27 April 2021

A Relieving Decision

The Interim Decision of the German Federal Constitutional Court in the Procedure against the 2020 Own Resources Decision

With its interim decision of 15 April 2021, the German Federal Constitutional Court has paved the way for ratification of the 2020 Own Resources Decision by the German side. The speculation that the temporary order issued on 26 March 2021 against the German President – temporarily prohibiting ratification – might indicate a different interim decision has thus turned out to be incorrect. Rather, it has become clear that the temporary order was necessary because the Court – in a situation of apparently very unclear communication with the Office of the Federal President – had to reliably ensure that the ratification would not take place for the time being.

Confirmation of the constitutional law standards – delimitation of the summary review

With regard to constitutional law standards, the interim decision has not come as a surprise. The established lines of case law, which the Federal Constitutional Court cites in great detail, are continued. By doing so, the Court apparently seeks legitimacy and conveys reliability by continuity. The Court confirms that ratification acts, to which the Own Resources Decision Ratification Act is correctly assigned, can be reviewed even before promulgation in order to prevent premature external commitment. The constitutional law standards of a decision under § 32 Bundesverfassungsgerichtsgesetz (Law on the Federal Constitutional Court) are set out, as are the established and now finely chiselled constitutional law categories and requirements for European integration.

It is striking, however, that the Federal Constitutional Court expressly concentrates the summary review, which can be necessary in interim proceedings concerning ratification acts, on the review of a possible violation of constitutional identity pursuant to Article 23 (1) sentence 3, Article 79 (3) Basic Law (“in particular”; no. 70). In addition, the Court states that no summary review is required “insofar as the classification of a measure of organs, institutions and other bodies of the European Union as an ultra vires act is at issue” (no. 72); for in this respect, a declaration of nullity by the ECJ or the Federal Constitutional Court is still possible at a later stage. The room that the Court keeps open for itself in the main proceedings in the area of ultra vires review therefore appears to be considerably broader than the room that it keeps open in the area of identity review, which is at least summarily carried out in the interim proceedings.

No transfer of sovereign rights

The Federal Constitutional Court states that neither the 2020 Own Resources Decision nor Regulation (EU) 2020/2094, which establishes the “Next Generation EU” (NGEU) integration instrument, would result in a transfer of sovereign rights within the meaning of Article 23 (1) sentence 2 Basic Law. The integration programme and the spectrum of competences allocated to the EU would not be changed by these legal acts (no. 79). Rather, the Court points to the fact that the legislator – according to the explanatory memorandum to the Ratification Act – assumes that the Own Resources Decision is based on Article 311 (3) TFEU and that the Commission’s borrowing power in order to finance NGEU is founded on Article 122 TFEU. Here, the Court contradicts the applicants who do not see a sufficient legal basis for the measures.

However, it is left open in the interim decision why – in the explanatory memorandum to the Ratification Act – the legislator cites Article 23 (1) sentence 2 Basic Law in conjunction with Article 3 (1) Integrationsverantwortungsgesetz (Integration Responsibility Act) and apparently considers these norms that govern the transfer of sovereign rights as relevant and guiding the procedure (BT-Drs. 19/26821, p. 2). While the Federal Constitutional Court treats this point very briefly, it is not trivial. For it concerns the important question of whether the Own Resources Decision has the quality of primary EU law or at least the normative power to provide the Union with competences that it (possibly) did not have before – namely a debt competence. By rejecting a transfer of sovereign rights by the legal acts at issue, the Federal Constitutional Court sets the framework for further examination, in particular the ultra vires examination, in a certain way.

