4.1 Introduction
‘When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean – neither more nor less.’Footnote 1
In the story about monetary policy, the European Central Bank (ECB) is our Humpty Dumpty: when it uses the words ‘monetary policy’, they mean just what it chooses them to mean. This ability of the ECB comes from Article 119(2) TFEU, which states that the competence includes ‘the definition and conduct of a single monetary policy’ (emphasis added).Footnote 2 This undoubtedly makes the ECB extremely powerful. The Treaties have also endowed the ECB with a high level of independence:Footnote 3 one that has developed into an almost impervious screen shielding it from legal accountability demands.Footnote 4 The ability to define its own mandate, coupled with a high level of independence, created an ECB that wields enormous power, influencing the lives and livelihoods of EU citizens. The nature of the ECB’s mandate has important consequences for its accountability, which was highlighted by the Court of Justice,Footnote 5 the Bundesverfassungsgericht,Footnote 6 as well as in the literature.Footnote 7 In a nutshell, ECB’s independence and accountability act as counterforces where independence most commonly prevails. How so?
Following a joint reading of Articles 127(1) TFEU and 282(2) TFEU, the primary objective of the Union’s monetary policy is to maintain price stability. In addition, Article 127(1) TFEU tells us that without prejudice to this primary objective, the European System of Central Banks (ESCB, headed by the ECB) shall also ‘support the general economic policies in the Union’, with the aim of contributing to the achievement of the objectives enshrined in Article 3 TEU.Footnote 8 The ‘without prejudice’ phrasing in this provision is of enormous consequence for the common interest: it tells us that Treaty objectives that should guide all Union action hold but a secondary importance for the ECB’s price stability mandate.Footnote 9 The ECB’s high level of independence at the same time makes any contestation in that regard nearly impossible. Yet, there seems to be no unified stance among central bankers regarding the beneficial or detrimental nature of the relationship between the price stability mandate and the ECB’s possible role in more general policies aimed at economic growth.Footnote 10 Such an environment creates significant leeway for the ECB to make its own assessments in a virtually unfettered manner.
Fears about the precarious status of ECB’s accountability on paper materialised in practice. The overlap between monetary and economic policy effects became most vivid with the ECB’s use of quantitative easing (the Public Sector Purchase Programme (PSPP)), which made the ECB the largest creditor of eurozone Member States.Footnote 11 This creditor role of the ECB makes it more difficult to achieve accountability via routes that theoretically may be open to Member States under the Treaties. It also places governments in a subordinate position to the ECB, with a decreased ability to be responsive to their citizens. In some ways, this construct is similar to how the Troika-led creditors obstructed the chains of accountability of governments to their citizens in the area of financial assistance.
The ECB is also undoubtedly making value-based choices on how the PSPP is to be implemented, deciding on the desired consequences in the prices of assets, which arguably led to a significant income redistribution.Footnote 12 Another important consequence tied to the PSPP’s rollout is that due to its sheer size and influence on the prices of assets, discontinuing the programme may result in significant uneven shocks across Member States, ultimately endangering financial stability.Footnote 13 As we will see below, the multifaceted consequences of ECB action caused a rift between the Court of Justice and the Bundesverfassungsgericht. The former took the view that so long as the ECB claims it is acting within its primary mandate (price stability), there is nothing problematic in its policies having other effects as well. In contrast to this, the latter argued that the ECB should do no more than act within its monetary policy mandate, which should be interpreted narrowly given its high level of independence under the Treaties.
The aim of this chapter is thus to highlight how these tensions influence the accountability of the ECB from the perspective of the individual and the achievement of the common interest as presented in Chapter 1. As a first step, I will present the legal framework of monetary policy within the system of the ESCB and explain in more detail the quantitative easing programmes of the ECB. Here, I will also provide a summary of the back-and-forth litigation on the scope of monetary policy between the Court of Justice and the Bundesverfassungsgericht in Gauweiler and Weiss. This background will allow for a further in-depth analysis of these decisions in the remainder of the chapter. To do so, I will then focus on the judicial review of monetary policy decisions by the Court of Justice (Section 4.3) and by national courts (Section 4.4). Both these sections will follow the same structure: I will focus, first, on access to courts and remedies, and second, on the ways in which the courts under analysis approached the principles of equality and solidarity for the purposes of achieving the common interest. The last section will focus on judicial interactions between the EU and national courts and the role they play in the legal accountability of the ECB.
4.2 Monetary Policy and the European System of Central Banks
An exclusive competence of the EU, monetary policy and the EU’s single currency may be one of the most visible symbols of EU integration after the establishment of the internal market. Its particular position within the EMU was a result of a decades-long debate between the so-called ‘monetarists’ and ‘economists’. In a nutshell, the former argued that a common currency should precede the coordination of economic policies, whereas the latter focused on economic policy coordination as the necessary precondition for the introduction of the common currency.Footnote 14 While the monetarists prevailed, the creation of an asymmetrical EMU prevented the creation of a transfer union: every Member State continues to be competent for its economic and fiscal policy and remains solely responsible for its debt. This is ensured by the prohibition of monetary financing (Article 123(1) TFEU)Footnote 15 and the no-bailout clause (Article 125(1) TFEU).Footnote 16 In economic policy, fiscal surveillance at the EU level serves to ensure that Member States pursue a sound economic policy, thus minimising the likelihood of any possible shocks manifesting themselves across the eurozone.Footnote 17
Within this legal scheme, the ECB is the governing institution of the European System of Central Banks, comprised also of central banks of eurozone Member States.Footnote 18 To achieve the objectives of monetary policy, national central banks and the ECB may operate in financial markets and conduct credit operations with credit institutions and other market participants following the general principles established by the ECB.Footnote 19 They also conduct prudential supervision, and as will be detailed in Chapter 5, here the ECB also has a central role, whereas national supervisors act under its instructions and control.Footnote 20 The ECB is subject to judicial control at both the EU and national levels: under the general Treaty rules concerning the procedures before the Court of Justice and before national courts concerning disputes with creditors, debtors, or any other person.Footnote 21 The ESCB can be seen as a novel institutional system in which national central banks now wear two hats: they are national but are also EU authorities when acting under the ESCB.Footnote 22 In their latter function, the Governing Council of the ECB is entitled to decide that a central bank, while wearing its national hat, is acting in conflict with what is required of it while wearing its ESCB hat.Footnote 23
The ECB’s role changed significantly during and after the Euro crisis. It participated, alongside the Commission and the International Monetary Fund, in the Troika, negotiating financial assistance, the conditions under which it would be granted, and supervised national compliance.Footnote 24 Aside from its new role in banking supervision, it also added to its arsenal of powers the use of a non-conventional monetary policy mechanism: quantitative easing. This includes purchasing government bonds indirectly on the secondary market, thereby incentivising private purchases of bonds issued by troubled eurozone countries and providing the latter with a fresh supply of money.Footnote 25 While in the nation-state context the central bank usually buys government bonds directly,Footnote 26 the ECB had to work around the prohibition of monetary financing of Member States from Article 123 TFEU. The first quantitative easing programme to cause a legal ruffling of feathersFootnote 27 is the Outright Monetary Transactions (OMT) programme – without ever even being implemented. The programme was announced in the form of a press release,Footnote 28 outlining that purchases would be done only for Member States undergoing a financial assistance programme and so long as they complied with the conditionality attached. Apart from this constraint, there were no other quantitative limits to purchases, while the bonds to be purchased would be those with a maturity between one and three years.
