The imperial court of the ECJ

The dismantlement of the EU’s separation of powers has wider implications, especially for the UK

Artillery Row

Imagine the following scenario: The supreme court of a country declares the actions of a democratically unaccountable central bank unconstitutional and in breach of international or EU law and criticises both the government and parliament of the country for failing to ensure that the rule of law is observed. In response, the government and parliament let it be known that the central bank did just what it should have done according to top secret documents which the central bank allegedly made available to the government and some parliamentarians – but neither the court nor the public. To date no one has published these documents and it is unclear what they may say or whether they exist at all.

Where would such a scenario be likely to occur and what would the reaction be? Contenders which may come to mind include China, Russia, India, or many of the so-called banana republics or autocratic regimes of Latin America, Africa or Central Asia. Invariably any government of such a “rogue” regime would have incurred the disapprobation of the international community, vociferous Western media criticism, NGOs teaming up with right-leaning governments to call for international sanctions and, circumstances permitting, for regime change. As it happens, the country in question is contemporary Germany, and the political and media reaction within or outside the country has been nil.

Let us recapitulate. On 5 May the German federal constitutional court, the Bundesverfassungsgericht (BVerfG or FCC), ruled that the European Central Bank’s (ECB) Public Sector Purchase Programme – generally known as its QE programme – was in breach of EU treaties and German constitutional law. The FCC afforded the ECB a grace period of 3 months to demonstrate the proportionality of its monetary policy and that the measures were not primarily aimed at saving the perpetually embattled Euro currency or bailing out practically insolvent governments or other ailing financial institutions. Otherwise, the Bundesbank would automatically be prohibited from further participating in the ECB’s bond purchases.

In reaching that conclusion, the FCC disregarded an earlier preliminary ruling of the controversial European Court of Justice (ECJ) which, according to the FCC, clearly went beyond the acceptable standards of legal interpretation and was therefore “objectively arbitrary”. Under Germany’s soi disant constitution – the so-called Basic Law – the FCC enjoys a jurisdiction of the last resort to review all EU acts and their German-implemented legislation on two grounds.

First of all, if such acts are ultra vires – i.e. they manifestly exceed the powers granted to the EU institutions in the EU Treaties – and, secondly, if an EU act violates the core identity of the German Basic Law. FCC judicial review is designed to provide a safeguard against any EU competence grab through judicial law-making; a phenomenon which exists in many advanced countries and is known in the EU context as “competence creep” as a result of the biased, pro-integration decision-making of the ECJ.

The analysis of the FCC judges is clear and, if anything, errs on the side of caution in that the German judges have always, as indeed in this case, resolved any legal uncertainty with reference to a margin of appreciation granted to the EU institutions. The judges ruled that unless the ECB could provide the required justification, the Bundesbank should have ceased its participation in the ECB’s bond buys on 5 August 2020. However, the deadline came and went, the ECB did not exculpate itself, and yet the Bundesbank is continuing to buy bonds on a greater scale than before. The FCC has made a ruling, and no one in Europe’s self-declared “model democracy”, the EU, or the press seems to have taken any notice.

At the heart of the FCC’s judgment is the finding that the ECB is exceeding its monetary policy objective of securing price stability, and instead is bankrolling governments in breach of the EU treaties, without taking into account the economic and social impact of its policy.

The EU treaties reserve the conduct of general economic policy including all fiscal, financial sector support and growth policies to the member states. The ECB is responsible for monetary policy; the overriding objective of which is defined in terms of securing price stability. In deciding whether the ECB has breach its treaty-based monetary policy mandate, the judges had to decide whether it confined itself to securing price stability or instead pursued other objectives, such as providing low cost finance to ailing banks or governments.

Where democratic control is lacking, judicial oversight is indeed all the more important

The FCC accepted the ECB’s (debatable) point that the bank had some leeway in re-interpreting its inflation target and that the lawfulness of its measures falls to be decided by reference to a proportionality test which balances the fiscal, economic and social impact of the QE programme against its suitability and effectiveness in achieving its stated monetary policy objectives. However, the judges concluded that the ECB had altogether failed to provide the required proportionality analysis when assessing the likely impact of its policies on both monetary and broader economic outcomes. In this context the FCC also subjected the ECJ and the German government and parliament to harsh criticism for failing to hold the ECB to account in this regard.

