The German Constitutional Court – or: the Emperor’s New Clothes

Daniel Thym

Domestic German debates about the euro-crisis have had an unreal character so far. In the face of an economic crises with global repercussions, the German public was fascinated by the Constitutional Court whom they admire. Germany’s chief justices are entrusted by a vast majority of Germans to steer the euro-debate through troubled waters with legal arguments. This confidence in the ability of Germany’s top constitutionalists, including several public law professors, was bound for disappointment.
It is true that the German Constitutional Court cannot be held responsible for excessive media hype (including opinion polls about the outcome). However, it has to shoulder some responsibility. In recent years, the Court’s Second Senate had nourished the expectation that its interpretation of the principle of democracy was a lodestar for rescue operations. The debate reminded me of the fairy tale ‘The Emperor‘s New Clothes’: Those who aspire ever more prestigious garment as a sign of power and wisdom risk being naked at the end of the day. This applies to our judicial sovereign in the same vein as to the entourage who longed to gain from the prestige of their glorious ruler.
The Court’s latest judgment on the European Stability Mechanism and related instruments is an excellent demonstration why the desire for the pomp and circumstance of imperial times, remains an illusion (at least in Germany). The lesson is evident: The time has come to calibrate the (legal) debate on euro rescue operations in Germany and beyond.

Judicial Pullback Operations

From the early days of its case law on EU integration, the German Constitutional Court was facing the difficulty of having to analyse EU law as a bystander. In legal-dogmatic terms, this meant that judges based their finding primarily upon the interpretation of the principle of democracy, which the eternity clause of the German constitution protects against amendment. This was a bold approach and implied that legal dogmatic considerations, which are upheld in German constitutional doctrine, could not render much assistance. Moreover, democratic theory failed to provide guidance, since the Court’s assumption that national parliamentary elections are the core instrument for holding transnational governance structures to account was out of touch with political theory. In short: Karlsruhe had to establish criteria for rescue operations all alone.
Nonetheless, the principle of democracy proofed surprisingly prolific. It guided the judicial identification of national reserve powers, including national budgetary autonomy, which established taboo zones for further EU integration. The 2011 judgment on loans to Greece provided critics with ample ammunition against the ESM – and they were emboldened by newspaper interviews of the Chief Justice and the Reporting Judge which seemed to indicate that a referendum about a new constitution was imminent. There was a widespread assumption that the Court would, at best, clear the ESM with strict caveats, including red lines for further rescue operations and the move towards fiscal union.
Things turned out different last Wednesday: In its latest judgment, the idea of justiciable maximum limits to which Germany may sign up to is buried beneath a ‘broad parliamentary margin of appreciation’ – and the plan for some kind of fiscal union is sanctioned by the judges even before specific proposals have been put on the table, since ‘the continuous reform of monetary union may be necessary to realise the objective of monetary stability’, which the Court considers to underlie the EU Treaties and the German constitution. In the interviews mentioned earlier, the soundbite had been quite different. The two remaining caveats are a consolation prize. The core message reads: euro rescue operations and further reform steps can go along, if the German parliament approves them.
Don’t get me wrong: I am not criticising the judgment. I am convinced that this is the only correct answer available. The deduction of precise limits for euro rescue operations from the principle of democracy in the German constitution’s eternity clause would have overstretched the options of hermeneutical interpretation and the role of constitutional judges. It is the right approach for the Court to step back and let politicians take the helm.

