Karlsruhe Capitulates? Hardly – Understanding the ESM Ruling of September 12

Prof. Peter Lindseth

Let me begin by apologizing for the delayed response to the ESM ruling of the German Federal Constitutional Court (GFCC).  I wish I could say I was acting strategically – the crisis, after all, is moving as fast as ever – but that would not be exactly true. Unfortunately it was the day job – teaching and administrative obligations, pure and simple – that kept me from posting something sooner. But even if the delay was not my choice, it still served a nice strategic purpose.  It gave me a little extra time over the weekend to reflect on the decision itself as well as some of the initial commentary, and to consider how I might respond.

 In looking over that commentary in particular, I was struck by an argument that I saw raised in various forms – that the ESM ruling, in effect, represents a kind of capitulation by the GFCC, a sign of its ultimate weakness. I’d like to focus on that argument here, which in my view is based on a misreading of the Court’s jurisprudence, not just recently but over the last several decades, going all the way back to the Maastricht decision and indeed earlier. To borrow the wonderful phrase of Mortimer Adler (in his critique of some ‘legal realist’ claims in the 20s and 30s), this misreading ultimately targets a ‘dummy overstuffed for the occasion’ – i.e., the Court’s purported new-found deference to the functional and political realities of integration (as if deference on this score were genuinely something new). The argument about the Court’s apparent weakness may feel empowering to those who advance it.  But it may also do a disservice to those who seek to understand the import of the ESM ruling, particularly as it relates to the Court’s broader integration jurisprudence.

 Before proceeding to the argument, a bit of a recap of what happened last week.  Even if the lead up to the GFCC’s ruling caused some anxious observations about what an injunction might mean for the EMU going forward, in the end the Court decided pretty much the way consensus opinion expected/hoped.  The Court allowed the ESM to be signed by the German president subject to conditions, and of course subject to a final decision on the merits, something expected some time early next year.  And although the Court could, in theory, take a more hostile approach to the ESM in that final judgment, such an outcome is unlikely – unless, of course, intervening events undermine the conditions defined by the Court (Peter Gauweiler, the every-ready eurosceptic German MP, will no doubt be on the look-out, just as he was with his motion last week in response to the ECB’s announced secondary-market bond-buying program, the “OMT”).

 The conditions imposed by the Court in the ESM ruling – ensuring that Germany’s 190 billion euro contribution would not increase without a Bundestag vote, and otherwise demanding enough ESM transparency to facilitate genuine Bundestag oversight in the spending of that money – were also in line with expectations.  The desire to ensure that Germany’s contribution not become open-ended, and the demand for some semblance of national parliamentary legitimation of ESM actions, are very much consistent with what I have called the ‘substantive’ and ‘procedural’ dimensions of the Demokratieprinzip in German constitutional law (see here and here).  Although some observers argue that imposition of these conditions ‘opens a can of worms’, German legal experts apparently feel they are reasonably achievable (I have no reason to doubt them, particularly given that Germany’s partners have little incentive to press the point, lest the entire rescue edifice collapse; indeed, they have strong incentives to seek similar assurances).  Moreover, the Court did not really seem to break any conceptual new ground at arriving at its ruling:  the key paragraphs (210-222 in the original German, 194-206 in the official English translation) essentially track the language that the Court has been using in its earlier decisions on the crisis stretching back to last September.

 So much for the recap, now onto some of the commentary.  Although much of the observations published in the last several days have been reasonably straightforward and often unexceptional (if obviously very relieved), there is one strain in the discussion that I think is worthy of more detailed response.  (Please note that this post is simply an initial step along those lines, which I hope to elaborate in a more extended contribution elsewhere.)  I’m referring to commentary that advances the idea that the ruling somehow reflects the ultimate weakness of the GFCC in the face of the demands of the crisis.  This idea can be found into two corners of the post-ruling discussion, the first journalistic and the second (academically) legal.

