Judgment from Karlsruhe: ‘Drawn-out’ urgent proceedings
The President of Germany signed the ratification document for the ESM Treaty on 27 September. Earlier, the other Member States of the Eurozone had already signed a joint declaration on the interpretation of various articles of the Treaty.
The German President’s signature signalled the conclusion of a German thriller about Europe which had kept the European Union and the financial markets in suspense over the summer break. The protagonist was, once again, the German Constitutional Court. So, on 12 September – a good year after the ruling was handed down on the “Greece/Euro safety net” case (cf. europeinfos No. 142) – all Europe was eagerly looking to Karlsruhe, the third largest city in the Federal State of Baden-Württemberg and location of Germany’s highest Court. The Court was to decide in urgent proceedings on the constitutionality of the statutes adopted by the Bundestag (German Federal Parliament) and Bundesrat (German Federal Council) as measures for overcoming the sovereign debt crisis in the Euro currency zone.
Complaints of unconstitutionality and a constitutional challenge
Complaints of unconstitutionality had been submitted against these statutes by thousands of citizens, among other bodies, with a constitutional challenge also lodged by the parliamentary ‘Left Party’ group. However, as it usually takes some time for the Court to rule on the main issue, the complainants had also submitted applications for the issuing of a temporary injunction. These applications were aimed at prohibiting the German President from executing (i.e. signing) the approval statutes and thus creating the conditions for ratification of the international treaties approbated by way of such statutes until after the rulings in the respective main proceedings. This concerns, in particular, the Treaty for the setting-up of the European Stability Mechanism (ESM-Treaty) as well as the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (the so-called Fiscal Treaty).
‘Drawn-out’ urgent proceedings
Contrary to what is otherwise normal in urgent proceedings, the German Constitutional Court did not confine itself simply to weighing up the consequences, but went ahead with a summary examination of the challenged approval statutes relating to the international treaties and accompanying legislation in order to establish whether the asserted violations were well founded. In oral proceedings conducted on 10 July, the German Constitutional Court gave the parties involved the opportunity to put forward their arguments. The Court also heard experts and other respondents, such as the President of the German Bundesbank, the President of the Federal Audit Office, personnel from the European Financial Stabilisation Mechanism (EFSM) as well as various professors. The German Constitutional Court explained its procedure by pointing out that, in ratifying the treaties, the Federal Republic of Germany was entering into commitments under international law from which it would no longer be able to withdraw easily if constitutional violations were to be established in the proceedings dealing with the principal issues. If the summary examination in the urgent proceedings were therefore to show that there was a high degree of probability of the asserted violation of the principle of democracy actually existing, then not granting interlocutory injunctive relief would constitute a serious disadvantage for the common good. Nor could this, according to the Court, be weighed up against the economic and political disadvantages that might result from the delay in the challenged statutes entering into force.
Ruling of the Court: “Yes, but ...”
The German Constitutional Court handed down its judgment on 12 September. In its grounds for the judgment, the Court explained that the complaints in the principal matter were only admissible to the extent that they were used to assert the overall budgetary policy responsibility of the Bundestag established under the constitution. With regard to the merits of the action (i.e. the question as to whether the applications could be upheld in terms of content), the Court came to the conclusion that the applications would not be successful for the most part after the end of the proceedings in the principal matter.
Overall budgetary policy responsibility of the Bundestag
The German Constitutional Court explains its scrutiny criteria at the beginning of the substantive grounds for its ruling. It can be concluded from electoral law (Article 38 GG) in conjunction with the principle of democracy (Article 20, paras. 1 and 2; Article 79, para. 3 of the German Constitution) that the decision concerning public revenue and expenditure remains in the hands of the Bundestag as a fundamental element of the capacity for democratic autonomy in the constitutional state. This also applies to a system of intergovernmental rule. The members of parliament must therefore, as elected representatives of the people, always retain control of fundamental budgetary policy decisions. In view of this, the Bundestag may not establish any financial mechanisms that could turn out to be a bottomless pit in financial terms without any further intervention by the parliament. Nor may the Bundestag establish any permanent mechanisms in relation to agreements or treaties under international law which amount to an assumption of liability for deliberate decisions by other countries. The German Constitutional Court makes it clear that any major expenditure-related aid measure implemented in an act of solidarity by the Federation in the international or EU domain has to be approved separately each time. Up till now, the overall budgetary policy responsibility of the Bundestag has been safeguarded by the organisation of monetary union as a community of stability. However, a democratically legitimate change in the stability guidelines under EU law is not unconstitutional per se. The German Constitution does not guarantee the unchanged continued existence of applicable law but, rather, structures and procedures.