Changing Legal Dynamics: ECB Bond Purchases and EU Law

Critics won’t renounce at the argument that bailouts violate the German constitution single-handedly. There will be further complaints and further judgments – even if they will, most probably, not establish much stricter standards. There is one potential exception ECB bond purchases. Commentators were quick to interpret vague judicial suggestions about legal limits for ECB bond purchases in paras. 277-278 as a sign of an imminent attack by the German Constitutional Court against the ECB (although the Second Senate had ignored earlier complaints against the first ECB bond-buying programme without further comments in its ruling on the loans for Greece). It now seems that ECB bond purchases will take centre-stage at the forthcoming oral hearing on the reminder of the case. However, these debates will be set in a different legal context.
Scrutiny of the bond purchasing programme will require the German Constitutional Court to switch from identity review (i.e. violation of the constitutional eternity clause) to ultra vires control (i.e. evident transgression of EU competences) when it considers the legality of the ECB action under Article 123 TFEU. In this respect, the Court had emphasised on an earlier occasion that ultra-vires control will always be based upon the prior consultation of the CJEU – if necessary by means of a reference by the German Constitutional Court itself. It would be virtually impossible for the Court to climb down from this commitment, if it seriously consider to declare ECB bond purchases as an ultra vires act. Such reference from Karlsruhe would be a novelty, although there is, as a matter of principle, nothing spectacular about it. It does in particular not present a gesture of subordination, since Luxembourg is well aware that Karlsruhe retains the ‘last word’. Nonetheless, the reference would mark a turning point.
Why? The reason is simple. Up until now, the euro-crisis has been discussed, within Germany at least, primarily under reference to German judges (the Constitutional Court) interpreting domestic legal provisions (the constitution’s eternity clause) with a view to extending the powers of a national institution (the Bundestag). The reference will change legal dynamics. Supranational institutions and supranational law will take centre stage – and the interpretation of EU law requires transnational legal discourse. This will force the domestic German debate, both among lawyers and public opinion, to acknowledge that domestic law and institutions are not the only relevant actors. Forthcoming debates will demonstrate, for example, that the widespread assumption that euro rescue operations violate EU law is no foregone conclusion. The CJEU ruling will support transnational discussion and force domestic actors in Germany to end their myopic presentation of the legal aspects of the euro crisis.

A Different Role for the European Institutions

A core problem of the German Lisbon Judgment is the assumption that democracy is the prerogative of the nation-state. The European Parliament, in particular, was first denounced as an unrepresentative assembly by the German Constitutional Court and later undermined in its real-world function by a decision of the Court, which abolished the 5 % entry hurdle which effectively allows fringe parties to enter the European Parliament. A reference to the European Court of Justice would present an important counterpoint. It would signal a new trust towards the supranational institutions without which reform projects are bound to fail. Moves towards fiscal union will not be sustainable, if political and legal discourse within Germany continues to be focused almost exclusively upon national law and institutions. That is why the reference matters.
More attention for EU institutions is a necessary but no sufficient condition for changing the orientation of the crisis. The European Court of Justice, the European Parliament and the European Commission will have to demonstrate that they are in a position to assume responsibility. I am personally optimistic insofar as the CJEU’s response to the Irish Pringle case and a future reference from Karlsruhe are concerned. Recent activities by the European Commission are, unfortunately, less promising. In its much-touted State-of-the-Union address, presented on the very same morning as the German Constitutional Court delivered its latest verdict, President Barroso did not set out a precise vision for the future. The idea to address the democratic deficit through a new statue for European political parties is naive, at best. Political leadership looks different.

Conceptual About-Turn

Extensive media coverage, both domestic and international, of the German Constitutional Court judgments and parliamentary votes show that the fortification of domestic institutions by means of constitutional interpretation has an impact upon everyday political practices which bring about the discursive strengthening of national identity. Such support for domestic institutions and national identity may have been the core motivation underlying the Constitution Court’s judgments. But enough is enough. The time has come to rebalance the legal and the political debate on euro rescue operations. Return to sovereign nation-hood is an illusion, which some German constitutionalists and politicians may dream, but which will not happen. Life is no fairy tale – and Germany’s judicial sovereign is wiser than the emperor with his new clothes whose bluff a young boy had to call. The German Constitutional Court was intelligent enough to realise that it was about to get stuck in a dead end. It turned around and will soon pursue a different strategy. It will call upon the CJEU to assume responsibility for the rule of law in Europe. The continent will benefit, if this lays the basis for reinvigorated transnational discourse.

10 thoughts on “The German Constitutional Court – or: the Emperor’s New Clothes

  1. K-a, as with the ESM itself, the solution will have to be a tweak to the treaties in order to create the necessary legal basis for OMT. The BVerfG may buy it if it’s backed by Merkel’s government, on condition it only operates in conjunction with a ESM/troika program. Don’t rule it out. -PLL

  2. Thanks for the comments. I won’t respond to the general themes. Just a word of clarification on the ECB bond purchases, which the Court has not declared illegal. In order to avoid rumours developing a live of their own, it might be helpful, if I provide an English version of the core passage, which has not been translation into English by the Court. It rejects the ideal of a bank license for the ESM only and, in so doing, adds a line on Article 123 TFEU:

    ‘278… Bond purchases by the ECB on the secondary market, which AIM AT financing national budgets independent of the financial markets, are prohibited as a circumvention of the prohibition of direct financing of national budgets [i.e. Art. 123 TFEU] (see also recital 7 of Regulation 3603/93 …)’ (own translation; emphasis added).

