Germany’s top court has fired a cannon shot across the bows of the European Central Bank and accused the European Court of breaching EU treaty law, marking an epic clash of rival judicial supremacy.
In an explosive judgement, the German constitutional court ruled that the ECB had exceeded its legal mandate and “manifestly” breached the principle of proportionality with mass bond purchases, now topping €2.2 trillion and set to rise dramatically. The bank had strayed from the monetary realm into broad economic policy-making.
The court said the German Bundesbank may continue to buy bonds during a three-month transition but must then desist from any further role in the “implementation and execution” of the offending measures, until the ECB can justify its actions and meet the court’s objections. It also said the Bundesbank must clarify how it is going to sell the bonds it already owns.
“For the first time in history, the constitutional court has found that the actions and decisions of European bodies overstep their legitimate competence, and therefore have no validity in Germany,” said the court’s president, Andreas Vosskuhle.
No country has dared to do this before since the creation of the Community in 1957. It is a revolutionary moment for the European project.
Olaf Scholz, the German finance minister, said the court had set “very clear boundaries” and that Europe would henceforth have to find other ways to keep monetary union on the road.
The venerable institution in Karlsruhe – the Verfassungsgericht – read the riot act to the European Court of Justice, concluding that the ECJ’s dismissive attitude to questions of proportionally was “incomprehensible” and inconsistent with its approach in “virtually all other areas of EU law”. It said the European judges were acting ultra vires and beyond treaty authority.
In a thunderous passage it reminded the Euro-judges that the member states are the “Masters of the Treaties” and not the other way round, and that if national courts were to rubber stamp decisions by EU institutions it would be a slippery slope and a threat to the “principle of democracy”.
The Verfassungsgericht has never accepted the ECJ’s assertion of supremacy and has always reserved the right to strike down EU law if it breaches the German Grundgesetz, but has never has never acted on this threat until today. It pointedly stated that the Lisbon Treaty did not establish such supremacy and that the EU is not a federal state.
It ruled point blank that the German court is “not bound” by the ECJ’s earlier ruling on bond purchases. In other words, Germany has reasserted her sovereignty. This is heady stuff.
“It lets a lot of big ugly genies out of the bottle. The whole constitutional basis of Germany’s role in European integration has to be reviewed in light of this,” said David Marsh, president of the Official Monetary and Financial Institutions Forum and author of a Bundesbank history.
“People have been poo-pooing these court cases for years saying they are being brought by populists and don’t matter, and now they discover that the court agrees with these litigants,” he said.