The EU court and the German authorities effectively afforded the ECB an unlimited margin of policy discretion, which freed the ECB from any effective judicial oversight. The ECB may be independent from democratic control, as the FCC made clear, but it is not exempt from judicial oversight. Where democratic control is lacking, judicial oversight is indeed all the more important. Its failure to take such oversight seriously, according to the FCC, meant that the ECJ itself had acted ultra vires, i.e. in breach of its duties under the EU treaties, while the German government and Bundestag had failed to discharge their constitutional duty to ensure the EU institutions respected the treaties on which the EU’s powers were based.

A few days after the verdict was delivered in May, the ECB made it clear that it would not comply with the FCC’s request. Accordingly, by early August the ECB had not provided the required assessment. Instead, ECB President Lagarde reiterated that her policy was proportionate, without explaining why ECB bond purchases had no significant economic policy implications. Nor, in the opinion of many experts, could she have done so, because many of ECB’s programmes were blatantly, although unsuccessfully, aimed at providing economic stimulus to the ailing eurozone economy rather than containing either inflation or deflation.

At the beginning of July, the Bundestag intervened. Instead of exhorting the ECB to comply with the judgment, the governing majority parties (Merkel’s CDU/CSU/SPD coalition) with the Greens and the Liberal Party adopted a resolution that the ECB had acted lawfully – a matter, one would think, for the court to decide. At the end of July then, German Finance Minister Olaf Scholz endorsed the resolution. Finally, in early August, Bundesbank President Weidmann signaled that he, too, considered the ECB’s actions above board – the very same Jens Weidman that had previously been one of the ECB’s most vociferous critics and argued that QE could not solve the eurozone’s chronic overspending. As the facts are coming in to confirm his warnings almost day by day, he finally yielded to political pressure from Frankfurt and Berlin.

The Bundestag and the German government, of course, were parties to the case in front of the FCC where they stood in for the ECB which had refused to appear. The Bundesbank too is an interested party which provided testimony to the FCC for the absentee ECB. How many legal systems are there in which the defendant and interested parties to a constitutional court case get away colluding with an absentee party – here the ECB – to contest a final court judgment. I am not aware of many, except, that is, Germany’s so-called Rechtsstaat (a state governed by law).

The dismantlement of separation of powers has wider implications for the European legal order

And what do the Bundestag, Federal Government and the Bundesbank base their views on? Nothing other than Lagarde’s assertions and documents communicated by the ECB to the German political bodies. Most of them have been in the public domain for years, contain nothing new and are in fact the same documents that the constitutional judges examined and considered insufficient. However, according to the Bundestag presidium, German MPs – at least some of those who voted to exonerate the ECB – also apparently consulted three top secret ECB documents which also appear to have been made available to the Federal Government and the Bundesbank. The extent to which this actually happened is unclear. Likewise unknown is their contents, what, if anything, the documents are supposed to prove or whether they even exist, because, of course, they are top secret and MPs are not allowed to disclose their contents or even speak about them. Thus, on such a spurious basis, the ECB has been exculpated and the constitutional court ruling can now be regarded as history.

Surely, one would think, something ought to happen if the basic tenets of the rule of law are so manifestly disregarded. The truth is: nothing will happen. Normally, decisions of the Federal Constitutional Court take automatic legal effect. All constitutional bodies, authorities and courts are bound by them. This time, however, the court is unlikely to comment further. This was reported by the German print media in early August, notably by the influential Frankfurter Allgemeine Zeitung, citing one of the constitutional judges. In theory, the near-2000 complainants which won their case against the ECB on 5 May could now start new proceedings to ask the Court to examine whether the requirements of the judgment were actually met. Such litigation, if judged admissible, could drag on for years, just as the last case took nearly five years to resolve.

Knowing full well that the ECB’s actions were patently contrary to the treaties, Merkel, the Federal Government and the Bundestag took precautionary measures against another adverse ruling from Karlsruhe. The ECB ruling was the last judgment of the former President of the Court Vosskuhle, whose successor in the competent Second Senate is a former academic who is very close to the Greens and a known supporter of the ECB’s policies. Moreover, Vosskuhle was succeeded by Stephan Harbath, a former corporate and finance lawyer without judicial or public law experience who, prior to his appointment to the FCC, straddled a private practice with his own law and lobbying firm with being a national politician: first as an CDU backbencher in the Bundestag, then as party whip, and finally as deputy CDU parliamentary party leader in Merkel’s government until 2018. Who, in these circumstances, could seriously expect the FCC ever to adopt another EU-critical, or even an impartial, ruling again?