    Note that the Court does not say that bond purchases on the secondary market are illegal per se – it’s rather a question of the aim and objective of the programme, which – in the eyes of the ECB – is precisely not to finance national budgets but to facilitate the functioning of monetary policy. In short: there need not be a contradiction between the FCC’s and the ECB’s view. At least, it has not yet been spelt out yet.

    That’s certainly not the most relevant passage of the judgment in conceptual terms, but it support a realistic debate about what the judges have (not) said. Am curious how tings will develop and whether I or Peter Lindseth/Miguel Maduro/Bruce Ackerman are vindicated by future developments!

  3. Daniel, I think you’re right on the law — OMT does not *necessarily* require a revision to the treaty, per the BVerfG’s decision. But there remains a risk that the Court *could* find the ECB lacks an adequate legal basis (i.e., is ultra vires); hence my comment (although your point in the principal post is well taken: the BVerfG should probably make a reference to the CJEU before reaching this question). In any case, abundance of caution by politicians could thus perhaps lead to another effort, analogous to the revision of Article 136 TFEU, to provide OMT a more secure legal basis in the treaties — I’m not necessarily predicting this, but I wouldn’t rule it out either. That’s what I was trying to say, inartfully. Thanks for responding! best, -Peter

  4. Pingback: The German Constitutional Court and the Euro-Crisis: The Emperor‘s New Clothes? « EJIL: Talk!

  5. Even though I am no expert in German constitutional law (and I would like to be corrected if the following is wrong), I understand that these constitional complaints are based upon the concept of the principle of democracy and the right to vote. Also, if I am not mistaken, the BVG has said in the Lisbon Judgment that, under the principle of democracy enshrined in the German Basic Law, the core elements of political sovereignty must be exercised at the national level, given that democracy is not possible at the European level (both because there is no European political field, and because -according to the BVG- the European Parliament does not have a democratic functioning).
    If the former is correct, and if the principle of democracy protected from revision under the eternity clause, would it be constitutional to amend the German Basic Law to broaden the scope of the concept of democracy to include the European level?
    Thank you for the post!

    • CJEU exists to make those decisions. Again, it’s Germany having trouble understanding the fact that the BVerG is SUBORDINATE to EC / EU (READ: CJEU).

  6. However, Germany’s attitude that they are the deciding factor over any EU decision, is not only beyond arrogant, it’s also profoundly misguided. The EC / EU / EBA /ECB / ESRB all operate under EUROPEAN SUPERVISORY AUTHORITY. Germany however, can ONLY exercise NATIONAL SUPERVISORY AUTHORITY, (good only with their own borders) and are clearly SUBORDINATE to the above mentioned organizations.

    There are three types of EU legislative acts. Under Article 288 of the Treaty on the Functioning of the European Union (TFEU):
    1) A regulation shall have general application. It shall be binding in its entirety and directly applicable in all Member States.

    2) A directive shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods.

    3) A decision shall be binding in its entirety. A decision which specifies those to whom it is addressed shall be binding only on them.

    NOTE:
    Opinions and Recommendations have no binding force, so they can sit down and be quiet in Karlsruhe, German opinion has no binding force, full stop.

    Germany has whined lately about a regulatory body for EU banking, while one already exists.

    The problem is, Germany refuses to acknowledge the EBA, because it isn’t headquartered in Frankfurt, like the ECB (where Germany used it for over 10 yrs as their “personal cash register”, granting itself overnight, and “soft loans” under cover of darkness. The sooner Germany learns that this isn’t just about them, the better for the EU.

    A “European Germany” is far better than a “German EU”, as the periphery have learned over the last 10 yrs, experiencing Germany’s predatory financial tactics exacted with precision against them. Enough.

    • Dear Dr. Visotsky,

      your thoughts are well formulated and I appreciate your explanation as profound and proper. Could you elaborate on Article 288 TFEU and go into detail with respect to sovereignty of Germany since October 1990?
      Futhermore, could you describe what way you have experience in European or German legal systems? This would help me classifying your pronouncement.

      Yours faithfully,
      Dr. Steve Castings

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