On 5 May 2020, the German constitutional court (Bundesverfassungsgericht – “BVerfG“) decided in a landmark judgment about the compatibility of the Public Sector Asset Purchase Program launched by the European Central Bank (“ECB“) in March 2015 (“PSPP“) with German constitutional law.
The BVerfG expressly excluded the EUR 750 billion Pandemic Emergency Purchase Program (“PEPP“) launched in March 2020 to mitigate the economic impact of the COVID-19 pandemic from its decision.
In brief, the BVerfG ruled that with the establishment of the PSPP in 2015 the ECB by far exceeded its competences and, therefore, acted ultra vires. The main reason is that the decision of the ECB lacks sufficient proportionality considerations due to insufficient balancing of the ECB’s monetary policy objective against potential effects on this policy.
More fundamentally, the judges of the BVerfG further ruled that they are not bound by the judgment of the Court of Justice of the European Union (“CJEU“). The CJEU decided upon submission by the BVerfG in 2018 that the ECB had the power to establish the PSPP. The BVerfG argues that while generally the interpretation and application of the laws of the European Union fall within the responsibility of the CJEU (so-called principle of uniformity and coherence of EU law), there are – under the established case law of the BVerfG – exceptional cases of substantiated ultra vires challenges where the BVerfG is not bound by judgments of the CJEU. According to the BVerfG, this follows from the legal structure of the European Union which has not yet passed the threshold to a federal state. The BVerfG rejects the principle according to which the Member States, via the acceptance of the EU Treaties, have given power to the EU institutions, in particular to the CJEU. According to the BVerfG, the Member States of the European Union are still “Masters of the Treaties”. The European Union does not have the power to determine its own competences (so-called ‘competence-competence’). As a consequence, Member States are not bound by decisions of EU institutions which would effectively amount to a treaty amendment or an expansion of competences which would in turn imply the existence of a competence-competence of EU institutions.
The BVerfG also ruled that the decision of the ECB about the PSPP does not infringe the prohibition of monetary financing under Art. 123(1) of the Treaty of the Functioning of the European Union (TFEU).
The BVerfG defined the following legal consequences resulting from the ultra vires infringement:
- As of the end of a three months period following the judgement of the BVerfG, Deutsche Bundesbank will no longer be allowed to participate in the implementation and execution of the ECB-Decision, unless the ECB describes by the end of that period in a comprehensible and substantiated manner that the monetary policy objectives pursued by the PSPP are not disproportionate to the economic and fiscal policy effects.
- The German government and the German parliament (Bundestag) must take active steps against the PSPP in its current form, e. they are required to take steps seeking to ensure that the ECB conducts an improved proportionality assessment.
By way of background, the BVerfG has no legal power over institutions of the European Union. Accordingly, the ECB is not bound by the judgment of the BVerfG and, thus, not legally bound to implement its orders. Only German institutions (such as Deutsche Bundesbank, the German government and the German parliament) must observe the judgement of the BVerfG.