Possibility vs. probability of a violation of constitutional identity

In the following section of the interim decision the Court deals with the standard of constitutional identity. It takes up the concretisations and formulations that have become familiar since the Maastricht ruling, the Lisbon ruling and the previous decisions on euro rescue measures. The Court emphasises that the budgetary right of the German Parliament (Bundestag) and its overall budgetary responsibility are an inviolable part of the principle of democracy as protected by Article 20 (1) and (2), Article 38 (1) sentence 1 and Article 79 (3) Basic Law. The statement that the Bundestag has to decide “on all essential revenues and expenditures” – a statement also relevant for the prospects of introducing EU taxes – goes directly back to the Lisbon decision (no. 84 with corresponding references). The formulation that “no permanent mechanisms” may be established “which amount to an assumption of liability for wilful decisions of other states, especially if they are associated with consequences that are difficult to calculate” (no. 85) is well-known from the case law on the euro rescue measures.

In applying these standards, the Federal Constitutional Court arrives at a remarkably mediating result – as Martin Nettesheim has already pointed out. On the one hand, the Court states that the “possibility” (no. 91) of an identity violation by the 2020 Own Resources Decision does exist. In this regard, the Court quotes extensively from the submissions of the applicants. The maximum liability risk for the Federal budget amounts to approximately 770 billion euros. There is no binding repayment plan for the funds raised by the Commission. The financial commitment extends far beyond the current Multiannual Financial Framework. Nor can it be ruled out that, against the background of the conspicuous overcollateralisation resulting from the significant increase in the own resources ceilings, further Covid-19-related financing programmes will be launched in the future.

On the other hand, however, the Federal Constitutional Court comes to the conclusion within the framework of the summary examination of the merits that a “high probability” of a violation of the constitutional identity cannot be established (no. 95). In this context, the Court emphasises that controlling the assumption of payment obligations based on the principle of democracy must be limited to an “evidenced transgression of utmost limits” (no. 96). A violation of constitutional identity would only exist if the budget autonomy were not only restricted for a significant period of time, but practically completely abolished. Also, the legislature has a wide margin of appreciation with regard to the risks of liability occurring and the expected consequences for future freedom of action.

After the ground has been prepared in this way, the Federal Constitutional Court takes a very close legal look at the actual liability situation resulting from the 2020 Own Resources Decision and the accompanying provisions. The Court soberly and correctly states that Germany’s liability under NGEU is clearly subordinate to that of the Union. It is limited in scope to quantifiable pro rata shares, it is capped in the absolute maximum amount and it is limited in time. The Court reproaches the applicants for not having sufficiently taken into account this limitation and the actual probability of the realisation of the full liability risk at the expense of Germany.

This leads to the overall impression that the Federal Constitutional Court will decide on the question of a violation of constitutional identity in the main proceedings, but that there is much to suggest that it will not make a finding of such a violation. Instead, the Court might emphasize the requirement of sufficient parliamentary participation in the course of the execution of the programme. The Court makes a very clear distinction between the actual legal situation and what some protagonists, including the Federal Minister of Finance, associate with the development. As a Court dealing with a concrete object of application, the Federal Constitutional Court rightly refrains at this point from any prescriptive statements about possible further integration steps. At the same time, the emphasis on the limitation of liability under NGEU can be seen as an indication that a less clearly limited liability regime could be judged quite differently under German constitutional law.

The open ultra vires question

On the ultra vires question, to the contrary, the Federal Constitutional Court remains much more open. This is reflected firstly in the fact that the Court – as already mentioned – does not assume that the 2020 Own Resources Decision transfers sovereign rights in a way that changes the distribution of competences; this necessarily has consequences for the standard of review. Secondly, the Court expressly refrains from a summary examination of an ultra vires violation in the interim decision. And thirdly, the Court quotes the applicants’ arguments in this regard without further comments and describes these arguments as “sufficient” from the point of view of admissibility (no. 92). A possible transgression of Article 311 (3) TFEU by Articles 4 and 5 of the 2020 Own Resources Decision (borrowing capacity) is brought into play, as is a possible incompatibility of Article 9 (5) subparagraph (2) sentence 1 of the 2020 Own Resources Decision (call-up of additional funds in the event of a Member State’s default) with the no-bail-out clause of Article 125 (1) TFEU.