The quantitative easing programme that actually did get to see the light of day was the PSPP.Footnote 29 The PSPP formed part of the ECB’s extended asset purchase programme (APP) alongside the asset-backed securities purchase programme (ABSSP), the bond purchase programme (CBPP3) (both introduced in September 2014), and the corporate sector purchase programme (introduced in March 2016).Footnote 30 Unlike the OMT, the PSPP contained no restrictions in terms of compliance with the conditionality requirements. Instead, purchases were to be done across the entire eurozone according to the capital key contributions of eurozone Member States. The PSPP did initially contain a limitation on the volume of purchases to €60 billion, but these were continually extended and are today at a level of €2.5 trillion.Footnote 31 Another change in comparison to the OMT is that eligible bonds were now those with a maturity of between one and thirty years. The PSPP ran from 9 March 2015 to 19 December 2018 and from 1 November 2019 until 30 June 2022.
Finally, the ECB also instituted the Pandemic Emergency Purchase Programme (PEPP)Footnote 32 ‘to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the coronavirus (COVID-19) outbreak’.Footnote 33 Initiated in March 2020 with an envelope of €750 billion, it was ultimately expanded to €1,850 billion. Purchases were discontinued in March 2022. In terms of its characteristics, it resembles the PSPP in that it does not restrict its applicability to Member States receiving financial assistance but includes all eurozone members according to the capital key. This, with the caveat that purchases will be carried out with flexibility that might entail fluctuations over time. Eligibility of the bonds in terms of their maturity is set to from 70 days up to a maximum of 30 years and 364 days.
In addition to this general legal framework and the non-conventional mechanisms used by the ECB, it is useful in this section to introduce the main outlines of the litigation concerning quantitative easing that took place between the Court of Justice and the Bundesverfassungsgericht through the preliminary reference procedure. The two courts have been discussing the appropriate level of control of the ECB as an idiosyncratically independent institution extensively,Footnote 34 beginning with the announcement of the OMT. The judgment of the German court in Weiss concerning the PSPP is at present the last instance of this back-and-forth. Three main threads run through and shape these interactions: the legality of ECB action, ultra vires review, and the role of constitutional identity, culminating in the German rejection of the interpretation provided by the Court of Justice.
In Gauweiler, the Bundesverfassungsgericht raised doubts concerning the compatibility of the OMT mechanism with primary EU law. More specifically, for the OMT to be ultra vires, it needed to exceed the monetary policy mandate of the ECB and the prohibition of monetary financing, resulting in an encroachment of Member States’ economic policy.Footnote 35 The Court of Justice’s response confirmed the legality of the OMT programme: it first analysed the powers of the ECB and concluded that the indirect effects of monetary policy on economic policy do not make them equivalent, leading to the conclusion that the ECB was acting within its mandate.Footnote 36 The Court of Justice further provided the conditions necessary for compliance with the Treaties,Footnote 37 albeit differently than what the Bundesverfassungsgericht proposed in its order for reference.Footnote 38 In respect of the relationship between the two courts, the Court of Justice omitted any analysis of the claims to constitutional identity and ultra vires review of the Bundesverfassungsgericht, stating only that the decisions under the preliminary reference procedure on the interpretation and validity of Union acts are binding on national courts.Footnote 39 The Bundesverfassungsgericht accepted the findings of the Court of Justice by setting out the relationship between the principle of primacy and the German Basic Law, addressing also the identity and ultra vires review it carries out in relation to EU acts. It concluded that any such review must be done cautiously, with restraint, and in a way that is open to European integration.Footnote 40
This background shaped the second preliminary reference that was submitted by the Bundesverfassungsgericht concerning the PSPP.Footnote 41 This second reference revolved around three issues: the ECB’s obligation to state reasons in devising the PSPP programme, the scope of the monetary policy mandate of the ECB, and the PSPP’s compliance with the Treaty prohibition of monetary financing. The principle of proportionality was mentioned by the Bundesverfassungsgericht only in relation to the first two issues.
Regarding the duty to state reasons, the Court of Justice concurred with the Advocate General’s broad assessment of which documents are relevant for making this finding,Footnote 42 such as the publication of press releases, statements of the President of the ECB, answers to the questions raised by the press, and by the ECB Governing Council’s monetary policy meetings.Footnote 43 Therefore, the Court found that the ECB complied with its duty to state reasons. In determining next whether the PSPP falls within the sphere of monetary policy, the Court focused on the objectives and instruments of the measure in question.Footnote 44 It found that regardless of any possible indirect effects on economic policy, the PSPP cannot be treated as an economic policy measure.Footnote 45 As to what constitutes an indirect effect, the Court rejected the Bundesverfassungsgericht’s interpretation, relying instead on Gauweiler and Pringle: indirect effects are the foreseeable consequences of measures, which have therefore been knowingly accepted at that time.Footnote 46
Finally, the Court analysed whether the PSPP is in line with the prohibition of monetary financing.Footnote 47 The preliminary reference specifically invited the Court to apply the safeguards necessary for preventing a circumvention of that prohibition from Gauweiler.Footnote 48 The Court recalled the Gauweiler principle that the intervention must not have an effect equivalent to the direct purchase of bonds and the programme must contain sufficient safeguards not to reduce the impetus for Member States to pursue a sound budgetary policy.Footnote 49 On the first point, the Court acknowledged that there is some foreseeability in the ESCB’s intervention given the publication of some of the programme’s features.Footnote 50 However, numerous safeguards reduce certainty among market operators and keep it in line with Article 123(1) TFEU.Footnote 51 The Court then turned its attention to whether the impetus for Member States to conduct a sound budgetary policy is reduced. It recognised that monetary policy will always have an impact on interest rates, with consequences for the refinancing conditions of public debt.Footnote 52 However, the programme ‘may not create certainty regarding a future purchase of Member State bonds’.Footnote 53 In conclusion, the PSPP survived.
