With the recent judgement of the German Constitutional Court (GCC) greenlighting €750 billion worth of joint EU debt issuance, we are entering the second decade of an ambiguous and somewhat troubled yet intact constitutional relationship between Germany and the EU.
In its judgment of December 6th, the GCC has ruled that the joint EU debt issuance to finance the Next Generation EU (NGEU) Programme falls under the definition of “other revenue,” as stipulated in Article 311 of the Treaty for the Functioning of the European Union (TFEU). This means that it is not considered a part of the budget of the EU, but a designated programme, limited in time, scope, and size, serving specific purposes, and conditional on explicit authorisation by the Member States.
Interestingly, the GCC remarks that the 37% earmarked for climate spending is unjustified, since the EU failed to demonstrate a clear link between the specific purpose of the NGEU programme—namely recovery from the COVID crisis—and climate change. However, this misuse of around 280 billion euros was not a sufficient reason for the Court to rule the NGEU programme unconstitutional, thereby undermining its own argument that joint borrowing is only allowed if it addresses a specific purpose.
With the ruling, the GCC enters the second decade of ambiguous jurisprudence over the constitutionality of EU rescue programmes.
In 2011, the GCC ruled its first landmark case on the European Facility for Financial Stability (EFSF). The claimants argued that the members of the German federal parliament were insufficiently able to assess the budgetary implications of the Greek bail-out on the German federal budget, which therefore violated article 38.1 of the German Basic Law (GG), outlining the mandate of the members of parliament. Although the GCC ruled that the EFSF did not violate article 38.1 of the GG, an open-ended rescue fund, which was not limited in size, scope and time, would have violated the GG. In this case, the GCC warned the EU to abandon any hope of setting up a permanent fiscal capacity for the EU. However, in the same vein, it opened the door to a decade of ‘one-off’ rescue schemes.
In 2012, the GCC again greenlighted a major rescue fund, this time the European Stability Mechanism (ESM). This case is especially interesting, since the GCC explicitly recognizes that the introduction of article 136, paragraph 3 of the TFEU violates the budgetary autonomy of the German federal parliament, by introducing the possibility for Member States to set up “loan structures.” However, instead of ruling that article 136, paragraph 3 of the TFEU, and the ESM were unconstitutional, the GCC stipulated that this violation is “proportionate and justified” because of the stabilizing effect of such wealth transfers for the unity of the currency union. However, in order to guarantee sufficient parliamentary control, the GCC did order the German government to add an explanatory memorandum to the ESM Treaty before its ratification. This landmark case is important in the sense that it is the first time that a national constitutional court ordered a Member State´s government to amend a European Treaty before ratifying it. Europhile critics of the GCC would argue that this “legislation by proxy by the judiciary” violates the rule of law, since it violates the separation of powers. Eurosceptic critics of the GCC would argue that the inclusion of an explanatory memorandum is not enough to ensure the constitutionality of the ESM. In 2014, when the ESM was well underway, the GCC confirmed its ruling of two years prior, thereby acknowledging that the ESM Board of Directors adhered to the explanatory memorandum.
In May 2020, the GCC finally dropped the constitutional bomb—or firecracker, depending on who you ask. The court ruled that the bond purchasing programmes of the European Central Bank (ECB) violated the German Constitution, since the ECB´s governance board did not sufficiently demonstrate the necessity, appropriateness, and proportionality of its bond buying strategy. Since the Bundesbank is required to buy bonds on behalf of the ECB, its mandate to do so had to be clearly defined and justified. More interestingly, the GCC explicitly criticised the European Court of Justice´s judgment of 2018, which approved the purchasing programmes, for not having adequately demonstrated the specific and proportionate nature of said programmes. This of course enraged Brussels, which initiated article 7 proceedings against Germany, arguing this GCC ruling poses a threat to the rule of law and the values of the EU.
Those proceedings were dropped quite rapidly following the replacement of Chief Justice Vosskuhle with Stephan Harbarth as the president of the GCC; Harbarth previously served as former Chancellor Merkel’s vice-president of the CDU in the German federal parliament. In a wonderful display of hypocrisy, the nomination of a former politician as Chief Justice of the highest court convinced Brussels to drop its accusations of breaching the rule of law.
In 2021, the Harbarth court again ruled on the ECB´s purchasing programmes. As expected, the court ruled that the bond-buying programmes were constitutional, arguing that the ECB sufficiently demonstrated the necessity, proportionality and appropriateness of its operations. This is striking, since the ECB as of the summer of 2020, had merely “stated” in each press conference or appearance before the European Parliament, the necessity, proportionality, and appropriateness of its operations. Europhile critics were unhappy with this, on the grounds that the ECB and Lagarde paid mere lip service to the demands of the GCC ruling of May 2020. The eurosceptic critics were unhappy, because they argue that a mere statement of appropriateness, necessity, and proportionality does not constitute a sufficient demonstration of it. Yet, these ‘disclaimers’ of the ECB, seemed to satisfy the Harbarth court.
With its ruling of December 6th, 2022, the Harbarth court enters the second decade of barking without biting. While the GCC deserves praise for criticizing the inclusion of a green component to an alleged COVID recovery fund, Harbarth outlines the roadmap for Brussels to roll out the transfer union. Instead of ruling out German participation to further fiscal integration of the EU, Harbarth opens the door to an infinite sequence of ‘one-offs.’
As long as rescue programmes are adopted with unanimous support in the European Council, and as long as they are limited in size, scope and time, the EU is free to pile them up. In addition, by establishing a rule of proportionality between the general budget of the EU and the “other revenue,” Harbarth has given Brussels clear incentives to inflate the EU budget, so that the issuance of EU debt can increase accordingly. Karsruhe has now supplied Brussels with a blueprint for the next rescue packages—for Ukraine, for Italy, for a Green Fund, etc. All options are now on the table. In any case, one can no longer argue that the GCC is the last line of defense between the EU and the German, Dutch, Swedish, Finnish, or Danish taxpayer and the ever-closer Union.