Clearly, something is rotten in Germany

Let us sum up. Germany’s highest court in May ruled the ECB’s QE programme to be in breach of the EU treaties and granted the ECB a three-month reprieve period to exculpate itself or mend its ways. In their judgment the Karlsruhe judges called the legal interpretation of the European Court of Justice “legally indefensible” and “objectively arbitrary”. Finally, the judges censored both the Federal Government and the Bundestag on the grounds that both institutions did not comply with their constitutional duty to ensure the EU institutions respected the limits of their powers as laid down in EU law. The ECB subsequently refused to comply with the decision and, after the deadline had passed, the Federal Government and the Bundestag decided that the judgment was meaningless. This puts an end to one of the most important judgments in the history of the Federal Republic.

Clearly, something is rotten in Germany. To make matters worse, there was no domestic media outcry, and no external scrutiny. If any other government or parliament apart from a few bien pensant EU states had simply ignored a judgment of its own supreme court, the German government and the EU would have been the first to condemn such a flagrant violation of the rule of law. Hungary and Poland have already been censored by the European Parliament and Commission for increasing government influence over judicial appointments, when in Germany all constitutional court judges are appointed by, or with the support of, the governing parties. Many judges are members of political parties, and some are former senior parliamentarians and ministers. In such circumstances, the FCC’s judgment in May was a minor miracle, even if it was quickly buried.

The de facto demotion of the FCC to an advisory body which the executive and legislature may ignore at will, however, is primarily a German affair. If most Germans, though insufficiently informed by the government-financed media and still disinclined to question official opinion, accept their government’s actions, so be it.  In truth, however, the gradual dismantlement of even the most modest safeguards provided by an imperfect separation of powers has wider implications for the European legal order including the UK, which is hoping to build a lasting trade relationship with the EU by the year-end.

In their QE judgment the German judges censored not only the German government and the ECB, but also the ECJ. The ECJ’s preliminary ruling which exonerated the ECB no longer “applied accepted principles of legal methodology”; the ruling was therefore “objectively arbitrary” and “simply untenable from a methodological perspective.” The FCC further stated that the ECJ misapplied the principle of proportionality and abnegated its key judicial review function of ensuring the EU institutions respect the treaty-based limits on their powers and prerogatives; thus rendering “the principle of conferral” – which protects the ultimate sovereignty of the member states – “meaningless”.

The European Court of Justice is not an impartial arbiter but an imperial court

The collaborative defiance of the FCC’s judgment by the German government and the ECB leaves the ECJ as the uncontested arbiter over the interpretation of the EU treaties, including the judicial interpretation of the treaty limits on the EU’s powers. The ECJ, however, is not an impartial arbiter but an imperial court which is animated in its decision-making by the overriding objective of “ever closer union” between the constituent members of the Union. This inherent bias in the ECJ’s deliberations has been evident since its inception. The ECJ judicially established the principles of the supremacy, and of the direct effect of EU law, which had no basis in the EU treaties and are alien to international law as set out in the Vienna Convention. The ECJ does not, as the FCC correctly points out, follow conventional rules of legal or treaty interpretation, but adopts a flexible approach to judicial interpretation which allows it to prioritise whichever interpretative criterion – literal, contextual or purposive – lends the required support to an integrationist pro-Union outcome.

One of the sticking points in the current EU-UK trade negotiation is the EU’s insistence on UK regulatory alignment with a whole host of EU trade and competition rules and, crucially, ECJ jurisdiction over central aspects of such an agreement. So far the UK government has resisted such demands on the grounds that it would be unacceptable for the UK as an independent party to an international agreement to submit to the highest court of the other party. The UK government is surely right on this point, not least because in almost all of its other EU trade agreements, including the recent trade deals with Canada, Japan or Singapore, and even its agreements with the tiny states of San Marino and Andorra, dispute settlement is assigned not to the ECJ, but to independent arbitration tribunals. Presumably, because none of these countries would dream of submitting to EU judicial hegemony.

It is to be hoped that, even as the trade talks’ deadline is approaching, the UK government will continue to resist mounting pressure to reach a deal at almost any cost. If, by contrast, the UK agreed to ultimate ECJ jurisdiction over most EU-UK trade rules, any future important dispute would be resolved in favour of the EU and against the UK. The ECJ ultimately advances the interests of the EU and the enforcement of EU law against other parties. The fact that Germany, whose political establishment is irrationally committed to “ever closer union”, primarily sees itself as an EU vassal state, is no reason for the UK to accept a similar station and its duties.

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