In this respect, the main proceedings remain to be awaited with particular suspense. The ultra vires question may be the tangible starting point for a renewed dialogue with the ECJ by way of reference for a preliminary ruling pursuant to Art. 267 TFEU.

Far-sighted weighing of consequences

The Court shows itself to be far-sighted in the weighing of consequences, which follows the denial of an obvious inadmissibility or unfoundedness of the application. The Court emphasises that the main proceedings are “likely to take a considerable period of time” and that – including a possible preliminary ruling by the ECJ, which is again mentioned here – they could take “a total of two to three years” (no. 105).

This time perspective is contrasted with the urgency of dealing with the Covid-19 pandemic. It is to be appreciated that the Court also takes into account the foreign and European policy distortions that could result from granting the application. The experience with the Court’s PSPP decision of May 2020 – regardless of how it is to be classified in the matter – must have been in the back of the mind when drafting this passage of the decision. The Court explicitly refers to the Franco-German relationship, the danger of a “shaking” of Germany’s credibility in foreign and European policy and “a further endangerment” of cohesion among the Member States of the European Union (no. 107).

In substance, all this is thought-provoking. In any case, it is right that the Court considers these aspects. I also agree with the Court that the disadvantages that would result if the interim injunction is not issued, but the Own Resources Decision Ratification Act later proves to be unconstitutional, are less severe in comparison. For in this case, readjustments and corrections can be made if necessary. The German constitutional bodies would then be obliged to actively oppose the further implementation of NGEU.

All in all, this is a good, a relieving decision by the Federal Constitutional Court. It clears the way for the ratification of the 2020 Own Resources Decision and enables the disbursement of the NGEU funds. At the same time, the Court shows that it will apply the well-known constitutional standards in the main proceedings, possibly – this is only a guess – concentrated on the ultra vires review, which allows the all-important dialogue with the ECJ to continue in the framework of a preliminary ruling procedure.

Prerequisites of democratic legitimacy and acceptance

However, just as the decision of 15 April 2021 is to be welcomed as a judgement of a Court called upon in a legal dispute, the decision reveals once again that a democratically legitimised and accepted further development of the European Union cannot be based on courts. The questions that arise here are essentially of a genuine political nature; the development is of a power and presence for which a court, be it a Member State’s court or an EU court, is hardly prepared institutionally and procedurally.

For too long now, the European Union has operated in crisis mode. For a decade, the Economic and Monetary Union has been and continues to be changed in structurally relevant ways, but always hastily and on precarious democratic grounds. The creeping abolition of the Stability and Growth Pact, the establishment of EFSF and ESM, sovereign financing by the ECB and now the Union’s debt amounting to two-thirds of the Union’s budget, outsourced to a special fund, are very considerable milestones that – each individually and in their cumulative effect – urgently require discussion. It is high time that these developments are reflected in their true meaning, outside of the crisis mode and in an open and transparent process aimed at shaping general, sustainable rules. A regular European financial equalisation according to standards that fairly mediate between individual responsibility and solidarity must be considered, as must the introduction and limits of selective EU taxes to finance public goods of EU-wide relevance.

Merit of the Federal Constitutional Court

The lasting merit of the Federal Constitutional Court in this context is to demand precisely this reflection, this democratic will-formation and a reliable order of competences and standards. The European Union will continue to succeed in the interplay of politics and law. The current situation requires clear and explicit political decisions by the Member States and the formulation of these decisions in general, viable legal norms that give the Union its framework and character.

SUGGESTED CITATION  Kube, Hanno: A Relieving Decision: The Interim Decision of the German Federal Constitutional Court in the Procedure against the 2020 Own Resources Decision, VerfBlog, 2021/4/27, https://verfassungsblog.de/a-relieving-decision/, DOI: 10.17176/20210427-221733-0.

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