After receiving the response from the Court of Justice, the Bundesverfassungsgericht found that the proportionality test as applied by the Court of Justice deprives the said principle of its ability to protect Member State competence.Footnote 54 It declared the judgment of the Court of JusticeFootnote 55 and the PSPP programmeFootnote 56 ultra vires. Having rejected the findings of the Court of Justice, the Bundesverfassungsgericht then took it upon itself to interpret the scope of the ECB’s monetary policy mandate: the ECB failed to take into account the economic policy effects of the PSPP programme and, importantly, balance a number of competing interests against each other.Footnote 57
In defining the relevant steps of the proportionality test, the Bundesverfassungsgericht stated that the fourth stricto sensu step has been omitted by the Court of JusticeFootnote 58 as there was no review of the sufficiency of information provided by the ECB in balancing the relevant interests.Footnote 59 The ECB thus failed in its duty to state reasons concerning the proportionality of the PSPP.Footnote 60 In relation to the prohibition of monetary financing, the Bundesverfassungsgericht raised some doubts with regard to the scrutiny applied by the Court of Justice, again related to the duty to state reasons.Footnote 61 Ultimately, it decided that the programme is in line with the prohibition of monetary financing and does not breach the constitutional identity of Germany.Footnote 62
In consequence, the Bundesverfassungsgericht gave the Bundesbank a three-month deadline during which it was obliged to work together with the ECB to ensure that the programme meets the principle of proportionality. Otherwise, the Bundesbank will no longer be allowed to participate in the PSPP programme.Footnote 63 Since then, the ECB has decided to comply with the request of the Bundesverfassungsgericht,Footnote 64 which the President of the Bundesbank deemed to be in compliance with the proportionality analysis to be carried out and published by the ECB.Footnote 65 The conclusion of this litigation culminated in an Order of the Bundesverfassungsgericht, confirming its judgment was complied with.Footnote 66
4.3 Judicial Review at the EU Level
4.3.1 Access and Remedies
There is no specific scheme of the judicial review of ECB action provided by the Treaties. The ECB is, according to Article 35.1 of the ESCB Statute, caught by the general scheme of review provided by Article 263 TFEU as well as other ways to trigger a procedure before the Court of Justice, such as the action for damages under Article 340 TFEU. The same headings of review apply. There was thus no attempt by Treaty drafters to create a specific form of review or exclude ECB action from judicial oversight altogether. In the ten cases where the Court of Justice dealt with the interpretation of monetary policy,Footnote 67 six were initiated through a preliminary reference and four via direct action. This tells us little about the patterns of litigation that are more pronounced in financial assistance (in favour of preliminary references) and in the Single Supervisory Mechanism (in favour of direct actions).
In that respect, there is hardly anything special about monetary policy when it comes to admissibility – save for the fact that the Court of Justice reviewed a Press Release of the ECB in announcing the OMT mechanism.Footnote 68 A press release merely set out the main features of the programme but did not constitute a binding measure adopted by the ECB. In that respect, some of the participants in the preliminary reference claimed the case is hypothetical and thus inadmissible.Footnote 69 Another line of attack was that the press release is a preparatory act that cannot be subject to questions of validity, as it does not produce legal effects.Footnote 70 The Court of Justice dismissed these arguments, claiming instead that since an action against a possible future act is possible under German law, the questions submitted through the preliminary reference procedure are necessary for the Bundesverfassungsgericht to resolve the case before it.Footnote 71
As we will see below in respect of access and remedies at the national level,Footnote 72 the action before the Bundesverfassungsgericht was brought in the context of an abstract review. This means that the national court is not in fact solving a dispute between the parties but conducting an abstract review – does that make the question of the national court hypothetical and thus inadmissible?Footnote 73 The Court of Justice dealt with preliminary references resulting from an abstract review at the national level, which although in their nature are hypothetical, nevertheless represent a genuine procedure at the national level. Here, then, the rules of national procedural law determine the relevance of the preliminary reference, and the Court of Justice will accept it as admissible.Footnote 74
The Bundesverfassungsgericht did ask one question in Weiss that the Court of Justice found hypothetical and thus inadmissible. Taking into account the scenario of a default by a Member State, and the resulting possibility that other national central banks become jointly responsible for the resulting liabilities, the German court asked about the compatibility of such a risk-sharing scenario with the prohibition of monetary financing and the no-bailout clause. The Court of Justice found that there is no possibility envisaged in the PSPP for such risk-sharing to take place, and thus concluded its answer would be either advisory or purely hypothetical.Footnote 75 For its part, the Bundesverfassungsgericht understood this reply as meaning that the Treaties outright prohibit risk-sharing ever to be envisaged, and concluded, as we will see below, that this would also be precluded by Germany’s constitutional identity.Footnote 76
The question of remedies took an interesting turn, one from which it is possible to imagine further creativity by the Court of Justice. In Rimšēvičs,Footnote 77 the Court of Justice invalidated a national measure in the application of the ESCB Statute.Footnote 78 It should first be said that nobody, in fact, requested the Court to do so.Footnote 79 The Court anchored its decision in the independence of the ECB. The relevant provision of the ESCB Statute provides for a referral to the Court of Justice but nowhere explicitly allows annulling a national measure. Advocate General Kokott argued strongly against the Court of Justice directly annulling a national measure, explaining that this would amount to a transgression into the national sphere of competence. This, she argued, may only be granted by an express treaty provision.Footnote 80
It is important to note that different language versions of Article 14.2 of the ESCB Statute open up space for some procedural ambiguity on its relationship to the annulment procedure from Article 263 TFEU and whether it may be extended to national measures. My analysis compared Article 14.2 ESCB Statute in English, French, Italian, Croatian, Slovenian, Bulgarian, Czech, Polish, and Slovakian. The variety of procedural solutions include: a referral (EN), an appeal (FR, PL, CZ), or simply an initiation or a proposal of a procedure (IT, HR, SL, BG, SK) before the Court of Justice. Yet, it is through the interpretation of the purpose of this provision that the Court found the legal justification for its action.Footnote 81 That is quite a powerful weapon that the Court of Justice now has in ensuring the independence of the ECB and national central banks.Footnote 82 Still, interpretative acrobatics need not be employed only for that purpose. It was discussed above that the relationship between the ECB’s primary objective of maintaining price stability appears to take precedence over any and all other Treaty aims. The Court of Justice’s mandate, under the framework of legal accountability presented in Chapter 1, should instead be used to promote aims beyond price stability,Footnote 83 even against the ECB when its decisions impact different interests across the eurozone.
