In overruling parts of the CJEU’s judgment on the ECB’s Public Sector Purchase Programme (PSPP) the German Constitutional Court presses for a stricter application of the principle of proportionality. This blog post offers a perspective on the decision and argues that it is a product of different views on the relationship between the two courts. The post takes a closer look at how the Constitutional Court construed its argument as well as possible implications of the decision.

A closer look at the ultra vires decision

By way of background, the PSPP is a central monetary policy tool based on ECB’s Decision (EU) 2015/774, as amended, that aims to increase monetary supply and to support the Eurozone’s economy by purchasing eligible public sector bonds. The PSPP ran between 2015 and 2018 and restarted in 2019. 

The PSPP case was submitted to the Constitutional Court in 2015. The complainants presented various arguments alleging that the PSPP qualified as an ‘ultra vires’ act on the part of the ECB. Ultra vires, which may best be translated as ‘beyond powers’, refers to acts that overshoot the competences the German Parliament conferred to the EU, and thus violate the principle of democracy under the German Constitution. 

The Constitutional Court referred several questions to the CJEU as a request for a preliminary ruling. In 2018, the CJEU held that the PSPP was within the ECB’s mandate to maintain price stability. Specifically, the CJEU could not find reasons to reject the PSPP on the grounds of proportionality. The CJEU concluded that the aim of keeping the inflation level below but close to 2%, as illustrated in the recitals of the ECB’s Decision, was a primary objective of monetary policy, and the means employed were those eligible for monetary policy under primary law. 

Based on a two-step argument the Constitutional Court overruled the CJEU’s judgement as it regards the proportionality of the PSPP as a means to achieve price stability. 

First, the Constitutional Court finds the CJEU’s judgement to be ultra vires and therefore not binding on the Constitutional Court. In its reasoning, the Constitutional Court acknowledged that the interpretation and application of EU law is primarily the task of the CJEU. At the same time, the Constitutional Court retains its responsibility towards the protection of the German Constitution. Under the principle of conferral, the EU’s powers are limited to those that have been conferred to it by the Member States. Given these limitations, the Constitutional Court argued that acts that are well and undoubtedly beyond the scope of those competences fall outside the constitutional framework that allows acts of the EU to be binding in Germany. Striking a balance between the CJEU’s mandate to ensure the coherence of EU law and the Constitutional Court’s responsibility, the latter sets itself a high threshold for its ultra vires control. In acknowledging the ‘collaboration’ (Kooperationsverhältnis) with the CJEU, the Constitutional Court will present ultra vires challenges to the CJEU for a preliminary ruling and generally follow these rulings, unless the reasoning is ‘obviously no longer comprehensible and therefore objectively arbitrary’. 

The Constitutional Court found it was unable to follow the ruling of the CJEU in the PSPP case, as the judgment was methodically incomprehensible. The Constitutional Court bases its findings on the CJEU having applied an insufficient standard of review when contemplating the principle of proportionality. In particular, the Constitutional Court argued that focusing on the objective and means only, the CJEU did not give sufficient consideration to the implications of the PSPP, thereby failing to achieve a weighing of conflicting interests. 

Given that the CJEU failed to perform the task assigned to it, the Constitutional Court, as a second step of its analysis, assumes the right to conduct its own proportionality test. In doing so, the Constitutional Court contemplates whether the PSPP exceeded the ECB’s competences (which are limited by the principle of proportionality) in a way that violates the principle of conferral. The Constitutional Court held that the ECB’s Governing Council Decisions did not satisfy this test, as ‘it is not apparent that the necessary balancing is contained in or underlies the Decisions’ (para 167 of the judgement). In other words, in the view of the Constitutional Court, the PSPP on its current reasoning constitutes an ultra vires act for its failure to embark on a balancing exercise (Abwägungsausfall).

Consequences

The Constitutional Court’s decision is final and applies in Germany in the same way as an Act of Parliament. In the decision, the Constitutional Court sets out a transition period of three months for the ECB to issue a decision that would contain sufficient reference as to the balancing of the PSPP’s monetary policy goal and the economic consequences of the means employed. 

Considering that the Constitutional Court’s critique focuses on formalistic rather than substantive points, it seems likely that the ECB will have fewer difficulties in satisfying the requirements (see the post by Lehmann for the standard of review to be applied). However, from the ECB’s perspective the question is not so much ‘whether it can’ but ‘whether it should’. On the one hand, commentators stress the risks of reducing the ECB’s independence, of disturbing the balance of power between the national courts and the CJEU, and of damaging the doctrine of supremacy. On the other hand, providing supplementary reasoning might foster greater accountability and transparency in the system.

Insofar as commentators highlight the need to uphold the ECB’s independence, it is worth noting that, in essence, being independent does not mean being beyond judicial review. As to the rest of the arguments, these have to be balanced by the ECB, which is not legally bound by the decision of the Constitutional Court. Depending on what the ECB will decide, the Bundesbank may or may not be able to continue its involvement in the PSPP. The programme itself, however, will most likely remain unchanged. 

With regard to the relationship between the CJEU and the Constitutional Court, there have been press reports about the European Commission commencing infringement proceedings against Germany for violation of the Treaties, an option that, if followed, may lead to further frictions. Provided the CJEU does not follow the concept of supplementary review as set out by the Constitutional Court, adhering to the infringement ruling may turn out to be impossible from a German perspective. This is because the independence of the courts protects the judicial decision-making and the Constitution itself prevents the Parliament from changing the legal concepts that gave rise to the Constitutional Court’s PSPP decision.

Conclusion

Following decades of ultra vires control, the German Constitutional Court has, for the first time, found acts of the EU to be well and undoubtedly out of scope of the competences conferred to the EU. While this decision is certainly important in its symbolic nature, the practical implications will depend on the next steps taken by the ECB. Regardless of whether the ECB decides to further substantiate its assessment underlying the PSPP, the programme itself will more than likely continue and so will the ‘whatever it takes’ strategy.

Catharina von Berg is an Oxford alumna and currently an Associate at Dentons.