The German Constitutional Court and the ESM: What’s at stake?

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Next week the German Constitutional Court in Karlsruhe will issue a crucial verdict on the legality of the ESM and the Fiscal Compact - which is eagerly awaited by decision makers and citizens not only in Germany but across Europe. In this guest blog post, Carlino Antpöhler, a research fellow at the Max Planck Institute for Comparative Public Law and International Law in Heidelberg, explains the legal background and looks at the Court's options.

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On 12 September 2012 the German Federal Constitutional Court (FCC) will be issuing one of the most highly anticipated orders in its history. More than 30.000 citizens, a former Social Democrat Minister of Justice, the group of the German socialist party “Die Linke” in the Bundestag (the German Parliament) and a conservative parliamentarian, among others, are challenging the constitutionality of particularly the German acts approving the European Stability Mechanism (ESM) and the Fiscal Compact. The number of complaints is the biggest the FCC has ever seen in an application for judicial review. The German President has suspended signing the relevant acts. The upcoming order is the result of an application for provisional measures. The Court will merely issue an interim measure on the question whether the President can sign the acts before the main proceedings are completed.

The proposed European Stabilty Mechanism (ESM) will be an international organization providing assistance to eurozone members in financial troubles. The plaintiffs argue that the ESM violates the German constitution’s principle of democracy. Two major points are brought forward. First, it is argued that the ESM imposes incalculable burdens on Germany which deprive the Bundestag of its budget autonomy. The ESM treaty explicitly provides that the liability of each ESM contributor is limited “in all circumstances”. In the oral proceedings, however, the FCC judges expressed doubts as to whether the Bundestag would still be able to decide autonomously as the crisis spreads, or would indeed be “factually constrained” to increase the liability. The second major argument brought forward is the non-conformity with EU law. While the FCC only uses German law as the yardstick for its rulings, European law aspects come into play indirectly via the German principle of democracy. There is an intense discussion among German lawyers about whether the ESM violates the Treaties’ no-bail-out clause. Art. 125 TFEU provides that neither the Union nor the Member States shall be liable for or assume the commitments of other governments. The FCC has reiterated in its jurisprudence that Germany only agreed to a stability-oriented community which the no-bail-out clause is a pillar of. However, it seems quite doubtful whether the ESM indeed violates European Union law, as scholars have offered various interpretations of the no-bail-out clause.

An interesting comparative constitutional notch to this debate has recently been added by the Irish Supreme Court which made a preliminary reference to the European Court of Justice (ECJ) asking exactly the question of conformity with EU law. The FCC rejected the plaintiff’s request that the procedure be adjourned until the ECJ has issued its ruling. It argues that, as its case merely concerns an interim measure, a reference could still be made in the main proceedings. This draws attention to an important procedural aspect. Usually, the FCC does not rule on the merits in preliminary proceedings. It merely weighs the factual consequences its judgment might have; whether it would be worse to approve the acts now and decide later that they violate the Constitution or to refuse them being signed now but finally ruling that they are indeed constitutional. From the oral proceedings, however, it seems that the FCC will now go beyond its usual criteria of evaluation in preliminary procedures. If the ESM is delayed, the international public as well as the financial markets might lack understanding that this is preliminary according to some details of German procedural law. The FCC will, hence, at least partly rule on the merits of the case. In light of this, its line of thought against adjournment due to the Irish reference is not as obvious as the Court claims. The FCC might rule on aspects which the ECJ decides later on.

The Fiscal Compact is an intergovernmental treaty which sets a stricter limit to public debt than the European Treaties have so far. As it deviates from established German constitutional law only in minor points, it is expected to raise fewer concerns with the FCC. The major point the plaintiffs have raised is whether the principle of democracy is violated as the Compact might not be abandoned by a party in an unilateral move. The French Conseil Constitutionnel has already approved the Compact without requiring prior constitutional amendment.

Speculating about the outcome of a certain case at the FCC is like gazing into a crystal ball. One can, however, be quite certain that the FCC will approve the challenged acts in general. So far the FCC has never blocked the ratification process of any treaty concerning EU matters. However, most of the times it has requested minor adjustments. Lately the FCC repeatedly called for stronger parliamentary participatory rights in EU matters. The German ESM act, however, is already quite progressive on that topic. Furthermore, speculation has it that the judges may impose reservations which Germany would have to make under international law before ratifying the treaty. This might e.g. concern limitations to liability or stronger transparency within the ESM. The FCC might also try to link the German delegate in the ESM bodies stronger to the Bundestag’s resolutions.

An even more interesting question is how the order will fit into the FCC’s more general strategy. In recent interviews FCC judges have expressed the opinion that the limit of competences which can be conferred upon the European Union has almost been reached. This furthers a development which took its origin in the Court’s Lisbon judgment. In the FCC’s view, democracy is almost entirely linked to the nation state. Supranational democracy can only be complementary. This line of thought has been severely criticized, and convincingly so. The preamble of the Basic Law aims for a “united Europe”. The FCC has turned the Basic Law on its head and sees itself as a fortress against European integration. The consequence is that certain competences cannot be conferred to the European Union, not even by constitutional amendment. In the current crisis this might be most relevant with regard to the Bundestag’s budget autonomy. While the line of thought itself is deplorable, its outcome might yield positive results. The FCC is trying to strengthen public discourse on EU matters. Its aim is a referendum according to Art. 146 Basic Law on a new constitution for Germany which explicitly allows for further integration. This call for a referendum is often met by positive reactions in the political realm. What will be the influence of the upcoming order on this strategy? The FCC will probably not order a referendum to be held. However, it might not get around clarifying further where the current Basic Law’s red line is. While the FCC resists calling a referendum itself, it will probably try to further push political discourse in that direction. While Angela Merkel is thinking about a European Convention, a referendum on a new German constitution – not long ago a far-fetched idea – might come closer.

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