 In the former corner, the reflections of Thomas Darnstädt and similar ones from Wolfgang Münchau, both appearing in Spiegel Online, stand out as leading examples.  Darnstädt’s title says it all: ‘Ruling Shows Court’s Weakness in EU Matters’.  And the subtitle succinctly elaborates: ‘The Karlsruhe-based institution will not stop European integration because it can’t. The justices have created expectations among the people that they are no longer able to fulfill’. The Münchau piece, on the other hand, is only in German, but he summarized his argument on his English-language newsletter (sub. req.) this way: With this ruling, the GFCC ‘effectively revised its entire body of EU rulings, giving a much greater leeway and room for manouevre to elected politicians’. Münchau then said he ‘welcomed the court’s change of position’ but concluded that ‘the court is essentially no longer an important force in the further development of the eurozone crisis’.

 More subtle versions of these arguments have been advanced on the Verfassungsblog, the Berlin-based academic forum for debate ‘on matters constitutional’. Daniel Thym, a professor at the University of Konstanz, argued there (in a cross-posting now translated into English here) that the judges in Karlsruhe were at least partly responsible for the ‘media hype’ surrounding the ruling because they had fostered the illusion that ‘the principle of democracy was a lodestar for rescue operations’. Thym likens all this to the ‘emperor’s new clothes’, suggesting that the Court, like the nation-state itself, had in fact been fooling themselves about their importance and centrality.  They had now become functionally ‘naked’, no longer able to clothe themselves in the illusory legitimacy of democratically ‘sovereign nationhood’ as a consequence of Europeanization and globalization.

 According to Thym, ‘[t]here 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’. The conditions imposed by the Court on Germany’s participation in the ESM were a mere ‘consolation prize’ – overwhelmed by the needs of judicial deference to the legislature’s policy choices in favor of integration (a ‘broad parliamentary margin of appreciation’). The Court’s case-law to date had led it into a ‘dead end’, which the Court, with this ruling, now effectively and wisely has chosen to exit. Thym argues this is salutary: ‘the interpretation of EU law requires transnational legal discourse’ and it is now time for ‘the domestic German debate, both among lawyers and public opinion, to acknowledge that domestic law and institutions are not the only relevant actors’.

 Reading this sort of journalistic and academic commentary, as thoughtful and sophisticated as it no doubt is, makes me really sympathize with the Court. It suggests that even the most intelligent observers are sometimes unable to grasp the essence of the Court’s integration jurisprudence, something that has been going on for quite a while (check out the misunderstandings discussed in this post).  As Chapter Four of Power and Legitimacy argues in some detail, a defining principle of the Court’s approach to integration has long been the principle of ‘strong deference’ to the political choice in favor of European unification (Europarechtsfreundlichkeit in current parlance).  Such deference is hardly new, and it is difficult to argue now that such deference is suddenly being deployed as a means of escaping from the ‘dead end’ of an overly aggressive application of the ‘eternity clause’ of Article 79(3) GG to the Eurozone rescue scheme.  This strikes me as, indeed, a ‘dummy overstuffed for the occasion’, to borrow Adler’s phrase.  There is nothing in the ESM ruling that deviates significantly from the (admittedly complex) structure of ‘reconciliation’ that was already clearly manifest in the Court’s prior integration judgments.  There has been, contrary to Münchau’s claim, no ‘effective revis[ion]’ of the GFCC’s prior rulings to accommodate the ESM.

 But it is also hard to see how the ESM ruling reveals a ‘weak’ Court, per Darnstädt.  The ESM Treaty, along with the accompanying revision of Article 136 TFEU, were driven by concerns over how the Court would analyze the legality of the Eurozone rescue mechanisms without these changes.  The entire negotiation took place in the shadow of the GFCC and the German government’s constant reminders to its partners of the need to satisfy the Court’s demands, in the face of requests by other member states to revise the legal basis through less onerous means.  No, the Court did not in the end strike down the ESM.  But it is hard to imagine a better example of Arthur Dyevre’s thesis that the Court ‘need not “bite” in order for its “barking” to be consequential’.