4.3.2 Solidarity and Equality
Neither solidarity nor equality feature explicitly at any point in the analysis of the Court of Justice in the review of monetary policy activities of the ECB. Neither is it possible to discern the Court’s approach to the common interest through the achievement of the objectives in Article 3 TEU and Articles 8 and 9 TFEU. This means that when the Court of Justice interprets the powers of the ECB and their possible limits, the aims associated with the common interest of the EMU do not seem to play a role. Taking this into account, the interpretation of the common interest in monetary policy will thus be approached through the lens of the balancing of interests through the proportionality test. In other words, looking at how the ECB balances different interests when making its decisions will be taken as the indirect route through which it is possible to establish how that institution makes value choices that hinge upon the achievement of the common interest. It is also the route through which it is possible to establish the relationship between the ECB’s primary objective of price stability and the general objectives pertaining to the common interest in the EMU (found in Article 3 TEU and Articles 8 and 9 TFEU).
The proportionality analysis is particularly important as it was one of the main points of contention between the Court of Justice and the Bundesverfassungsgericht in the review of the PSPP. In what follows, I will thus focus on what is proportionality for and how to use it in respect of the ECB when it balances different interests that influence the achievement of the common interest. One of the central criticisms directed at the decision of the Bundesverfassungsgericht in Weiss revolves around whether proportionality is the correct answer when the question is how competences are divided between the EU and the Member States.Footnote 84 On this view, the Bundesverfassungsgericht was wrong to use the principle of proportionality in delineating competences between the EU and the national level, which should instead be applied to the way in which existing competences are exercised. This criticism is grounded in the wording of the Treaty: Article 5(1) TEU clearly separates the existence of competence (which is guided by the principle of conferral) from its exercise (to which the principle of proportionality applies).
It is easy to say that the principle of conferral can be straightforwardly applied to whether something is, for example, an action in the area of competition law under Article 3(1)(b) TFEU, further specified in Articles 101 and 102 TFEU. The European Commission, tasked with implementing competition law, does not have the mandate to define that it is the agreements between undertakings that are prohibited by competition law, nor can it include or exclude the abuse of a dominant position from the scope of competition law. How it applies these concepts in the exercise of its competence is then subject to the principle of proportionality. However, this separation is not as straightforward when it comes to the monetary policy mandate of the ECB and its separation from economic policy. In turn, this has important consequences for the accountability of the ECB.
Let us then take a closer look at how the Court of Justice separates the analysis of existence from the exercise of monetary policy for the purposes of applying the principle of proportionality. In both Gauweiler and Weiss, ‘delimitation of monetary policy’ and ‘proportionality’ are separate headings, keeping in line with the division of Article 5(1) TEU.Footnote 85 Upon closer inspection, nevertheless, the proportionality analysis runs through both headings. In other words, due to how Article 119(2) TFEU sets out the monetary policy competence, the very existence of monetary policy is impossible to separate from and already forms part of its exercise: in order to find out whether the ECB acted within its mandate, we need to find out how it defined its mandate.Footnote 86
In the proportionality section in Gauweiler, the Court of Justice defined it as requiring that acts of EU institutions be appropriate for attaining the objectives pursued and not go beyond what is necessary for achieving those objectives.Footnote 87 Back to the section on delimiting monetary policy, the Court of Justice analysed whether the OMT mechanism contributes to achieving the objective of singleness of monetary policy and maintaining price stability.Footnote 88 Furthermore, the Court went on to assess whether the means to achieve the objectives of the OMT are in line with the objectives of monetary policy,Footnote 89 methods that we would intuitively expect in the review of how a certain institution exercised its competence. The language of whether a measure contributes to an objective and is the means chosen to achieve it is used regularly in the proportionality analysis of the Court.Footnote 90 Precisely because a measure may have both monetary policy and economic policy effectsFootnote 91 and these are difficult to separate,Footnote 92 the Court is inevitably engaging in an assessment of whether the decision-maker (the ECB) by enacting its measures (the OMT, the PSPP) went beyond what is necessary to define and exercise its mandate (monetary policy).Footnote 93 The inability of separating existence from exercise is even more apparent in Weiss:
It does not appear that the specification of the objective of maintaining price stability as the maintenance of inflation rates at levels below, but close to, 2% over the medium term, which the ESCB chose to adopt in 2003, is vitiated by a manifest error of assessment and goes beyond the framework established by the FEU Treaty.Footnote 94 (emphasis added)
A manifest error of assessment is a well-established standard for assessing the proportionality of exercise of competence of EU institutions.Footnote 95 Going beyond what is necessary is the explicitly stated third step of the proportionality test.Footnote 96 This approach is, in fact, not different from the way in which the Bundesverfassungsgericht phrased its standard of review in its order for reference: ‘a manifest and structurally significant exceeding of competences’.Footnote 97 The argument here is not that the two tests are identical, but that both carry a logic of proportionality in assessing the ECB’s compliance with its monetary policy mandate. From the perspective of ensuring ECB accountability in a set-up where it is empowered to define its own mandate, it thus seems inherently impossible to separate the existence and exercise stages of competence control. The ESCB, when defining the inflation target (which arguably should act as the outer limit of monetary policy), is in fact already also exercising it. Otherwise, would it at all be possible that the Court of Justice says such a determination is in compliance with the TFEU unless a manifest error of assessment is made?Footnote 98
A positive consequence of applying the principle of proportionality to determine the limits of monetary policy is an increased standard of judicial review, an aim that has arguably been the root cause of both German preliminary references. Once applied to the PSPP programme, proportionality does have the potential of increasing the accountability of the ECB through a more stringent obligation of giving account, even in the stage of defining the inflation target. For whom is a target of 2 per cent good and what consequences will it have on aims such as income equality, full employment, or social progress? As shown in Chapter 2,Footnote 99 the ECB should carry the burden of showing the different interests that are possibly affected by its decision, the redistributive consequences of the approaches it was able to take, and why it chose a particular solution among those available.
