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On the unprecedented ruling of the German Constitutional Court

On the unprecedented ruling of the German Constitutional Court

Who will have the last word?

The European Union was conceived as a deterrent, which will not allow Germany to show its own initiative in foreign and European policy. However, the events of recent weeks show, that in matters of foreign policy and foreign economic policy, Berlin is becoming more and more independent.

5 May 2020 g. Germany's constitutional court issues unprecedented ruling, which challenges the authority of the European Central Bank (ECB) and the European Court.

German constitutional court (Federal Constitutional Court, BVerfG), sitting in Karlsruhe, decided, that the EC's practice of buying huge amounts of government bonds ("quantitative easing") is illegal under German law, since neither the German government, neither the German parliament signed decisions on such purchases.

The European Central Bank has acquired public debt worth 2,7 trillion euros (3,2 trillion dollars) in order to stabilize the eurozone during the European crisis, when he started the stimulus program, known as the public sector procurement program. ECB approves, that large-scale government bond purchases are monetary stimulus, needed to revive the eurozone economy. Criticisms, conversely, consider, that bond buying flooded the markets with cheap money and spurred governments to overspending, especially in debt-laden Southern Europe.

On the unprecedented ruling of the German Constitutional Court

In a decision of the German Constitutional Court (the ruling takes 110 pages) indicated, that the ECB has failed to justify massive bond purchases and these purchases do not comply with the "principle of proportionality", stated in the article 5 European Union Treaties. The principle of proportionality provides, that EU action should be limited to, what is necessary to achieve the goal and governs the exercise of powers, provided by Member States to the European Union.

Germany's constitutional court orders German central bank to stop participating in bond buying program, if the ECB does not prove within three months (to 5 August 2020 of the year) "proportionality" of their actions. Without the participation of Germany, the program may fail.

The German court also accused the European Court of "exceeding his judicial mandate". December 2018 European Court of Justice rules in favor of ECB bond buying program. The judges in Karlsruhe declared, that the decision of the European Court of Justice is ultra vires (out of scope) and, Consequently, is optional.

On the unprecedented ruling of the German Constitutional Court

Decision of the German Constitutional Court, coinciding with the spread of the coronavirus, created extreme legal uncertainty at the time, when Europe was already experiencing serious economic blows. Italy and Spain, eg, hit by the epidemic more than other European countries and more dependent on ECB support. Economists warn, what, if the European Central Bank stops buying government bonds, this will push Italy and Spain into default and could lead to the collapse of the eurozone.

Ruling of the German Constitutional Court in Karlsruhe dated 5 May 2020 year opens a new phase of heated debate about the division of competencies and the relationship between national and supranational levels of government in Europe.

European Commission President Ursula von der Leyen spoke out categorically. she stated, that Germany has no legal right to challenge the decisions of EU bodies, and threatened to sue: “The European Commission adheres to three main principles: the, that monetary policy is a matter of exclusive EU competence; the, that EU law takes precedence over national law, and that, that the decisions of the European Court of Justice are binding on all national courts… The last word in EU legislation is always spoken in Luxembourg. And nowhere else…»

The head of the ECB, Christine Lagarde, in turn, said: "We are an independent institution, accountable to the European Parliament, and we have a mandate for our activities. We will continue to do everything, what do you need… to fulfill this mandate".

A press release from the European Court of Justice says, that Germany does not have the appropriate jurisdiction: "Only the Court, which has been established by the Member States of the EU has jurisdiction to decide whether, that the operation of the EU institution is contrary to EU law. Differences between the courts of the Member States as to the legality of such acts may indeed jeopardize the unity of the EU legal order and detract from legal certainty... National courts have an obligation to ensure full compliance with EU law.”.

From all these statements it follows, that there has been an open confrontation between Brussels and Berlin. So far, due to legal disputes. Before the expiration of the ultimatum, delivered by the German Constitutional Court, few days left. However, during the period from 1 July 31 December 2020 Germany holds the Presidency of the Council of the European Union, which, during its presidency, has the right to take common decisions of the EU.

Leonid Savin

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