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Do exceptional situations make exceptionally good or exceptionally bad law? This is an old question often asked anew – especially in the context of the post-2008 economic crises travails of the European Economic and Monetary Union (EMU). The legal disputes which resulted from differing opinions about how to solve the crises and also how, incidentally, to improve the EMU’s governance have reached the Court of Justice of the European Union (CJEU). The most prominent case to date is the so-called Gauweiler case, a preliminary reference procedure initiated by the German Constitutional Court, the Bundesverfassungsgericht (BVerfG). I discuss this case in more fully argued working paper available on SSRN, 'Gauweiler and OMT: Lessons for EU Public Law and the European Economic and Monetary Union'.
Gauweiler concerns the legality of the decision of the Governing Board of the European Central Bank (ECB) of September 2012 on so called ‘Outright Monetary Transactions’ (OMT). This case is significant for legal integration in the EU since, although it is the first instance in which the German BVerfG has ever taken advantage of the preliminary reference procedure (Article 267 TFEU), the reference by the BVerfG was formulated in very terse words. Essentially, the reference asks for clarification about the legality of the ECB’s OMT decision. But that reference is not formulated in terms of a dialogue between Courts, each respecting the other’s distinctive powers. Instead, the BVerfG explains why it considers the ECB’s decision to be ultra vires of its mandate and asks the CJEU essentially to confirm this interpretation warning about potential consequences in its assessment of the ‘constitutional identity’ of the Federal Republic of Germany. Inherent in the reference is a thinly veiled threat not to accept the exclusive competence of the CJEU to review the legality of EU law and, instead, to unilaterally hold an act of an EU institution to be invalid within a Member State of the EU. The BVerfG reinforced its sceptical position of the primacy of EU law over the law of Member States by recalling in its decision for preliminary reference its case-law concerning the limits it perceives are set for the Federal Republic of Germany’s integration in the European Union. In its decision, it refers to and further interprets the scope of its own case-law making reference inter alia to its judgments concerning the Treaty of Maastricht, the Treaty of Lisbon and in Honeywell, as precedent for its questions to the CJEU.
This approach to formulating the preliminary ruling, a legal obligation for any court of a Member State of the EU ‘against whose decisions there is no judicial remedy under national law’ (Article 267 para 3 TFEU) can therefore not be seen as a long overdue normalisation of the relations between the CJEU and the BVerfG. The BVerfG as one of the last remaining constitutional courts of Member States instead of simply complying with its clearly defined obligations under the Treaties to submit in adequate cases questions for preliminary reference. Rather, it is formulated as ‘last warning’ by the BVerfG after which, if the CJEU does not fall in line with its approach, it would consider to radically challenge the constitutional order of the EU and, in effect, questioning the Union’s very existence as a constitutional order.
This is a remarkable effect of what might be, in the cold light of day, regarded as a dispute which in its essence arises from a nearly hypothetical question essentially of administrative-law nature of action of an independent agency – albeit admittedly, an agency created by the constitutional order and action which may have significant financial implications for the budgets of the underwriting Member States. Although the Treaties are being considered as its ‘constitutional charter’ – the TEU, TFEU and the Charter of Fundamental Rights of the European Union - in parts contain law which in earlier days was referred to as truly a constitutional ‘traité cadre’ and in parts contains detailed provisions, normally found in legislative acts, sometimes referred to as provisions of ‘traité loi’. The question of the development and limits of the ECB’s monetary policy are developed in the context of traité loi: The ECB is designed as a highly independent EU agency with a legal basis and detailed Statutes on the level of the Treaties. The provisions not only circumscribe the objectives of monetary policy but also the instruments to great detail. They also confer normative powers as well as powers to enter into contractual relations.
Against the background of this conflict, my working paper does not focus predominantly on the, no doubt, eminently important questions of the constitutional relation between EU law and the law of the Member States. Nor does it address primarily the conceptual discussions of the past years, notably how to best frame the pluralism of legal orders in the EU – or how much hierarchic elements are necessary in this relation between legal orders in order to maintain a Union under the rule of law. Instead, this contribution focusses on the question what general lessons the Gauweiler case will teach for the development of public law in Europe. The reason for this question is that the setting of the case between detailed provisions on a constitutional level and the essentially administrative nature of the activities in combination with nature of the contested decision of the ECB as an emergency measure raises a sufficient amount of questions important enough to be discussed in their own right. It allows disregarding for a moment the BVerfG’s judicial threats to breach the primacy of Union law over the essentially hypothetical consequences of a not yet finally developed and not yet implemented future bond purchasing policy of the ECB. This paper therefore essentially looks at what we can learn for EU public law from the OMT dispute leading to Gauweiler. Have the exceptional emergency acts of the ECB – the OMT decision – created through the subsequent judicial review anything of value for concepts of European public law, and, if so, which? I would suggest some first conclusions:
The legal framework of EU economic policy of the EU is in the process of continuous transformation. The economic and financial crisis of the years after 2008 have been catalytic for accelerating integration. But some of these measures have gone deeper than simply strengthening the previous policy framework and have changed the details of the EMU roadmap both from an institutional and constitutional perspective. Monetary policy excised in the ESCB’s specific structure of de-centralised Union administration is a case study of a highly integrated agency regime which no other EU policy area has reached. At the same time, EU monetary policy has become an exemplary field to study the independence of agencies, the powerful role which specific expertise is given in defining a highly relevant and specifically framed objective: that of guaranteeing price stability. This precisely defined policy goal shall be exercised where possible in the context of maintaining price stability to contribute to the ‘general economic policies in the Union’. It is thus a technical objective which should be exercised also in the context of politically defined goals. Therefore, the administration of the Union’s monetary policy is highly political administration.