In contrast to this high standard, the Court of Justice has been subject to ample critique due to its light touch proportionality review in both GauweilerFootnote 100 and Weiss,Footnote 101 reducing its review to the duty to state reasons and accepting any and all reasons provided by the ESCB as sufficient. The proportionality analysis in Gauweiler did not properly engage in the assessment of less burdensome alternatives and was reduced to the Court of Justice analysing and ultimately accepting solely the information provided by the ESCB, thus concluding:
[…] the ESCB weighed up the various interests in play so as to actually prevent disadvantages from arising, when the programme in question is implemented, which are manifestly disproportionate to the programme’s objectives.Footnote 102
In light of the standard of review proposed in Chapter 2, the approach of the Court of Justice, whereby it accepts whatever the ECB says without any challenge from other parties and other possible expert views, is light years away from what might be termed proper scrutiny of a decision with wide-ranging consequences for the entire euro area. In Weiss, the Court of Justice was equally one-sided in the choice of information that it found relevant for assessing the proportionality of the PSPP, again accepting the information provided by the ESCB as the only relevant one.Footnote 103 In essence, the Court of Justice did not allow for a thorough peer-review of the duty to state reasons on the part of the ESCB.Footnote 104 This criticism has been picked up directly by the Bundesverfassungsgericht,Footnote 105 demanding that less burdensome alternatives be considered and a wide array of interests included in such considerations. The lesson learned from Gauweiler and Weiss may well be that the organisation of Article 5 TEU does not operate as well in the context of self-defined mandates, which would result in judicial review remaining confined to accepting any and all reasons provided by the institution in question.Footnote 106 Instead, the great power of the ECB to say what monetary policy is should be followed by great responsibility.
A possible consequence of this litigation is that other national courts follow the German example and begin imposing their own standards and demands for justification on the part of the ECB, leading to a proliferation of diverging national standards and resulting in the creation of an unrealistic burden for the ECB. However, I do not find it controversial that national courts demand more of the ECB when it comes to predicting, assessing, and selecting the specific redistributive effects of large-scale purchase programmes such as the PSPP. In some ways, it would create a race to the top: the ECB, by needing to comply with different levels of justification across Member States, will naturally provide information required by the highest standard for justification, thus automatically meeting the demands of lower standards. Does this harm the ECB’s independence? I think not: the ECB has full independence in the implementation of its policies; it simply has a high burden of explaining them. In fact, the ECB, despite Article 130 TFEU explicitly prohibiting it from taking instructions from Member States, complied with the request of the BundesverfassungsgerichtFootnote 107 better to explain the proportionality of the PSPP. The ECB has, ‘in line with the principle of sincere cooperation […] decided to accommodate this request’.Footnote 108
4.4 Judicial Review at the National Level
4.4.1 Access and Remedies
Standing before national courts is a matter of national law. If it results in a preliminary reference, it is of no importance whether the case concerns questions of interpretation or validity of Union law.Footnote 109 An exception to this rule is a possible abuse of the national procedure, in the event that the applicant failed to submit an action for annulment at the EU level within the prescribed time period.Footnote 110 The litigation on quantitative easing offers a vivid demonstration of how powerful national procedural autonomy may be in allowing a wide range of individuals to challenge EU measures, something that would be virtually impossible to do at the EU level due to high standing requirements. Questions of EU integration have since the Maastricht judgment of the Bundesverfassungsgericht been opened to a constitutional complaint by individuals, whenever there is a danger that German constitutional identity might be jeopardised by excessive integration.Footnote 111
When Mario Draghi announced the OMT programme, indeed German citizens did not shy away from challenging it before the Bundesverfassungsgericht: a whopping 11,693 of them challenged the Press Release.Footnote 112 While not all challenges were found admissible by the German court, the following was:
From the submissions of the complainants in proceedings I., II., and III. it appears possible that the European Central Bank exceeded its competences in a sufficiently qualified manner by adopting the policy decision of 6 September 2012 regarding the OMT Programme and its possible implementation, thus giving rise to duties to react on the part of the Federal Government, which can be invoked in court by the complainants.Footnote 113
In respect of the PSPP, it was challenged by 1,734 German citizens, and the Bundesverfassungsgericht was as generous:
The challenge directed against the omission on the part of the Federal Government and the Bundestag is admissible in constitutional complaint proceedings. The complainants in proceedings I to III have standing to the extent that they assert, in a sufficiently substantiated manner, that with the PSPP the Eurosystem manifestly exceeded its competences in a structurally significant manner and violated Art. 123(1) TFEU; they also have standing as regards the assertion that possible changes to the risk-sharing regime could infringe the overall budgetary responsibility (haushaltspolitische Gesamtverantwortung) of the German Bundestag. Moreover, the complainants in proceedings I and III continue to have a recognised legal interest in bringing proceedings (Rechtsschutzinteresse).Footnote 114
Maintaining broad standards of admissibility may be seen as a destabilising element, bringing about uncertainty concerning the interpretation and validity of EU acts. In another way, it can also be seen as a source of imbalance given the differing standing requirements across Member States. But so what? If it is enough that the preliminary reference procedure is not used to circumvent the two-month deadline for an action for annulment under Article 263 TFEU, why should Member States not otherwise provide for a higher standard of effective judicial protection? So long as EU acts are subject to the preliminary reference procedure, the Court of Justice remains involved, all in the operation of the complete system of legal remedies set by the Treaties.Footnote 115
Next, to remedies. The Bundesverfassungsgericht generally focuses on the constitutional organs and their obligations under the integration obligation from the Basic Law.Footnote 116 This includes actions as well as omissions of the constitutional organs.Footnote 117 In other words, because constitutional organs under the Basic Law have a responsibility towards European integration (Integrationsverantwortung), individuals must be able to exercise their influence through their right to vote. In the event that constitutional organs detract from electoral legitimation and exceed their integration mandate, individuals have legal claims against them. In Gauweiler, the Bundesverfassungsgericht accepted the interpretation of the Court of Justice – there were thus no remedies to be ordered.
