The German Constitutional Court and the Euro-Crisis: The Emperor‘s New Clothes?

 Daniel Thym is Professor of Public, European and International Law at the University of Konstanz

Domestic German debates about the euro-crisis have had an unreal character so far. In the face of an economic crisis with global repercussions, the German public has been fascinated by the role of the Constitutional Court whom they admire. A vast majority of Germans trust that the country’s highest justices will steer the euro-debate through troubled waters with legal arguments. This confidence in the ability of Germany’s top constitutionalists, including several public law professors, was always bound to lead to disappointment.

It is true that the German Constitutional Court cannot be held responsible for the excessive media hype (or indeed opinion polls) about its role. However, it has to shoulder some responsibility. In recent years, the Court’s Second Senate had nourished the expectation that its interpretation of the principle of democracy was a lodestar for rescue operations. The debate reminded me of the fairy tale ‘The Emperor‘s New Clothes’. Those who aspire to ever more prestigious garments as a sign of power and wisdom risk being found to be naked at the end of the day. This applies to the German judicial ‘sovereign’ in the same vein as to the entourage who longed to gain from the prestige of their glorious ruler.

The Court’s latest judgment on the European Stability Mechanism (ESM) (also discussed by Michael Waibel here) and related instruments is an excellent demonstration why the desire for the pomp and circumstance of imperial times, remains an illusion (at least in Germany). The lesson is evident: the time has come to recalibrate the (legal) debate on euro rescue operations in Germany and beyond.

Judicial Pullback Operations

From the early days of its case law on EU integration, the German Constitutional Court has faced the difficulty of having to analyse EU law as a bystander. In dogmatic [doctrinal?] legal terms, this meant that judges based their finding primarily upon the interpretation of the principle of democracy, which the eternity clause of the German constitution protects against amendment. This was a bold approach and implied that dogmatic legal considerations, which are upheld in German constitutional doctrine, could not render much assistance. Moreover, democratic theory failed to provide guidance, since the Court’s assumption that national parliamentary elections are the core instrument for holding transnational governance structures to account was out of touch with political theory. In short: Karlsruhe had to establish criteria for rescue operations all alone.

Nonetheless, the principle of democracy proved surprisingly prolific. It guided the judicial identification of national reserve powers, including national budgetary autonomy, which established taboo zones for further EU integration. The 2011 judgment on loans to Greece provided critics with ample ammunition against the ESM – and they were emboldened by newspaper interviews of the Chief Justice and the Reporting Judge which seemed to indicate that a referendum about a new constitution was imminent. There was a widespread assumption that the Court would, at best, clear the ESM with strict caveats, including red lines for further rescue operations and the move towards fiscal union.

Things turned out different last Wednesday: In its latest judgment, the idea of justiciable maximum limits to which Germany may sign up to is buried beneath a ‘broad parliamentary margin of appreciation.’ The plan for some kind of fiscal union is sanctioned by the judges even before specific proposals have been put on the table, since ‘the continuous reform of monetary union may be necessary to realise the objective of monetary stability’, which the Court considers to underlie the EU Treaties and the German constitution. In the interviews mentioned earlier, the soundbite had been quite different. The two remaining caveats are a consolation prize. The core message reads: euro rescue operations and further reform steps can go along, if the German parliament approves them.

Don’t get me wrong: I am not criticising the judgment. I am convinced that this is the only correct answer available. The deduction of precise limits for euro rescue operations from the principle of democracy in the German constitution’s eternity clause would have overstretched the options of hermeneutical interpretation and the role of constitutional judges. It is the right approach for the Court to step back and let politicians take the helm.

Changing Legal Dynamics: ECB Bond Purchases and EU Law

Critics will continue to argue that the bailouts violate the German constitution. There will be further complaints and further judgments – even if they will, most probably, not establish much stricter standards. There is one potential exception ECB bond purchases. Commentators were quick to interpret vague judicial suggestions about legal limits for ECB bond purchases in paras. 277-278  of the Constitutional Court’s judgment as a sign of an imminent attack by the German Constitutional Court on the ECB. It may be noted that the Second Senate had ignored earlier complaints against the first ECB bond-buying programme in its ruling on loans for Greece; and the Court has not yet declared that bond purchases on the secondary market are illegal per se. However, it now seems that ECB bond purchases will take centre-stage at the forthcoming oral hearing on the reminder of the case. These debates will be set in a different legal context.