However despite the many specific features, this area also presents itself as an area of study with a wealth of examples for many of the general characteristics and the problems of the fast evolving Union administrative law (see Herwig C.H. Hofmann, Gerard C. Rowe, Alexander H. Türk, Administrative Law and Policy of the European Union, OUP 2011, 18). One of the reasons for this is that normally, monetary and economic policies are quite well hidden away in the bowls of the state. Lawyers rarely venture into this field of high technical expertise and highly independent agencies. If at all, public law instruments of control of central banks are often centred on anticipatory modes of control through nomination of key personnel such as the central bank’s president. Ex post tools of review and accountability often are in the form of auditing reports and parliament hearings in which central bankers need to justify their decisions.
In the EU, this generally well hidden area has been brought to the broad light of day by the Treaty of Maastricht and Lisbon’s distribution of powers concerning EMU along the various multiple levels of governance. Monetary policy was fully centralised in the ECB, economic policy largely remained in the hands of the Member States. This distinction proved to be an impossible approach and so since 2008 in a series of international agreements and EU legislation, economic policy has been brought into the realm of the executive branches of Member States coordinating on an intergovernmental level and the EU Commission. In view of this, the ECB is supposed to exercise its objective of maintaining price stability whilst nonetheless supporting the economic policy objectives formulated in within the EMU. In doing so, however, it has to navigate the particular, and one might add as the 2008 crises has shown, quite possibly over-optimistic or even naïve, hope that the ‘invisible hand’ of market pressures will lead to a fully-fledged coordination of growth oriented economic policies of the Euro Member States. Instead, the ECB finds itself in a situation where it has to define monetary policy in view of markets, which can over- or under-price certain risks. Speculation is a strong force in creating prices. In that situation, the ECB devised its OMT programme in order to counteract against speculation detrimental to the existence of a single monetary policy.
In view of this, at the end of the day, the dispute before the BVerfG arose from the fear that the German Parliament having the ultimate budgetary rights in Germany, would be exposed to undefined financial liabilities resulting from ECB action on bond markets trying to stem speculation and maintain the unity of the Eurozone. The fear was that by buying bonds, the ECB would actually risk bankruptcy itself and thus in need of being bailed out by its shareholders – the national central banks. Also, the fear was that the ECB would indirectly engage in monetary financing of state budgets in that it would buy government bonds by circumventing the prohibition of monetary financing of budgets in Article 123(2) TFEU.
The dispute has therefore brought to light a serious design flaw in the EU’s EMU. It is difficult to maintain in extreme situations one monetary union in absence of a common fiscal and economic policy which would be capable of raising itself enough money to back up the ECB’s monetary policy actions. This structure limits both the monetary as well as the economic policy options of the EU and the Member States. Instead of classic neo-functionalist spill-over, the reality is that the ECB is fighting against a speculation based roll-back of integration in a way not un-similar to the exchange rate troubles of the early 1990s which affected both Sweden and the UK.
With respect to the possibilities of judicial review of the actions of central banks, Gauweiler marks a big step towards developing accountability in legal terms whilst respecting technical expertise and the discretion which has been conferred on the ECB in order to back that up. The key instrument in EU law to navigate the treacherous waters of ensuring legality and accountability of acts on one hand and protecting discretionary power has consisted in fine-tuning the review under proportionality. The CJEU takes the right steps to submit ECB action to the proportionality test. But much needs to be done to better develop the criteria of proportionality whose exact application remains in a state of flux. Just by comparing the precedents the CJEU and the AG rely on in definition of their proportionality criteria makes clear, how much work needs to be done in this context.
Another interesting point which was developed in this case, in response to the pressure exercised by the BVerfG, is the possibility of review of what generally might be regarded as a ‘factual act’ as opposed to a legally binding act. The announcement of a programme which was yet to be defined in legally binding acts was submitted to review to answer the question of the BVerfG. The definition of the degree of sub-elements of the programme was unclear. Therefore, the Court essentially reconfirmed a structure of review for all such not-fully defined types of act, be they factual acts, be they programmes of unclear legal status to be later specified: The single approach to their review is to control the existence of a legal basis, the compliance of the measure with all specifications of the legal basis and, finally, a test as to the compliance of the measure with general principles of EU law, which in all practical terms often means essentially the compliance with the proportionality test.
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