In Weiss, however, a peculiar novelty took place in respect of remedies. First, the Bundesverfassungsgericht repeated its jurisprudence on the constitutional review in relation to acts of EU law.Footnote 118 The Bundesverfassungsgericht therefore declared the complaints admissible only insofar as they are directed against the omission of the constitutional organs to take action.Footnote 119 Given that the PSPP was in the eyes of the German court an act outside the competences of the ECB, this required a remedy under the Basic Law. Yet, the ECB is outside the authority of the Bundesverfassungsgericht, as it should also be independent from any instruction coming from another EU institution or Member State, under Article 130 TFEU. An indirect route was therefore necessary:
As the PSPP constitutes an ultra vires act, given the ECB’s failure to substantiate that the programme is proportionate, their responsibility with regard to European integration (Integrationsverantwortung) requires the Federal Government and the Bundestag to take steps seeking to ensure that the ECB conducts a proportionality assessment in relation to the PSPP. This duty does not conflict with the independence afforded both the ECB and the Bundesbank (Art. 130, Art. 282 TFEU, Art. 88(2) GG), as was already decided by the Second Senate. The Federal Government and the Bundestag must clearly communicate their legal view to the ECB or take other steps to ensure that conformity with the Treaties is restored.
This applies accordingly with regard to the reinvestments under the PSPP that began on 1 January 2019 and the restart of the programme as of 1 November 2019 (cf. Decision of the ECB Governing Council of 12 September 2019). In this respect, the competent constitutional organs also have a duty to continue monitoring the decisions of the Eurosystem on the purchases of government bonds under the PSPP and use the means at their disposal to ensure that the ESCB stays within its mandate.Footnote 120
The Bundesverfassungsgericht is treating ECB independence in the same cavalier manner we witnessed when the Court of Justice dealt with the ECB’s duty to state reasons. We are simply to take them for their word: here, Article 130 TFEU would not be breached simply because the Bundesverfassungsgericht said so. Should the German constitutional organs fail in their obligation to put the ECB in its place when it comes to proportionality of the PSPP within three months, the Bundesbank would be prohibited from participating in the PSPP. The German court was thus willing to kill two EU law obligations with one stone: the independence of the ECB and the participation of the Bundesbank in the ESCB. As we now know, this did not materialise, given that the ECB exceptionally decided to comply with the request of the Bundesverfassungsgericht. Whether that action of the ECB was a breach of Article 130 TFEU is a question we will never know the answer to. This is all the more the case taking into account that the Governing Council of the ECB is supposed to ensure that national law requirements imposed on the central banks do not go against their functions under the ESCB. A score of unanswered questions persist. Given, however, the already significant status of central bank independence under EU law, perhaps it is better they remain unanswered.
4.4.2 Solidarity and Equality
As was the case with the Court of Justice, the Bundesverfassungsgericht also omitted any reference to the principles of solidarity or equality. This means we are to discern the approach to the common interest indirectly: from its approach to what the ECB is required to do when balancing different interests and from its findings on risk-sharing. These two assessments took place in the context of ultra vires review, and a brief introduction into its operation is thus due. To declare a measure outside of EU competence, the existing jurisprudence of the German court sets a significant number of hurdles, formulated in the Honeywell decision.Footnote 121 The logic of these conditions is to maintain competence control a task shared and coordinated with the Court of Justice. In so doing, first, no other court in Germany except the Bundesverfassungsgericht can perform ultra vires review; second, a preliminary reference must be submitted to the Court of Justice prior to making a final decision; and third, the Court of Justice enjoys a tolerance of error in its judgment. Only after these requirements are met, the Bundesverfassungsgericht applies the substantive criteria for competence control by testing whether an EU act represents a ‘manifest transgression’ in an area that is ‘highly significant’ in the division of competences between the EU and its Member States.Footnote 122 In so doing, the Bundesverfassungsgericht explicitly acknowledges the ‘precedence of application’ of EU law.Footnote 123
As already pointed to in the discussion on proportionality at the EU level,Footnote 124 controlling a possible transgression of the principle of conferral boils down to, in essence, a necessity analysis. In other words, the question is whether the constitutional organs went beyond what was allowed under the principle of conferral.Footnote 125 In so doing, they therefore exceed the democratic legitimation granted to them by the citizens. If we compare the weight given to citizens’ interests by the German court and the framework of political equality in achieving the common interest, the former focuses on the imperative that citizens are ‘not subjected to a political power that they cannot escape and that they cannot in principle freely and equally choose in respect of persons and subject-matter’.Footnote 126 Still, this obligation appears limited to its procedural aspect: that democratic legitimation be given through elections. There is no monitoring of the content of what might be termed as the common interest, what is relevant is participation in democratic processes.Footnote 127
In reviewing whether the ECB complied with its mandate and the aims it is supposed to achieve under the Treaties, the Bundesverfassungsgericht criticised the Court of Justice not only for accepting at face value the ECB’s claims concerning the OMT’s aims,Footnote 128 but also for assessing them individually, instead of conducting an ‘overall evaluation’.Footnote 129 Yet, it assumed that the Court of Justice will hold the ECB to strict scrutiny in terms of the requirements of limits to monetary policy. It is central that Member States do not acquire the certainty that their bonds would be purchased, that they continue to comply with macroeconomic adjustment programmes and conditionality, and that the bond buying programme remains temporary.Footnote 130 In this way, the potential of a default and the ultimate risk-sharing between Member States would be negligible, but in any event, constitutional organs in Germany are required to approve individually any measure that involves a liability for the budget.Footnote 131 These conditions became central for the ultra vires finding the Bundesverfassungsgericht later made concerning the PSPP.
In conducting the ultra vires review in respect of the PSPP, the Bundesverfassungsgericht focused on two main issues: first, whether by adopting it, the ECB had overstepped its mandate by breaching the principle of proportionality and, consequently, whether it had infringed on the principle of conferral.Footnote 132 Here, the balancing of interests will become relevant, and we will see that the common interest for the Bundesverfassungsgericht regrettably remains one limited to Germany. The second relevant issue is the analysis of possible risk-sharing between the central banks of the eurozone, creating the possibility of a transfer union and the liability of Member States for each other’s debts.Footnote 133 Here, no red lines have been crossed by the ECB, but a warning remains in the form of constitutional identity: no risk-sharing is possible under the Treaties as they stand.
