May 6, 2020 / 12:06 PM / a month ago

Our way or no way? German ECB ruling rocks EU foundations

BRUSSELS (Reuters) - Tuesday’s ruling by Germany’s constitutional court may have been aimed squarely at the European Central Bank’s bond-buying economic stimulus plans. But it also has the potential to shake the very foundations of the European Union itself.

FILE PHOTO: The headquarters of the European Central Bank (ECB) is photographed at sunset, in Frankfurt, Germany, April 28, 2020. REUTERS/Kai Pfaffenbach

For what the panel of German jurists did was claim the right of national courts to decide when European law overrules local law, and when it doesn’t. That challenges the supremacy of the Luxembourg-based European Court of Justice (ECJ) and sets a precedent for future challenges by Eurosceptics across the bloc.

“This looks more like a message to the ECJ rather than a serious challenge to the ECB. The real issue is, who gets to interpret the law,” said one senior EU official speaking on condition of anonymity.

Since its founding 1957 Treaty of Rome, European Union has been an unparalleled experiment in national sovereignty-sharing. While members retain a great deal of autonomy, its rules set out where EU law – as interpreted by the ECJ – must hold sway.

To be sure, there has been a long history of national courts probing how far they can push their own competence, and of local politicians noisily complaining about EU “diktats”.

But the right of the ECJ to define where EU law is supreme was a principle that even Britain broadly accepted before its exit from the bloc this year. Now that notion has been disputed by a court of a founding EU member, which also happens to be its biggest economy and the main contributor to its budgets.

Moreover it comes at a testing time for a bloc struggling to coordinate its response to the coronavirus pandemic and dealing with the aftermath of Brexit, the hitherto unthinkable departure of a large country from its club of nations.

“ULTRA VIRES”

The European Court of Justice had already ruled in December 2018 that the two-trillion-euro stimulus package put in place by the ECB to kickstart the economy after the sovereign debt crisis of a decade ago was in line with EU law.

But in a sharply worded ruling in response to a complaint by German activists who say the scheme is ruinously profligate, the German judges dismissed the ECJ ruling as “incomprehensible” and criticised it for not properly addressing whether the ECB scheme was proportionate to the needs of the eurozone economy.

Crucially, it concluded that the ECJ ruling was therefore “ultra vires” - Latin for overstepping authority - and gave the ECB three months to come back and prove that the bond purchases were justified by the demands of the economy.

With the stakes no less than the credibility of the institutions running the euro single currency, the ruling has sent reverberations across the 27-nation zone.

While the European Commission, the Brussels-based executive arm of the EU, issued a statement reaffirming that rulings of the European Court of Justice are binding on national courts, the nationalist-minded Polish government cried victory.

“For several months, the Polish government has been clearly saying that the EU cannot overstep its competences,” said Deputy Justice Minister Sebastian Kaleta, whose government has long argued for powers to be returned to national capitals.

HEADING FOR A REWRITE?

It is too early to say how this will play out for the EU.

Beyond the shadow that it has cast on the ECB’s stimulus package at a time when the eurozone economy has been plunged into deep recession by lockdowns aimed at halting the new coronavirus, some fear it could have political consequences.

A report by U.S. democracy watchdog Freedom House on Wednesday highlighted democratic concerns in Poland and Hungary, both of which have challenged EU provisions on rule of law that were conditions for their membership in the first place.

“I am very worried about the future of Europe,” said Luis Garciano, a liberal Spanish Member of the European Parliament.

“Europe cannot work if national constitutional courts decide unilaterally when the Luxembourg court has primacy. Expect Hungary’s and Poland’s constitutional courts to follow this precedent,” he said.

Kaleta did not specify in his statement whether Warsaw would take specific action as a result of the ruling, only noting that it was “relevant” for Poland.

Some EU-watchers are starting to wonder whether the outcome of the clash between the highest courts in Germany’s and the EU could ultimately require the EU to rewrite the rules on which its whole power structures are based - a process that would throw open a Pandora’s Box of conflicting visions.

“The German Court is telling the European Court that, in a matter which none of the two have expertise in, the ECJ was completely wrong and did its work in an irresponsible way,” said Carsten Brzeski, a Frankfurt-based economist for ING bank.

“This seems to be legal language for: we hear what you say but we disagree and therefore do everything to disagree. Means that actually there is no other way than rewriting the European Treaties.”

Additional reporting by Justyna Pawlak in Warsaw and Gabriela Baczynska in Brussels; editing by Mark John and Giles Elgood

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