Laura Tribess , 22 juin 2020

In its judgment delivered on 5 May 2020, the German Federal Constitutional Court (BVerfG) declared for the first time acts of EU institutions to be ultra vires and thus not binding within the national legal order.

The case concerns the constitutional complaints of several individuals directed against the 2015 Public Sector Purchase Program (PSPP) and related subsequent decisions of the European Central Bank (ECB). Under the PSPP, the central banks in the euro zone purchase government bonds or other debt securities issued mainly by euro Member States, subject to the framework set out in the ECB decisions. Entertaining doubts as to the conformity of the PSPP with EU law, the BVerfG had decided to stay the proceedings and had turned to the Court of Justice of the European Union for a preliminary ruling on the issue. The Court of Justice answered the questions submitted in the Weiss Grand Chamber judgment on 11 December 2018. It held that the PSPP neither exceeded the ECB’s mandate nor violated the prohibition of monetary financing in Article 123 TFEU. In its recent ruling in the main proceedings, the BVerfG follows this conclusion on Article 123 TFEU. However, it openly rejects the Court’s ruling on the ECB’s mandate and, at the same time, the binding nature of the Court’s judgment in this regard.

First, how come the BVerfG reviews a measure taken by an EU institution in light of EU law at all? In the context of constitutional complaints, the BVerfG is called upon to review a measure taken by a German state organ in light of the individual rights granted by the German Constitution.

The BVerfG’s reasoning is based on Article 38(1) Basic Law, which guarantees the individual right to vote in elections to the German parliament. It includes a right to be subjected only to such acts of public authority legitimated through a vote. Article 23(1) Basic Law states that this right to democratic legitimation of public authority applies, in principle, also to the process of European integration. German State organs may not transfer sovereign powers to the EU in such a way that the EU could create new competences for itself, beyond the competences conferred upon it by the Treaties that were approved by law in Germany. German State organs must therefore take steps to ensure respect for the principal of conferral and must refrain from participating in the adoption and implementation of any measure exceeding EU competences. The BVerfG itself retains a right to review ultra vires challenges regarding EU measures in this framework.

Second, concerning the substantive question on the legality of the ECB’s measures, the BVerfG concludes that the PSPP exceeds the ECB’s competence. Under Articles 119, 127 et seq. TFEU, the ECB’s mandate is one of monetary policy. Economic policy, on the other hand, remains a Member State competence (cf. Articles 2(3) and 5(1) TFEU). Applying the principle of proportionality set out in Article 5(1) and (4) TEU to the division of competences between the EU and its Member States, the BVerfG holds that the ECB failed to determine the proportionality of the PSPP’s monetary policy objectives with regard to their economic policy effects. It concludes that the ECB thereby exceeded its mandate. By failing to challenge that the ECB did not justify whether the PSPP satisfies the principle of proportionality and remains within its mandate, the BVerfG considers that the German government and parliament violated the applicants’ right under Article 38(1) Basic Law.

However, the BVerfG gives the ECB a three-month period to demonstrate in a comprehensible and substantiated manner that the monetary policy objectives pursued by the PSPP are not disproportionate to its economic and fiscal policy effects. If the ECB provides this justification, the Bundesbank may continue to participate in the implementation and execution of the PSPP.

Third, by openly disregarding the Court of Justice’s judgment, the BVerfG’s ruling says a lot on its relationship to the Court. The BVerfG recognises that the interpretation and application of EU law is primarily incumbent on the Court in accordance with Article 19(1) TEU. However, it highlights that the Member States remain the « masters of the Treaties » and underlines its own right to review ultra vires challenges regarding EU measures. The tensions inherent to this approach should be resolved in a cooperative manner and through mutual respect and understanding. Any ultra vires review must thus be exercised with restraint. The BVerfG recalls that it will only find a violation of the principle of conferral where an act manifestly exceeds EU competences, resulting in a structurally significant shift in the division of competences to the detriment of the Member States.

Based on this standard, the BVerfG concludes that the Court of Justice’s judgment regarding the PSPP is ultra vires and is thus not binding within the German legal order. It recalls that the methodological standards applied by the Court are based on the (constitutional) legal traditions common to the Member States. The Court’s competence under Article 19(1) TEU is exceeded where it manifestly disregards these methods. The BVerfG states that by applying a limited proportionality test to the PSPP, considering only the objective and the means employed but not its effects, the Court allows the ECB to decide autonomously on the scope of its competences to the detriment of the Member States (para. 136). This also contradicts the methodological approach taken by the Court in other areas of EU law (para. 146). The BVerfG concludes that the Court’s application of the principle of proportionality to the PSPP is thus « not comprehensible from a methodological perspective. » (para. 153) Because the principle of proportionality cannot therefore fulfil its corrective function for the purposes of safeguarding the Member States competences, the Court’s judgment is « simply untenable » (para. 117) and « objectively arbitrary. » (para. 118)

This ruling is the newest episode in a long-running debate between the BVerfG and the Court of Justice on the authority to review the respect for the Member States’ competence in EU law. In its Maastricht (1993), Honeywell (2010) and OMT (2016) decisions, the BVerfG had consistently made clear that it claims an authority to declare EU acts ultra vires. A similar debate about the protection of fundamental rights came to a conciliatory conclusion in the BVerfG’s Solange II decision of 1986, after the Court of Justice began offering a higher standard of protection for fundamental rights itself. The issue on competence, however, remained open and now resulted in this first ultra vires decision from Germany. While there is a case to be made for constitutional pluralism as a matter of EU law, this development highlights that its operationalisation remains a largely unresolved challenge.

It appears unfortunate to undermine the Court of Justice’s authority at a time in which it plays an important part in defending the rule of law against political interference in several Member States. And it seems particularly unfortunate to take this risk when the ultra vires ruling is not evident, as demonstrated by varied points of criticism regarding the BVerfG’s decision (see for example here and here).

In a short press release, the Court of Justice recalled that « the Court […] alone […] has jurisdiction to rule that an act of an EU institution is contrary to EU law. » European Commission President von der Leyen also announced that her institution currently analyses the ruling and is considering further steps, including infringement proceedings under Article 258 TFEU. Her statement is unambiguous when she underlines that « [t]he final word on EU law is always spoken in Luxembourg. Nowhere else. » It thus seems safe to say that the final word in this debate on the European legal order is yet to be spoken.

Laura TRIBESS, The PSPP Decision: a first ultra vires ruling from the German Federal Constitutional Court, actualité du CEJE nº 26/2020, disponible sur www.ceje.ch.