11 Aug 2021

The Clash Between Brussels and Germany: The Battle for Legal Supremacy or Just a Procedural Quarrel?

The German Constitutional Court and the Court of Justice of the European Union (“CJEU”) have been at odds lately.  In June 2021, the European Commission brought infringement proceedings against Germany over an alleged breach of the principle of primacy of EU law by the German Federal Constitutional Court. Namely, the German Federal Constitutional Court has delivered a landmark decision that is precedent-setting and has tremendous repercussions for the question of the power dynamics between the European Union (“EU”) and a Member State.  Before getting into the nitty-gritty details of this legal conundrum, let us take a look at how things played out.

How it all began

In 2015, the European Central Bank (“ECB”) launched the Public Sector Purchase Program (“PSPP”).  The PSPP is a scheme that enabled the ECB to buy sovereign bonds from governments to provide liquidity and ensure the EU’s financial stability.

The ECB’s program was confirmed by the CJEU.  The CJEU was of the opinion that all steps taken by the ECB fall within the scope of administering monetary policy for Member States that have adopted the euro as their currency.  With that being said, the ECB has significant competences and is the EU`s body responsible for implementing monetary policy in a large part of the EU.

Now we come to the role of the German Federal Constitutional Court, and where our story takes a sharp turn.  The aforementioned stimulus program was approved by the German government, but the Constitutional Court had other plans for the bond-buying.  Namely, in May 2020, it ruled that the PSPP would be illegal under German law unless the bond-buying is proven to be justified.

Why did German judges take such a stance and essentially undermined both the ECB and CJEU?  Their reasoning is that the PSPP is in part contrary to the German Constitution.  This is the point where we need to delve a bit deeper into legal nuances.

The struggle for legal supremacy

What is the core issue of this enigma?  Questions of competence and jurisdiction are now in the spotlight – the dichotomy between EU institutions and a Member State’s institutions.  The first legal matter is the question of primacy between EU and national legislature, i.e. whenever there is a conflict between EU law and national law, the EU side prevails.  This is the principle of primacy, which is an old precedent confirmed by CJEU: “… [the EU law] could not because of its special and original nature, be overridden by domestic legal provisions, however framed, without being deprived of its character as Community Law and without the legal basis of the Community itself being called into question.” However, this principle of primacy only applies where EU countries have ceded sovereignty to the EU.

The second legal matter is linked to the German Federal Constitutional Court and its opinion on the PSPP.  Namely, it took a stance that the program is non-compliant with German law (German Constitution) and that the ECB must provide adequate justification for the program within three months from the decision.  The main concern was that the PSPP crosses the line between monetary and economic policy and as it deals with direct government financing it breaches the competences given to the ECB.

This issue between German and EU courts is old news and has been going on for quite some time.  While the initiation of the infringement proceedings was a complete surprise for some, others view the startle response from Brussels as an expected step, given the ongoing clash over the respect for the primacy of EU law in Poland and Germany.  However, the case is far from being closed, and the full ramifications are yet to be seen.  Will the old precedents of EU law keep surviving the test of time, or are we witnessing the dawn of a new era?  Maybe some other Member States will follow suit?