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26/05/2020

German Constitutional Court’s Judgement on PSPP: How stable are the EU’s foundations? Are we at the brink of a Constitutional crisis?

On 5 May 2020 Germany’s Federal Constitutional Court, based on Karlsruhe, came to a groundbreaking decision, ruling for the first time ever, among others, that both Germany’s Government and Legislator violated its Constitution by not properly supervising the European Central Bank on purchasing marketable state bonds during the implementation of the Public Sector Purchase Programme (PSPP). The aforesaid Court found that it was not bound by the European Court of Justice’s decision on 8 December 2018 (case C-493/17 Weiss and others). The German Court ruled that the ECJ acted ultra vires by not applying the principle of proportionality properly and by ratifying the ECB’s said practice, without taking into consideration the disproportionate negative effects of the Programme. Subsequently, it held that this practice “obviously” exceeds the ECB’s monetary policy mandates, arising out of the EU’s Treaties. In that backdrop, Karlsruhe’s Court ruled that the ECJ’s decision has not acquired a binding effect and as a consequence the ECB is obliged to duly clarify to Germany its adoption of the Programme. Otherwise, Bundesbank will be unable to participate in PSPP onwards.

By this decision, a national Court undermines the Court of Luxembourg’s supremacy, despite the fact that the latter has previously agreed with the ECB’s practice, and denies the ECJ’s power of ruling in a binding manner, bringing into light crucial matters regarding Euro’s financial stability, EU’s legal framework, as well as conflicts between EU law supremacy and Member State sovereignty.

Due to the unrest caused by said ruling, the European Commission’s President, Ursula von der Leyen, stated that the Commission is guided by three principles, namely that EU legislation prevails over any national law, the ECJ’s judgements are binding upon Member States, including their national courts and EU has exclusive jurisdiction over arranging and practicing its monetary policy.

In fact, taking into account the present situation that the COVID-19 outbreak has given rise to, this judgement has driven many to express concerns regarding the ECB’s power to buy bonds for quantitative easing purposes, as well as fears of a possible equivalent ruling, regarding the legality of the recently adopted Pandemic Emergency Purchase Programme (PEPP).

On the bright side, this ruling, problematic as it may become, had an unforeseen, positive side-effect.  That is, by virtue of the German Chancellor’s, Angela Merkel and the French President’s, Emmanouel Macron, decision, a European Recovery Fund will be created, consisting of deposits of 500 bn Euros. That will lead to a partial relief of the ECB’s burden of tackling the economic crisis that arose out of the coronavirus pandemic.

An article by: Gkely Rinakaki, Associate: [email protected]