On the first point, for determining whether the ECB had overstepped its mandate in a qualified manner, the Bundesverfassungsgericht explicitly did not rely on the findings of the Court of Justice in Weiss. According to the German court, the judgment itself represents an ultra vires act and does not, as a consequence, bind it in its review.Footnote 134 The German court instead argued that the proportionality review as exercised by the Court of Justice neutralises the principle of proportionality’s function to protect Member State competence.Footnote 135
Specifically, the Bundesverfassungsgericht highlighted that the Court of Justice had limited its review to the statement that the ECB had not committed a manifest error of assessment due its economic expertise when designing the PSPP.Footnote 136 The main point of criticism concerns the failure of the Court of Justice to consider the economic policy effects of the PSPP.Footnote 137 The justification for this brings us closer to the common interest: if we analyse the economic policy effects of the PSPP, it would become possible to determine the competing interests that the ECB was supposed to balance against each other. Or to put it differently, had the ECB conducted merely monetary policy, such highly politicised questions would not even be put before the ECB. The failure to take economic policy effects into account and the relaxed approach to separating the economic and monetary policy by the Court of Justice led the Bundesverfassungsgericht to the conclusion that there was no meaningful competence review of the ECB’s action at the EU level.Footnote 138 The imperative that this be done is in the eyes of the German court at the heart of proportionality review.Footnote 139 Instead, the approach of the Court of Justice allowed the ECB to choose any means it deemed adequate to reach its monetary policy goal, without having to balance the beneficial effects and collateral damage of the measure in question.Footnote 140 In the Bundesverfassungsgericht’s view, this conflicts with the ECB’s limited democratic legitimation, which would require its mandate to be narrowly defined.Footnote 141
Furthermore, the Bundesverfassungsgericht took issue with the lack of stricto sensu balancing in the analysis of the Court of Justice, thus warranting the application of its own proportionality test. Yet, it had not applied the stricto sensu stage itself either, instead stating that ‘it would have been incumbent for the ECB’ to do so.Footnote 142 Taking into account the emphasis of the German court on the ECB’s limited mandate and insufficient democratic legitimation,Footnote 143 it appears counter-intuitive that the ECB should do so.Footnote 144 The Bundesverfassungsgericht devoted considerable attention to analysing the difference in the proportionality test developed by the Court of Justice and itself respectively, opting unsurprisingly to favour its own standard. The German court has in consequence been accused of parochialism,Footnote 145 and ‘framing a European legal question largely in terms of German constitutional law’.Footnote 146 The German court engaged in an analysis of how the test is applied in other Member States,Footnote 147 then explained to the Court of Justice its own proportionality test,Footnote 148 and concluded it is deficient for the delimitation of competences between the EU and the national level.Footnote 149 A similar approach was subject to critique on the occasion of the Bundesverfassungsgericht’s order in Mr RFootnote 150 when refusing to execute a European Arrest Warrant without submitting a preliminary reference to the Court of Justice.Footnote 151
There is a further parochialism issue in the German decision, one far more detrimental to the common interest and the political equality of EU citizens. The Bundesverfassungsgericht saw it fit to perform its own proportionality review of the PSPP. For the Bundesverfassungsgericht, the decisions of the ECB lack the information it would need to fulfil this task, as they do not give evidence of whether the ECB has considered and balanced the effects of the PSPP.Footnote 152 According to the German court, the oral proceedings have shown, however, that there are several negative effects to the PSPP, which should have been taken into consideration by the ECB. For instance, it has been shown that there is a risk that Member States will be discouraged to implement consolidation measures,Footnote 153 and there is a risk of losses for private savings.Footnote 154 Furthermore, the fact that the volume of the programme increases overtime renders the balancing of these effects all the more necessary.Footnote 155 However, the Bundesverfassungsgericht focused only on the interests of German citizens. It entirely disregarded the possibility of contagion in the eurozone, or the eventuality that the consequences of one Member State defaulting may be felt across different Member States. It finally also completely neglected that the interests of, for example, savers or pensioners, need not be perfectly aligned within a single Member State. Endorsing the Weiss judgment approach would mean completely to deprive EU citizens of connection beyond their own Member State. In sum, the Bundesverfassungsgericht therefore concluded that the failure of the ECB to state reasons on the balancing of interests is in breach of the principle of proportionality. As a result, the PSPP decisions were not covered by the ECB’s mandate and were ultra vires.Footnote 156
Finally, the Bundesverfassungsgericht turned to whether the PSPP decisions infringe on the prohibition of monetary financing laid down in Article 123 TFEU. The Bundesverfassungsgericht accepted the safeguards established in Gauweiler to guarantee compliance with Article 123 TFEU.Footnote 157 Nevertheless, the German court criticised the way these safeguards were examined in Weiss, as the Court of Justice has neither scrutinised them closely nor explored whether there were circumstances capable of disproving their actual effectiveness. The Bundesverfassungsgericht, therefore, argued that this approach prevented meaningful judicial review.Footnote 158 These worries led to the final announcement of a red line for what the Basic Law would allow in terms of economic integration:Footnote 159 if the scheme of allocation of risks would redistribute sovereign debts among Member States.Footnote 160 After stating that such a redistribution would represent an assumption of liability illegal under the Basic Law,Footnote 161 the German court found that the ECB’s decisions cannot violate Germany’s constitutional identity. As it is prohibited by primary law, such a redistribution cannot, in fact, currently take place.Footnote 162 This once again cements the position of the Bundesverfassungsgericht as an exclusively Germany-oriented court without the ability to see and understand the interconnections inherent in the EMU.
