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Amid the sound and fury of the coronavirus pandemic, you may have missed an ominous creaking. That would be the European Union’s legal order. Oliver Lamb explores what repercussions, if any, Germany may be faced with, having ruled an EU bond-buying scheme to be unlawful. The move is unprecedented.
On Tuesday the 5th of May, Germany’s Federal Constitutional Court ruled that an EU bond-buying programme violates the German constitution. Under the programme, which launched in 2015, the European Central Bank buys bonds – essentially loans – in order to stimulate the eurozone economy. It was initially launched in 2010 after the eurozone crisis, and a 2018 ruling by the European Court of Justice found that it was legal. The German court, however, disagreed, and gave the ECB three months to provide a proportionality assessment; if no such justification is forthcoming, the German central bank will have to withdraw.
Never before has such a serious challenge been made to the EU’s legal order. The ECJ is the supreme authority on EU law, and EU law takes precedence over the national law of member states. The German ruling rejects both principles. The European Commission is considering its response, which may take the form of legal action against Germany.
Observers fear that other member states, including those less amenable to the EU and its values than Germany is, will be emboldened by the German court’s ruling. In recent years Hungary and Poland have experienced ‘democratic backsliding’; both face proceedings under Article 7 of the EU treaty, which provides for a member state’s voting rights to be suspended if they fail to uphold the values of democracy, freedom, human rights and the rule of law. Just last month the ECJ ordered Poland to suspend a new disciplinary chamber for judges which was found to be not independent. After the German verdict, the Polish government may feel justified in ignoring and defying ECJ rulings like these. The first test will come in a matter of days when the ECJ reaches a decision on Hungary’s asylum laws, which provides for refugees to be held in ‘transit zones’. A preliminary ruling found that this constituted unlawful detention.
Meanwhile, a solution must be found to the issue of bond-buying. Most members of the ECB’s governing council are determined not to reply directly to the German ruling, fearing that it would undermine their independence and leave them open to challenges by other national courts. That would leave the German central bank in an impossible position. If it obeyed EU law and continued to participate in the bond-buying programme, it would be defying the German ruling. If it complied with the German ruling and withdrew from the programme, it would be liable to face legal action from the ECB for failing to comply with the ECB’s decisions. Diplomatic bank channels are humming with activity to prevent this messy outcome.
The German decision may have political consequences too. The eurozone has long been divided between the poorer, indebted south – among them Spain, Italy and Greece – and the richer, tighter-pursed northern members – Germany, the Netherlands and others. Any perception in the south that the ruling is an attempt by Germany to avoid helping its less fortunate neighbours, is likely to fuel resentment.
That will be felt particularly keenly as European countries struggle with the fallout of the coronavirus pandemic. In recent weeks southern European nations have demanded the issuance of ‘coronabonds’ – essentially a debt-sharing programme which would ease the burden of lockdowns – but have been flatly refused. The ECB has, however, launched an economic stimulus package worth €750 billion. This is not affected by the German court ruling.
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