The German Constitutional Court versus the EU: self assertion in theory and submission in practice – Euro Aid and Financial Guarantees. Part 3.

Dr Gunnar Beck

Dr. Gunnar Beck outlines the history of the German Constitutional Court’s complicated relationship with the EU in a series of posts. Part 1 and Part 2 are below.

On 7 September 2011 the FCC handed down its most recent decision on the relation between EU and national constitutional law. The ‘euro aid’ judgment concerned three constitutional complaints which are directed against German and European legal instruments and other measures in connection with the aid to Greece and with the euro rescue package. The complainants had invoked their right to elect the Bundestag, which is protected by Article 38 GG, to challenge a loss of substance of their power to rule, as it is organised in a constitutional state, by a far-reaching, or even comprehensive, transfer of duties and authorities of the Bundestag. They argued that Article 38.1 GG protected competences of the present or of a future Bundestag from being undermined, which would make the realisation of the citizens’ political will legally or practically impossible. The complainants submitted that the financial commitment involved in the Euro Stabilisation Mechanism Act represented a threat of the act of voting being devalued in such a way if authorisations to give guarantees are granted in order to implement obligations which the Federal Republic of Germany will incur under international agreements concluded in order to maintain the liquidity of currency union member states.

The FCC rejected the complaints as unfounded and held that the Monetary Union Financial Stabilisation Act (Währungsunion-Finanzstabilisierungsgesetz), which grants the authorisation to provide aid to Greece, and the Act Concerning the Euro Stabilisation Mechanism Act (Euro-Stabilisierungsmechanismus-Gesetz),  did not violate the right to  elect the Bundestag under Article 38.1 of the not unduly impair the budgetary autonomy of future Parliaments nor in unconstitutional manner the government’s control over the budgetary decisions.

At the same time the FCC affirmed its position in the Lisbon judgment that, as a matter of principle, Article 38 GG in connection with the tenets of the principle of  democracy (Article 20.1 and 20.2, Article 79.3 GG), required that fundamental decisions of revenue and expenditure of the public sector should remain in the hand of the German Bundestag as a fundamental part of national sovereignty and a people’s right democratically to determine its basic economic, social and cultural living conditions. As elected representatives of the people, the Members of Parliament must remain in control of fundamental budget policy decisions in a system of intergovernmental governance as well. When establishing mechanisms of considerable financial importance which can lead to incalculable burdens on the budget, the Bundestag is prevented by the German Constitution from establishing permanent mechanisms under the law of international  agreements which result in an assumption of liability for other states’ voluntary decisions, especially if they have consequences whose impact is difficult to calculate and may deprive the Bundestag of budgetary means for effective political action in the future. As a matter of principle, therefore the Bundestag must not therefore set in place an automatic mechanism for unlimited transfers of funds, but future larger scale aid measure of the European Union taken in a spirit of solidarity and involving public expenditure at international or European Union level must remain subject to the need for specific parliamentary approval.

In relation to the facts of the case, the FCC opined that when evaluating whether the Bundestag has relinquished its budgetary autonomy, the FCC cannot put itself in the place of the democratically elected political decision-maker. With regard to the extent of the assumption of guarantees, it has to restrict its review to evident transgressions of ultimate boundaries. In this context, the legislature has a margin of appreciation with regard to the probability of having to make payments in a guarantee event, which the FCC has to respect. The same applies to the assessment of the future sustainability of the federal budget and of the economic performance of the Federal Republic of Germany. Taking this legislative priority of appreciation into account, the FCC held  that neither the Monetary Union Financial Stabilisation Act nor the Euro Stabilisation Mechanism Act established or consolidated an automatic mechanism by which the Bundestag would relinquish its right to adopt the budget and control its implementation by the German government.  Nor did the two impugned Acts disregard the essential content of the principle of democracy. The FCC concluded that the measures still guaranteed in a manner that is sufficiently definite under constitutional law that the Federal Republic of Germany is not to be seen as writing a blank cheque and subjecting to Germany to indeterminate and incalculable future liabilities over which no further control can be exercised at the level of national politics .

Nor could it be established that the amount of the guarantees given exceeds the limit of budget capacity to such an extent that budget autonomy would virtually be rendered completely ineffective. The German legislature’s assessment that the authorisations to give guarantees for a total  amount of approximately EUR 170 billion are within the capacity of the federal budget which does not transgress its margin of appreciation and is therefore constitutionally unobjectionable. The same argument applies to the German legislature’s expectation that even in the case of the complete realisation of the guarantee risk it would still be possible to refinance the losses through revenue increases, cuts in expenditure and longer-term government bonds. For this reason there is at present no reason to assume an irreversible process with consequences for the Bundestag’s budgetary autonomy.

The FCC approved the legislation authorising German participation in the Euro stabilisation mechanism subject to only one small proviso that before giving any future guarantees within the meaning the Euro Stabilisation Mechanism Act the Federal Government would be obliged to obtain prior approval by the Budget Committee.

It is difficult to view the FCC’s proviso as little more than a fig-leaf. As with most national parliaments, the Bundestag’s Budget Committee is composed of backbench MPs and the Government of the day is normally guaranteed a majority which broadly reflects the distribution of power within the parliament as a whole. There is no reason to assume that the Budget Committee is any more likely to exercise effective accountability or political power over the government than the German parliament as a whole, nor any more likely to vote against the Government than the legislature en gros.

The FCC’s most recent judgment approving Germany’s very substantial share to the euro rescue fund closely follows the reasoning of the FCC’s Lisbon decision handed down two years earlier. It draws on that judgment’s impressive discussion of the theoretical foundations of scope and limits of the legislative authority of the EU and applies these to question of the degree to which budgetary autonomy must remain with the Member States for as long as effective democratic accountability is safeguarded [primarily] at national level. Member States must retain sufficient freedom of political freedom and that the FCC confirms, implies room for financial manoeuvre. In practice, however, the FCC shies away from challenging the political judgements of the ‘democratic’ decision-maker and grants the Federal Government and Bundestag a substantial margin of discretion in evaluating the likely financial and political effects of further steps towards greater integration and more far-reaching financial commitments to the EU and other Member States.

In conclusion, the FCC’s ‘euro aid’ judgment appears to follow a familiar pattern. The FCC confidently asserts its well reasoned theoretical position emphasising the superior status of the German Constitution vis-à-vis the treaty-based authority of EU law and its own jurisdiction of the last resort over all future transfers of further powers and financial resources to the Union. Beginning with the Solange II judgement the FCC has emphasised the limits of further ‘closer union’ in increasingly poignant and more narrowly defined terms. In practice, the FCC has deferred to the political authorities and approved the contested treaty extensions and other measures on each and every occasion.

Some commentators have argued that the FCC’s increasingly assertive theoretical stance may increase the odds of a future clash. So far there is little indication of that. The results of the FCC’s attitude to date has been that, with each further step towards the surrender of additional national powers and budgetary resources, the concentric circles of national sovereignty have drawn ever closer to the indispensable core of inalienable national sovereignty and identity which the FCC has eloquently invoked but imprecisely defined. In that context, the FCC’s ‘euro aid’ judgment with its impressive intellectual discourse but modest insistence that future more far-reaching financial commitments by the German parliament should require prior approval by its budget committee rather resembles an elephant that has given birth to a mouse. It offers no exception to the established pattern of adding yet another impressively reasoned act of self-assertion in theory, but with submission in practice.

 On 21 October 2011 the budget committee of the Bundestag waived through the Greek aid package. No one except a political fool could have expected differently.

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