Scrutiny of the bond purchasing programme will require the German Constitutional Court to switch from identity review (i.e. violation of the constitutional eternity clause) to ultra vires control (i.e. evident transgression of EU competences) when it considers the legality of the ECB action under Article 123 TFEU. In this respect, the Court had emphasised on an earlier occasion that ultra-vires control will always be based upon the prior consultation of the Court of Justice of the European Union (ECJ) – if necessary by means of a reference by the German Constitutional Court itself. It would be virtually impossible for the Court to climb down from this commitment, if it seriously considers declaring ECB bond purchases as an ultra vires act. Such reference from Karlsruhe would be a novelty, although there is, as a matter of principle, nothing spectacular about it. In particular, it does not present a gesture of subordination, since Luxembourg is well aware that Karlsruhe retains the ‘last word’. Nonetheless, the reference would mark a turning point.

Why? The reason is simple. Up until now, the euro-crisis has been discussed, within Germany at least, primarily with reference to German judges (the Constitutional Court) interpreting domestic legal provisions (the constitution’s eternity clause) with a view to extending the powers of a national institution (the Bundestag). The reference will change legal dynamics. Supranational institutions and supranational law will take centre stage – and the interpretation of EU law requires transnational legal discourse. This will force the domestic German debate, both among lawyers and public opinion, to acknowledge that domestic law and institutions are not the only relevant actors. Forthcoming debates will demonstrate, for example, that the widespread assumption that euro rescue operations violate EU law is no foregone conclusion. The ECJ ruling will support transnational discussion and force domestic actors in Germany to end their myopic presentation of the legal aspects of the euro crisis.

A Different Role for the European Institutions

A core problem of the German Lisbon Judgment is the assumption that democracy is the prerogative of the nation-state. The European Parliament, in particular, was first denounced as an unrepresentative assembly by the German Constitutional Court and later undermined in its real-world function by a decision of the Court, which abolished the 5 % entry hurdle which effectively allows fringe parties to enter the European Parliament. A reference to the European Court of Justice would present an important counterpoint. It would signal a new trust towards supranational institutions without which reform projects are bound to fail. Moves towards fiscal union will not be sustainable, if political and legal discourse within Germany continues to be focused almost exclusively upon national law and institutions. That is why the reference matters.

More attention to EU institutions is a necessary but not sufficient condition for changing the orientation of the crisis. The European Court of Justice, the European Parliament and the European Commission will have to demonstrate that they are in a position to assume responsibility. I am personally optimistic insofar as the ECJ’s responses to the Irish Pringle case and a future reference from Karlsruhe are concerned. Recent activities by the European Commission are, unfortunately, less promising. In its much-touted State-of-the-Union address, presented on the very same morning as the German Constitutional Court delivered its latest verdict, President Barroso did not set out a precise vision for the future. The idea to address the democratic deficit through a new statute for European political parties is naive, at best. Political leadership looks different.

Conceptual About-Turn

Extensive media coverage, both domestic and international, of the German Constitutional Court judgments and parliamentary votes show that the fortification of domestic institutions by means of constitutional interpretation has an impact upon everyday political practices which bring about the discursive strengthening of national identity. Such support for domestic institutions and national identity may have been the core motivation underlying the Constitution Court’s judgments. But enough is enough. The time has come to rebalance the legal and the political debate on euro rescue operations. Return to sovereign nation-hood is an illusion, which some German constitutionalists and politicians may dream about, but which will not happen. Life is no fairy tale – and Germany’s judicial sovereign is wiser than the emperor with its new clothes whose bluff a young boy had to call. The German Constitutional Court was intelligent enough to realise that it was about to get stuck in a dead end. It turned around and will soon pursue a different strategy. It will call upon the ECJ to assume responsibility for the rule of law in Europe. This will provide Luxembourg with the opportunity that it protects the rule of law and democracy as effectively as the German Court has for many years.

This is a slightly revised version of a post first published on EUtopia law.