contain any definition of monetary or economic policy. Economic policy can comprise many different actions and instruments. Regardless of how it might have been defined by the ECB, it would have easily been a matter of dispute. More importantly, the ECB would have to identify a common denominator in order to balance the effects of monetary and economic policy. No such denominator exists in the economic literature. But even supposing that such a common measure of economic and monetary policy could have been identified, at which level would it have to be set by the ECB? Either the FCC would have to concede that the ECB enjoyed discretion or whatever level was determined by the ECB would be declared arbitrary.

In its critique of the CJEU and the ECB, the FCC specified in detail many issues that could have been considered by the ECB, and the CJEU, but did not articulate what would constitute sufficient assessment of proportionality. It demanded a ‘balancing of conflicting interests’, as the ‘key element’ of proportionality, but did not indicate how that balancing could be established or proven.

But the fundamental problem with the FCC’s conception of proportionality is that it contradicts its own view that monetary policy and economic policy must be conducted separately. If the ECB had to conform with the proportionality test as formulated by the FCC, it would infringe Article 127(1) TFEU. Article 127(1) stipulates that ‘the primary objective of the European System of Central Banks (hereinafter referred to as ‘the ESCB’) shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union.’ (emphasis added).

‘Without prejudice to the objective of price stability’ means that the ECB may not support economic policies if that would compromise its monetary policy. Balancing conflicting interests, as the FCC asked the ECB to do, means that the ECB should take into account the impact of monetary policy on economic policy. This unavoidably results in trade-offs and compromises. But the Treaty forbids the ECB to consider any economic effects if that would weaken its ability to maintain price stability. Perhaps the FCC could have said that the ECB should prefer the monetary policy measures that achieve price stability with the smallest impact on economic policy, but it didn’t. It complained that the ‘suitability and necessity of the PSPP are not balanced against the economic policy effects’ and that the ‘adverse effects [on economic policy] are not weighed against the beneficial effects the programme aims to achieve’ (paragraph 133).


  1. Conclusions

The FCC judgment in Weiss has already attracted much criticism for undermining the EU legal order and handicapping the ECB’s response to economic emergencies.

Admittedly, the judgment of the CJEU in Weiss is not a paragon of comprehensive and meticulous legal analysis. Some of the criticisms of the FCC are well founded and justified. However, the findings of the FCC with respect to proportionality are defective for at least three reasons.

First, it invented a new test of proportionality. Instead of understanding proportionality as the least interventionist means of achieving a certain policy objective, it defined it as the balancing between conflicting policy objectives which in this case were monetary and economic policies.

Second, the new test is impossible to apply in practice because it requires the ECB to take into account an unspecified number and type of effects outside the boundaries of monetary policy. Economic policy is a vague term that covers many different aspects of the real economy. By demanding that the ECB accounts for all possible effects on what may be classified as economic policy, not only does the FCC set an unattainable target for the ECB, it also exposes it to unending criticism of not having considered sufficiently this or that effect or of not having defined the right weight for the different effects.

Third, by having to take into account the effects on economic policy and balance them against the monetary policy, the ECB would infringe Article 127(1) TFEU that sets as its ‘primary objective’ the maintenance of price stability. The same article requires the ECB to support economic policy ‘without prejudice’ to price stability and therefore monetary policy. Balancing of ‘conflicting interests’, as demanded by the FCC, would be to the prejudice of price stability.

Phedon Nicolaides is Professor at the University of Maastricht; Visiting Professor at College of Europe, Bruges; Luiss University, Rome.


(fn 1) ECLI:DE:BVerfG:2020:rs20200505.2bvr085915.

(fn 2) The full text of the FCC judgment can be accessed at:


(fn 3) See, for example, D. Kyriazis, The PSPP judgment of the German Constitutional Court: An Abrupt Pause to an Intricate Judicial Tango, 6 May 2020, European Law Blog; M. Maduro, Some Preliminary Remarks on the PSPP Decision of the German Constitutional Court, 6 May 2020, Verfassungsblog; T. Marzal, Is the BVerfG PSPP decision “simply not comprehensible”? 9 May 2020, Verfassungsblog; K. Pistor, Germany’s Constitutional Court Goes Rogue, 8 May 2020, Project Syndicate; P. Meier-Beck, Ultra Vires?D-Kart Antitrust Blog, 11 May 2020.

(fn 4) See P. Craig, Pringle: Legal Reasoning, Text, Purpose and Teleology, Maastricht Journal of European and Comparative Law, 2013, vol.20(1), p.3. See also the critique of Craig’s approach by G. Beck, The Legal Reasoning of the Court of Justice and the Euro Crisis, Maastricht Journal of European and Comparative Law, 2013, vol.20(4), p.635, and Craig’s response Pringle and the Nature of Legal Reasoning, Maastricht Journal of European and Comparative Law, 2014, vol.21(1), p.205.

(fn 5) The same wording was used by the CJEU in case C-62/14,  Gauweiler, paragraph 67, although the word ‘appropriate’ was replaced in Weiss by ‘suitable’: EU acts must ‘be appropriate for attaining the legitimate objectives pursued by the legislation at issue and must not go beyond what is necessary to achieve them’. The source cited in Gauweiler was case C-59/11, Association Kokopelli, paragraph 38.

(fn 6) The proportionality test. Acts of EU institutions must comply with the principle of proportionality in the sense that they may ‘not exceed the limits of what is appropriate and necessary in order to attain the objectives legitimately pursued by the legislation in question; when there is a choice between several appropriate measures recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued’, Judgment of the CJEU in case C-343/09, Afton Chemical, para 45.


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