Applications unfounded for the most part
Seen against this background, the Court reached the conclusion that the approval statute for the introduction of Article 136, para. 3 of the Treaty on the Functioning of the European Union does not interfere with the precept of democracy. The new paragraph 3 acts as a legal basis for the Treaty on the European Stability Mechanism by allowing the Member States of the Euro group to set up a stability mechanism. A mechanism of this nature is not initiated with this empowerment basis alone; rather, it merely creates the possibility. The German Constitutional Court essentially finds the approval statute for the ESM Treaty to be consistent with the overall budgetary policy responsibility of the Bundestag, though it does require clarification on a number of points in the ratification procedure under international law.
Clarification in the context of international law
It must be ensured in this way that the provisions of the ESM Treaty are only interpreted in such a manner that the liability of the Federal Republic cannot be increased beyond its share of the approved nominal capital. Informing the Federal Parliament and the Federal Council in accordance with the provisions of the Constitution must also be guaranteed. It must furthermore be ensured that the amount of Germany’s liability is limited to €190 billion. This upper limit has to apply to all possible calls for capital. The German Constitutional Court justifies the clarification on the grounds that a number of the provisions contained in the ESM Treaty also permit a different interpretation. To safeguard this constitutional requirement, the Federal Republic of Germany must henceforth ensure and guarantee that it is only bound by the ESM Treaty if payment obligations in excess of the upper liability limit cannot be established for it without the consent of the Bundestag. Such a reservation is also required with regard to passing on information to the Federal Parliament and the Federal Council. The ESM Treaty contains provisions concerning the inviolability of ESM documentation as well as the duty of the board members and all other officials to maintain professional secrecy. The Federal Republic of Germany must therefore ensure when undertaking ratification under international law that the Federal Parliament and the Federal Council receive all the information needed by them for their decision-making processes.
Other provisions of the ESM Treaty are in order
The Court does not have any constitutional misgivings in relation to the other provisions of the ESM Treaty. However, its statements concerning the guarantee sum of €190 billion discussed controversially among the German public and in specialist circles are interesting: Does the sum exceed the maximum financial capacity of the Federal Republic of Germany in a case of possible liability or not? If this were the case, this would undermine the budgetary autonomy of the Bundestag. The German Constitutional Court does not answer this question in the final analysis, due to having only a limited review/supervisory competence in this regard. In examining whether the extent of payment obligations and liability commitments would lead to relinquishment of the Bundestag’s budgetary autonomy, the legislator does indeed have broad scope for assessment, also including estimation of future economic performance capacity, according to the Court. In this respect, the Bundestag and the Bundesregierung (German Federal Government) did demonstrate in the oral proceedings that risks were being entered into that were still manageable. The German Constitutional Court states in the grounds for its judgment that “even though these assumptions are extremely controversial among economic experts, they are in any case not evidently incorrect. The German Constitutional Court may therefore not use its own assessment to supersede that of the legislator” (marginal point 271).
Nor is the ESM Treaty itself to be seen as a vehicle for unconstitutional state financing via the European Central Bank (ECB). Raising capital through the ESM at the ECB alone or in conjunction with the lodging of government bonds is not consistent with the ban on monetary financing of budgets (Article 123 of the Treaty on the Functioning of the European Union), with the result that the ESM Treaty – according to the conclusion reached by the German Constitutional Court – can only be understood in such a way that bond operations of this nature are not permitted. However, in its Press Release statement it comments that the question of “the extent to which the programme adopted by the ECB Governing Council on 6 September 2012 on the purchase of government bonds issued by financially weak Euro states is in line with these legal requirements did not have to be decided on in the present proceedings for the issuing of interlocutory injunctive relief relating exclusively to the approval statutes for the ESM Treaty and the fiscal pact as well as the corresponding accompanying legislation.” (original in German)
So-called fiscal treaty extensively consistent with the “debt brake” under the German Constitution
Nor does the approval statute for the so-called Fiscal Treaty infringe on the overall budgetary policy responsibility of the Bundestag. In terms of content, the Fiscal Treaty is extensively consistent with the existing requirements of the “debt brake” under the German Constitution as well as the budget-specific obligations arising from the Treaty on the Functioning of the European Union. The fact that the Treaty does not contain a termination clause is innocuous. Under customary international law, it is in fact acknowledged that consensual withdrawal from a treaty is always possible and that unilateral withdrawal may in any case be considered if there is a fundamental change in the relevant circumstances prevailing at the time of the conclusion of the treaty.
As guardian of the German Constitution, the German Constitutional Court has once again issued a reminder that the Bundestag bears overall responsibility for budgetary policy and that the representatives of the people must therefore retain control of the fundamental decisions taken in this domain. It is thus a case of domestic democratic legitimacy!
Translated from the original text in German