 And that barking will no doubt continue to have real, tangible consequences for future negotiations.  As Open Europe has spelled out in its analysis, the Court’s ESM ruling in effect forecloses some widely discussed options, such as granting the ESM a banking license, at least under the current framework.  Moreover, the Court is also expected eventually to address the ECB’s bond-buying program (OMT), something that Thym acknowledges as well.  And as I have explored in several postings on this blog previously (see, e.g., here and here), it is by no means assured that the Court will decline to augment national parliamentary oversight over the ECB’s role in the crisis.  And even if such an assertion of jurisdiction may be questionable under EU law, the mere threat of it is already apparently having serious effects in the realm of politics.  Mario Draghi has indicated in an interview with the Süddeutsche Zeitung (English-language coverage here), that he would ‘happily’ appear before the German Bundestag to explain the ECB’s new OMT program.  Again, apparently the Court ‘need not “bite” in order for its “barking” to be consequential’.

 A few final thoughts come to mind in response to Daniel Thym’s invocation of the metaphor of the ‘emperor’s new clothes’ as a means of suggesting the increasingly naked nation-state and Court.  The fairytale points to the classic disconnect between functional reality and the conceptions of ‘right’ (‘legitimacy’) that can often lead political communities to interpret reality in surprising ways – or at least ways that cognoscenti deem objectively untenable.  This might include seeing clothes on a naked emperor (the fairytale), or ‘sovereign nationhood’ as a still meaningful legal concept to understand public law within or beyond the state (a theme we see in much legal writing about the EU).  All academics are inclined to see themselves in the role of the unencumbered child in the story.  We all aspire to be the person singularly capable of seeing things as they really are and not in the distorted way that those in the grips of historical or political false-consciousness take them to be.

 But the actual process of institutional change is quite different from the fairytale, something Thym rightly acknowledges but could have explored a bit more deeply.  It takes a lot more than a simple verbal prick of a child (or that of a knowing academic) to call the ‘bluff’ and cause a collapse in the legitimacy of the system.  History shows that prevailing conceptions of legitimacy can persist for quite a while beyond the point when the underlying functional reality would suggest they must change. This then leads to an interesting historical dynamic, one that is as inescapable as it is frustrating.  The process of institutional change, as I try to explain in Power and Legitimacy (pp.13-14) and have pointed out on this blog (here), always involves a complex process of contestation and reconciliation between functional, political, and cultural dimensions.  Change in these three registers is never perfectly congruent; indeed, much political and legal history is driven by the inherent lack of congruence along these three dimensions over time. However much we are tempted to view the Court (or euroscepticism more generally) as simply perpetuating an illusion of democratic national sovereignty in the face of globalization or Europeanization, we should remember this:  These sorts of cultural commitments have an objective political and social force of their own, which will no doubt help to shape the course of subsequent institutional and legal change, in the Eurozone crisis and beyond.

 Even if the Court’s ‘bark’ were not so ‘consequential’ as it demonstrably has proven to be (again, see discussion above), it would still be a grave mistake of legal analysis dismiss the Court as a no-longer relevant factor.  I am not attributing this view to Thym, but it does seem to be the upshot of the more journalistic contributions of Darnstädt and Münchau.  The Eurozone crisis will not so easily leave the Court or its Demokratieprinzip behind, even if the impact of the Court and its jurisprudence is more complex than many understand.  My sense is that the Court has long been acutely aware that it is engaged in a ‘transnational legal discourse’; its jurisprudence over many decades has made that clear, as Chapter Four of Power and Legitimacy explores in some detail.  But that does not mean that the GFCC is prepared to concede the point about reconciling the process of integration with the continued existence of democracy on the national level in a historically and culturally, if evolving, sense.  The Court is acting, in this regard, as a central forum for interaction in the process of institutional change.

 Indeed, as Daniel Thym quite rightly concludes in the German version of his posting, the CJEU has yet to prove that it can be as conscious of its responsibilities for the protection of law and democracy as the judges in Karlsruhe.  And as Wolfgang Münchau stresses in his piece, there remain numerous critical questions that implicate precisely those issues, such as the risks associated with the Target2 payments system or with the recapitalization needs of the banking system in the event of a Euro collapse.  No, the Court will not be at the forefront in defining the specifics for how to address these risks – that is not the judicial role.  But one thing is certainly true: The Court will remain a significant force, even if in the background, as the Eurozone struggles to find a workable reconciliation between supranational power and national democratic legitimacy, a quest that has long characterized the integration enterprise.

One thought on “Karlsruhe Capitulates? Hardly – Understanding the ESM Ruling of September 12

  1. Pingback: EUtopia law is 1! | eutopialaw

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