4.5 On Judicial Interactions
If any Member State could readily invoke the authority to decide, through its own courts, on the validity of EU acts, this could undermine the precedence of application accorded to EU law and jeopardise its uniform application. Yet if the Member States were to completely refrain from conducting any kind of ultra vires review, they would grant EU organs exclusive authority over the Treaties even in cases where the EU adopts a legal interpretation that would essentially amount to a treaty amendment or an expansion of its competences.Footnote 163
Voilà, the well-known conundrum of the European Union’s constitutional set-up digested in one paragraph: who has the final say on the limits of EU competence? Because the principle of conferral is a shared concept of EU and national constitutional law,Footnote 164 its application is likewise shared between EU and national courts, inevitably creating conditions for the possibility of a constitutional conflict. In the EMU, it is in monetary policy that competence control materialised itself in judicial interactions most prominently,Footnote 165 thus resulting in specific consequences for the legal accountability of the ECB. Ultra vires review was first introduced in the Maastricht judgment of the Bundesverfassungsgericht, widely considered the foremother of constitutional pluralism.Footnote 166 That court maintained the thesis that Member States are the ‘Masters of the Treaties’,Footnote 167 that are ‘continuously breathing life into the Treaty’.Footnote 168 This meant that primacy of EU law only extends to acts within vires,Footnote 169 and it was the Bundesverfassungsgericht which retained the right to control the division between intra and ultra vires.
Weiss, where competence control resulted in the rejection of the Court of Justice’s decision, is the second preliminary reference submitted by the Bundesverfassungsgericht. Constitutional courts across the EU are in general rarely submitting preliminary references, opting rather for indirect procedural routes to send their message across,Footnote 170 with the notable exception of the Belgian Constitutional Court.Footnote 171 One reason is that the very structure of the preliminary reference procedure leaves the constitutional court with only the most extreme option of disregarding the decision of the Court of Justice should it find it contrary to the national constitution. Understandably, the Court of Justice has consistently underlined the importance of judicial cooperation put into effect through the preliminary reference procedure.Footnote 172 Judicial interactions in the EU bring about important benefits and have through the history of European integration pushed the Court of Justice to increase its standards when reviewing EU action.Footnote 173 From a de lege ferenda perspective, visible from judicial interactions in monetary policy, national courts can provide the impetus for a substantive review of ECB action to be carried out by EU courts. Using judicial review and the preliminary reference procedure to relocate the individual in the EMU (a policy field otherwise dominated by states and EU institutions) could yet constitute a major contribution of judicial review.
Is the judicial review of monetary policy decisions an illustration of fruitful judicial interactions? Not quite. The German court, in my opinion, did not stick to its own rules on competence control, as it did not clarify the concept of ‘a competence highly significant in the structure of the division of competences’ While constitutional identity from Article 79(3) of the Basic Law is excluded from European integration altogether,Footnote 174 little to nothing is known about the concept of ‘highly significant’. To demand of the Bundesverfassungsgericht more clearly to define this boundary would be a welcome development.
Furthermore, the Bundesverfassungsgericht gave no signal on how important the proportionality test was in its preliminary reference.Footnote 175 By omitting this fairly crucial information, it is difficult to talk about a genuinely open dialogue with the Court of Justice.Footnote 176 This runs counter to its statement in Gauweiler that there is an obligation to ‘respect judicial development of the law by the Court of Justice even when the Court of Justice adopts a view against which weighty arguments could be made’.Footnote 177 The Bundesverfassungsgericht, in its Order for reference in Weiss,Footnote 178 placed a great deal of emphasis on the fact that the Court of Justice should remain consistent with the standards from Gauweiler.Footnote 179 And yet, the German court itself behaved inconsistently: the stricto sensu step of the proportionality test touted as central to the review of the PSPP was only introduced in the response to the decision of the Court of Justice, whereas no such expectation was hinted at in the order for preliminary reference itself, and even less so in the Gauweiler litigation. The point is not that this excuses the Court of Justice from carrying out a meaningful review of ECB’s quantitative easing programmes. It is rather that judicial interactions, if they are to be fruitful, should be carried out in the spirit of mutual respect and sincere cooperation.
In the structure of constitutional pluralism, mutual respect and sincere cooperation play a central role in incrementally managing interpretative differences and ensuring the constructive nature of a possible constitutional conflict ensuing.Footnote 180 The preliminary reference procedure enables national courts to act as peer-reviewers ensuring the coherence of judicial review at the EU level. By holding the Court of Justice to its standards, national courts are able to create long-term legitimate expectations, and ultimately, contribute to the uniformity and coherence of EU law (an important consideration for all those who rely on ECB action). The way in which proportionality was introduced in Weiss can hardly be referred to as a role model for this approach. Language and expressions used by constitutional courts and the Court of Justice are of importance for how constitutional conflict and its resolution are managed, and there is a coherence in this sense among different constitutional courts in the EU.Footnote 181 The allegation of the Bundesverfassungsgericht that the judgment of the Court of Justice is ‘simply not comprehensible’Footnote 182 is in that sense not the sort of language that should be employed between courts that have for so long interacted in a constructive manner, enhancing the EU’s constitutional sphere. It departs from mutual respect and sincere cooperation and unnecessarily distracts from the issues that can constructively be addressed through constitutional conflict.
In addition, the Court of Justice on its part provided very little input as regards a possible rejection of its decision by the Bundesverfassungsgericht, restating its well-established case law on the binding nature of preliminary rulings,Footnote 183 despite the possibility left open in the reference to disregard a decision contrary to German constitutional identity. From the perspective of avoiding conflict, this tactic from Gauweiler has proven useful, as any interference by the Court of Justice in sensitive national constitutional matters may ultimately breach the obligation of the EU to respect national identities of Member States under Article 4(2) TEU. Nevertheless, taking into consideration that the Bundesverfassungsgericht has now twice raised serious concerns, emphasising the importance of German constitutional identity relating to the budgetary powers of the Bundestag, the Court of Justice will at a certain point need to define the room for manoeuvre available to the ECB when implementing large-scale programmes such as the PSPP at the expense of national budgetary powers.
Part of academic reactions to the German decision in Weiss characterise the German decision as breaching the rule of law.Footnote 184 This is, in my view, a mistake. Hitherto, there is nothing in the decision of the Bundesverfassungsgericht that questions the judicial independence of the Court of Justice, nor do we have reason to assume that the judges of the Bundesverfassungsgericht itself were biased or partial. In my view, shielding the Court of Justice from any sort of criticism by national courts would gravely disregard the structural properties of judicial cooperation in the EU, which moves forward through constructive conflict.Footnote 185 Further, it also neglects the constitutional set-up of the EU, which does not contain a federal supremacy clause, nor does it subsume national constitutional orders. It is, however, far-fetched to praise the Bundesverfassungsgericht for single-handedly increasing the accountability of the ECB, as its reasoning does not comply with its usual adherence to mutual respect towards and sincere cooperation with the Court of Justice.
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