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Brussels begins legal action against Germany over controversial ECB ruling

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The German ruling took direct aim at the competences of the European Central Bank.
The German ruling took direct aim at the competences of the European Central Bank.   -   Copyright  Michael Probst/AP Photo, FILE
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The European Commission has opened an infringement procedure against Germany over a controversial ruling issued by the country's constitutional court that directly challenged the autonomy and primacy of EU law.

The decision from Brussels refers to a judgement made by the German Federal Constitutional Court in May 2020. The court, which is based in the city of Karlusche, said back then that the European Central Bank (ECB) had acted beyond its competences ("ultra vires") when it launched the Public Sector Purchase Programme (PSPP).

The PSPP programme, known as "quantitative easing", enabled the ECB to purchase sovereign bonds from governments with the goal of providing liquidity and stabilise the financial conditions inside the eurozone. The PSPP began in 2015 to control the aftermath of the European debt crisis and has since bought more than €2.3 trillion in debt.

The ECB's actions were later validated by the European Court of Justice (ECJ).

"The PSPP programme does not exceed the ECB’s mandate. The programme falls within the area of monetary policy, in respect of which the EU has exclusive competence for the Member States whose currency is the euro, and observes the principle of proportionality," the ECJ said in 2018.

But the Karlusche judges believed that, in saying that, the ECJ too had overstretched its competences.

The constitutional court went as far as demanding the ECB to prove within three months that the objectives of the bond-buying programme were not disproportionate to its desired effects. If the ECB failed to meet the deadline, the court noted, Germany’s central bank, the Bundesbank, should suspend the implementation of the PSPP altogether.

Given that Germany is the EU's biggest economy, the withdrawal of the Bundesbank would have led to the collapse of the crucial stimulus package and jeopardised the common currency's future.

Weeks after Karlusche's defiant decision, Olaf Scholz, Germany's finance minister, sent a letter to the German parliament explaining that the ECB had in fact shown "plausible proportionality with regard to the PSPP" and that the Bundesbank was allowed to participate. The assessment later received the blessing from the constitutional court itself.

'A serious precedent'

The ruling from the constitutional court sent shock-waves across the continent.

Policymakers and legal experts quickly pointed out that the ECB is an independent EU institution that is only held accountable by other EU institutions, like the ECJ or the European Parliament, not by national authorities. The inclusion of the three-month ultimatum was heavily criticised.

The German verdict came as the ECB was rolling out a similar asset-purchase initiative to fight the economic devastation of the coronavirus pandemic.

ECB President Christine Lagarde defended her organisation's work. "We will continue doing whatever is needed, whatever is necessary... undeterred," she remarked.

Brussels reacted angrily to the decision, seeing it as a direct attack to the EU's foundations. However, it waited more than one year to take legal action.

In the formal notice sent on Wednesday, the Commission argues Germany violated "fundamental principles of EU law, in particular the principles of autonomy, primacy, effectiveness and uniform application of Union law".

The Commission takes aim at the German court for challenging the competences of both the ECB and the ECJ, two supra-nationals institutions.

"The German Court deprived a judgement of the European Court of Justice of its legal effect in Germany, breaching the principle of the primacy of EU law," the executive wrote, dismissing as insufficient a recent opinion by Karlusche that actually endorsed the ECB's programme.

A formal notice is the first step in an infringement procedure. The Commission has given the German government two months to reply. If the response is not considered satisfactory or fails to materialise, the Commission would resort to a reasoned opinion: a request to comply with EU law. If the member states refuses to cooperate, the matter could be referred to the Court of Justice.

"The last word of EU law is always spoken in Luxembourg," commented a Commission spokesperson, adding that a change in case law in Germany or a ruling by the ECJ could help solve the dispute.

The official said the Karlusche verdict constituted a "serious precedent" that could "open the way for a Europe à la carte".

Longstanding principle

Primacy of EU law is one the bloc's cornerstone principles: whenever there's a conflict between EU law and national law, the European text must prevail.

The principle has a long history: it was set as precedent in the Costa v ENEL case of 1964. Back then, the ECJ said that if domestic legislation were to override EU norms, the law and character of the EU as a community would be called into question and any EU action would become unworkable.

Primacy of EU law is not absolute: it only only applies in the fields where EU countries have ceded sovereignty to the EU, like competition and the single market. The principle is not enshrined in the EU treaties but is consistently observed by the ECJ.

Professor Geert van Calster, who heads the KU Leuven's department of European and international law, thinks the Commission's formal notice is "understandable" and sends a message to the 27 EU countries.

"Clearly the message is to Germany: 'We take this seriously and we think that the way in which the German highest courts approach their relationship with EU law is a problem," the professor tells Euronews.

"But the message is also clearly to other member states, including Poland and Hungary: 'We pursue these cases not just against the member states that are accused of breaking the rule of law. We are also pursuing it against some of the oldest EU member states who likewise might be infringing the rule of law'".

Van Calster believes the surprising ruling from the German court can be explained by the country's emotional attachment to its democratic constitution, which was drafted after the fall of Adolf Hitler and served as inspiration for others that came afterwards.

The legal expert predicts the resolution to the conflict will not come from dialogue between Brussels and Berlin but rather straight from Luxembourg.

"I don't really think there is a solution other than for the European Court of Justice to insist that EU law stands above national law despite provisions in national constitutional provisions. I really don't see any other way," van Calster says.

"The German government has its hands tied. It can't really order the German courts to change that approach because that would be a clear breach of separation of powers. So it will leave this hot potato to the courts at Luxembourg [...] to re-emphasise that EU law stands [above] all German law. And I'm afraid there's not going to be much dialogue in that."