Germany's Federal Constitutional Court Takes Aim At EU's Legal Order

• Published date: 03 June 2020
• Author: Mr Richard Power and Nefeli Lamprou
• Subject Matter: Government, Public Sector, Litigation, Mediation & Arbitration, Constitutional & Administrative Law, Arbitration & Dispute Resolution, Fiscal & Monetary Policy
• Law Firm: Clyde & Co

Germany's highest court, the Federal Constitutional Court (FCC) has, for a long-time now, shown scepticism towards the concept of absolute EU law supremacy and has reserved its right to review EU laws in certain circumstances. It has, however, been careful not to upset the EU legal order and had not acted on its threat - until now.

On 5 May 2020, the FCC handed down what has been reported as a "bombshell ruling". In its judgment, the FCC challenged the legality of the European Central Bank's (ECB) decisions on its Public Sector Purchase Programme (PSPP) - widely known as quantitative easing (QE) measures - and the soundness of the European Court of Justice's (ECJ) subsequent ruling in Case C-493/17 Weiss. The PSPP was a bond-purchase mechanism intended to boost the Eurozone economy by decreasing borrowing costs for Member States. It ultimately allowed the ECB to source approximately ?2.2tn of public sector debt.

In an unprecedented move, the FCC has declared the ECJ's judgment - which rubberstamped the PSPP - as being ultra vires (i.e. that the ECJ had exceeded its powers) in Germany. It ruled that the country's government and legislature violated the constitution by failing to properly monitor the ECB's PSPP and gave a three-month ultimatum for the government to ensure that the ECB performs the requisite proportionality check de novo, failing which the Bundesbank and other German entities would be banned from participating in the PSPP.

In response, the ECJ tried putting the FCC in the naughty corner by issuing a brief press statement re-emphasising the fundamental tenet that "national courts are required to ensure that EU law takes full effect". The European Commission's President issued a similar statement adding that "possible next steps [...] may include the option of infringement proceedings" against Germany. The ECB has not yet formally decided whether - and how - to respond. However, senior European leaders, such as Italy's Prime Minister Giuseppe Conte, have already condemned the FCC's judgment, a judgment that, for the reasons discussed below, could have far-reaching implications for the EU's legal order, especially if national courts of other Member States were to follow suit.

The FCC's key findings

The FCC's decision is the latest chapter in a legal battle tracing back to 2015. At the time a claim was brought in the German courts by a group of 1,750 citizens questioning the legality of the ECB's PSPP. The matter was subsequently put before the ECJ, which in turn ruled in favour of the ECB and upheld the soundness of the PSPP. The case was then remitted back to the FCC.

The starting point for the FCC's latest ruling was that the ECB is subject to the "proportionality" principle, a principle enshrined in Article 5 of the Treaty on European Union (TEU) and binding upon all EU institutions. The TEU also mandates that the ECB may only exercise its designated powers to the extent necessary to fulfil its prescribed goals. In the eyes of the ECJ, the PSPP was necessary to meet the ECB's inflation objective and so it was proportionate, especially given the safeguards against exceeding the limitation on credit facilities.

However, the FCC did not agree. After considering the ECJ's reasoning in depth - a step which many European lawyers would see as beyond the pale in itself - the FCC formulated its own views on what the ECB's mandate entails and how to exercise it. It found that it is "incumbent...