When it comes to adjudicating the European sovereign debt crisis, the German Bundesverfassungsgericht emerges as a sharply divided court. Back in August 2012, Mario Draghi pledged to do “whatever it takes” to prevent a single currency break-up. His words were followed by the Outright Monetary Transactions Programme (OMT), allowing the ECB to buy unlimited government bonds of over-exposed eurozone countries. The so-called “magic” of the OMT was that it has worked without ever being activated—the statement of a credible commitment alone was sufficient to stabilize markets without the ECB ever having to buy a single bond so far and to stop sovereign bond spreads.
In its pronouncement of February 7, 2014, on whether the ECB’s sovereign bond-buying program is “ultra vires,” the 2. Senate of the BVG, with a majority of 6:2, has for the first time ever turned to the CJEU for a preliminary ruling. But, appearances to the contrary, the deployment of the reference procedure is anything but an act of European-friendliness and judicial comity. The senate’s majority opinion uncompromisingly expressed its categoric view that essentially due to its unlimited nature the OMT programme indeed amounted a “structurally significant transgression of powers” under EU Treaty law: according to the six judges, “there are important reasons to assume that [the OMT-programme] exceeds the ECB’s monetary policy mandate and thus infringes the powers of the Member States, and that it violates the prohibition of monetary financing of the budget.” The consequences of these words are dramatic. For starters, those words may well set the stage for a constitutional conflict between the BVG and the CJEU, should the latter—as observers think is likely—see things differently and provide the OMT with a clean bill of health by declaring it an act of monetary policy. Perhaps even more fundamentally, rather than recant or eat its words, the BVG, upon a future constitutional complaint which the ruling self-consciously invites, has fully put itself on course of ordering Germany to leave the Eurozone entirely. In an ironic reversal of Draghi’s words, and in its own peculiar way, the BVG, too, seems bent on doing “whatever it takes.”
Rather than build bridges and seek dialogue, Karlsruhe dictates the Luxembourg Court its clear marching orders. The BVG unilaterally defines the threefold “conditionality” under which only the OMT could be redeemed as “legal:” first, “the acceptance of a debt cut must be excluded;” secondly, “government bonds of selected Member States are not purchased up to unlimited amounts;” and thirdly, “interferences with price formation on the market are to be avoided.” Any programme not meeting these conditions—in short, there must be no debt restructuring and there must be a limit to purchases—would no longer count as monetary policy, permissible under the Treaty, but amount to a (forbidden) encroachment on the Member States’ prerogative for economic policy and would violate the German understanding of democracy: if ever the OMT were actually to be activated, that would force the German Bundestag to accept any losses the scheme may generate in its course thus depriving the Bundestag of its fiscal sovereignty. The “conditionality” reflects, and translates into European constitutional law, a view predominant in Germany—eloquently expressed by retired justice Paul Kirchhoff in 2012 in the Frankfurter Allgemeine Zeitung and now restated by retired justice Udo di Fabio in his affirmative, if not elogious, comment on the ruling, also in the FAZ; the view that the Euro-crisis was essentially caused by the unlawful behaviour of the Member States: “Had the Member States observed the law on the limits of sovereign debt, this debt crisis would not exist,” Kirchhoff argued. “To bestow on citizens more good deeds (‘Wohltaten’) than are fiscally due to them, is unconstitutional.” The crisis, on this view, is due to the sin of profligacy, with no further questions asked as regards its structural causes.
But of course the meaning of the criterion of “manifest transgression”—when it comes to determining whether the OMT programme has crossed the red line from monetary policy to verboten economic policy—is is itself far from being so manifest, as the majority view unwittingly demonstrates. Indeed, the two strongly-worded dissenting opinions both argue that the very point of the OMT programme appears to have been lost on the BVG’s majority opinion when it declared the OMT to be no longer a form of monetary policy. The OMT programme was intended by the ECB to repair the broken transmission mechanisms between monetary policy and the real economy—at a time when 6 per cent yields on short term Italian or Spanish sovereign debt had become a common sight in the market. However far the ECB would lower its official interest rates, those interest rates would not trickle through to company loans in Italy or Spain. The OMT programme, by allowing the EMC to buy unlimited bonds, was apparently successful in breaking the woeful entanglement à deux between busted banks and governments in dragging each other down. The unlimited nature of the OMT programme combined with the fact that it was never triggered already rendered the OMT effective—indeed the programme may already have run its course and served its purpose: there is no further formalisation (e.g. an EU Directive) on the cards. The German BVG’s insistence on conditionality thus got the programme’s point and purpose backwards: as dissenting justice Gerhard puts it:
“This case shows in abundant clarity how difficult it is to handle the criterion “manifest.” Monetary and economic policies relate to one another and cannot be strictly separated. In an overall assessment, it seems to me that the claim that the objective of the OMT Decision is first and foremost the re-establishment of the monetary transmission mechanism, cannot be contradicted with the unequivocalness to be required.”
But as the two dissenting opinions also make abundantly clear, there is a second deep problem with the majority’s view: the political institutions that matter long ago made their piece with the OMT. Yet the BVG by claiming to have identified a dangerous democracy deficit has dramatically expanded and exceeded its judicial competence under the Grundgesetz. In the past, any German citizen entitled to vote, claiming an infringement of his or her right to vote, could initiate a review by the BVG of the acts of EU institutions if, and only if, the German constitutional identity—the core of the substantive fundamental rights provisions of the Grundgesetz—was at stake. Under the BVG’s so-called solange-jurisprudence, the BVG would claim constitutional guardianship very restrictively, that is, only over the so-called competence-competence. Judicial self-restraint by the BVG was as a consequence of the BVG’s declared European-friendliness and deference to the CJEU’s prerogative in matters of EU competence. But the Senate’s decision, as justice Gerhard observes, “extends the possibilities of an individual to initiate […]—without connection to a substantive fundamental right—a review of the acts of Union institutions by the Constitutional Court.” By admitting such an ultra-vires review, now “the door is opened to a general right to have the laws enforced […], which the Basic Law does not contain.” But an individual right to “steer the Bundestag’s [political] initiative into a specific direction does not fit into the constitutional framework of parliamentary work.” For by creating a subjective right of this kind, the BVG disowns the margin of appreciation and discretion, which the German government and Bundestag must have and which the citizens need to accept. Compare the majority opinion—“the right to vote is in danger of being rendered ineffective in an area that is essential for the political self-determination of the people”—with the not-so-rarefied dissenting opinion of justice Gerhard here:
“The Bundestag could readily have criticized the OMT Decision by political means, theatened, if necessary, to bring proceedings for anulment before the Court of justice of the European Union, waited for thr reactions of the European Central Bank and the financial markets and then taken further steps. The fact that it did none of this does not indicate a democratic deficit, but is an expression of its majority decision for a certain policy when handling the sovereign debt crisis in the euro currency area.”
The Senate has read or written Euroscepticism into the German constitution. The full consequence of the ruling will be an end of European multilateralism, if—in the absence of a volte-face of sorts by the BVG—indeed a constitutional conflict with the CJEU materializes.