by Napoleon Xanthoulis[1]
- Introduction
On 6 September 2012, the majority of the members of the European Central Bank’s (ECB) Governing Council had every reason to be excited. The time had come to enact the ECB President’s promise made only a few weeks ago, to do “whatever it takes”[2] to protect the single currency from the sovereign debt crisis that had by then reached the Eurozone. The announcement of the “Outright Monetary Transactions” (OMT programme), a new scheme conferring to the ECB the power to purchase government bonds in the secondary markets under certain conditions, would finally stabilise the markets and reduce the interest spreads, bringing a balance across the Eurozone. Some criticism was anticipated that such a policy measure would cross the boundaries of monetary policy and put the ECB in the position of a lender of last resort to member states facing financial difficulties. Naturally, the ECB’s new role within the Troika (comprising of the European Commission, the ECB and the International Monetary Fund) would raise additional reasonable concerns. Yet, they had no reason to worry. As it appeared, the OMT programme would never be fully implemented in practice. As an exemplary exercise of “regulation by information”,[3] its mere announcement would bring the desired calming effects on the markets, therefore rendering its actual application unnecessary. Any criticism would be manageable at the political level, and safeguards were taken to prevent litigation risks. Being introduced merely in the form of a press release, the OMT programme would never reach the legal world. Possible attempts by individuals to challenge it before the European Court of Justice (ECJ) would in all likelihood be unsuccessful in line with the settled case-law.[4] Pringle,[5] also indicated that the ECJ was on their side. Finally, given that national courts have no jurisdiction on European Union acts, if citizens brought an action at domestic level, this would again be inadmissible. Had all possible risks been identified and addressed? Apparently not.
What the ECB’s Governing Council could not have anticipated is that the announcement of this press release would trigger a large constitutional judicial debate with unpredictable consequences for the fundamental aspects of European integration: the supremacy of EU law, the role of the ECB in the Economic and Monetary Union (EMU) and the effective cooperation between Union and national courts.
- Background and the referral to the ECJ
The OMT programme forms part of the ECB’s non-standard measures which were adopted in response to the financial crisis. The OMT Programme would be triggered only for selected member states which are under a macroeconomic adjustment programme in the context of financial assistance received from the European Financial Stability Facility (EFSF) or the European Stability Mechanism (ESM).
Very soon after the announcement of the OMT programme, several thousands of German citizens brought an action before the German Federal Constitutional Court (Bundesverfassungsgericht) (FCC) challenging its compatibility with the German constitution. The FCC decided to stay the proceedings and refer certain questions to the ECJ for a preliminary ruling. Under normal circumstances, this would have been considered a very positive step towards initiating a dialogue between the two courts. Yet, this was not an ordinary case. The FCC’s referral was based on its self-proclaimed right to determine, as a court of last instance, whether an EU act has been issued ultra vires.
The complainants and FCC’s majority view submitted that the OMT programme: (i) was not covered by the ECB’s mandate under the Treaties, being an exercise of economic rather than monetary policy and (ii) violated the prohibition of monetary financing under Article 123 TFEU. The FCC’s controversial submissions have triggered a lengthy debate in the literature[6], which exceeds the limits of this case-comment.
On 16 June 2015, the ECJ delivered its preliminary ruling[7] on the legality of the OMT programme, by which it upheld the conformity of the OMT programme with the EU Treaties, provided certain safeguards were ensured.
Commentary
While the referral in Gauweiler may be the latest development in a long balancing relationship between the FCC and the ECJ, it is by all means a historic event. It is the first time that the ECJ has been asked to decide on a referral by which the referring court reserves its right to disregard the preliminary ruling which itself has requested, if it is not convinced by the ECJ’s reasoning. Inevitably, by not ruling out the possibility of not complying with the preliminary ruling, the FCC could be regarded as undermining the Luxembourg Court’s authority and the principle of loyal cooperation under Article 4(3) TFEU.[8]
In this light, one could infer that the referral put the ECJ in a difficult position. On the one hand, it could agree with the FCC’s view that the OMT programme was incompatible with the Treaties. This option entailed the risk of undermining the effectiveness of the ECB’s response to the threats arising out of the sovereign debt crisis for the survival of the single currency. On the other, it could uphold the legality of the OMT measures and risk the FCC subsequently refusing to comply with its preliminary ruling with unpredictable consequences. Yet, in its well balanced response, the ECJ cleverly accepted the challenge, but not the provocation.
To begin with, the ECJ accepted the admissibility of the question of legality of the OMT programme in the context of a referral by a national court, despite the fact that the same subject matter was held inadmissible by the ECJ when it was raised in the context of an action for annulment under Article 263 TFEU.
As far as the substance is concerned, the ECJ applied a two-tier analysis. It first examined whether the ECB’s act fell within the scope of an existing legal basis under the Treaties and second, whether it was compatible with other Treaty provisions (Article 123(1) TFEU) or a general principle of EU law (proportionality).
In determining whether a measure falls within monetary or economic policy, the ECJ applied the approach taken in Pringle. To answer this question, one must examine: (a) the objectives of that measure and (b) the instruments which the measure employs to attain those objectives.[9] Any relevance to, or effects on, economic policy that may result from the implementation of a monetary policy, i.e. the OMT programme in casu, does not mean that it falls outside the scope of monetary policy.
In this sense, the Gauweiler ruling complements Pringle by providing a consistent approach regarding the methodology of the review of acts of EU institutions within the EMU, as well as the applicable standard of scrutiny. It can now be safely concluded that the ECJ will classify any policy action taken by the ECB as monetary policy in so far as it aims to pursue monetary policy objectives, the main one being price stability. Any direct or indirect effects on economic policy are irrelevant for this assessment. In essence, Gauweiler practically exceeds the scope of the ECB’s competence by allowing it to take measures with significant impact on economic policy. Furthermore, the ECJ relies extensively on the technical assessment and reasons put forward by the ECB regarding the necessity of undertaking a specific policy action and apply only a light procedural review.
The compatibility of the OMT programme with the Treaties was not upheld by issuing a blank check. For the OMT programme to fall within monetary policy and the ECB’s competence, the ECJ considered that certain safeguards should apply. These conditions, however, neither reflect the Advocate General’s suggested caveat, nor match the FCC’s requirements for an – in line with the EU law – interpretation of the OMT programme.[10] In this sense, the ECJ cleverly did not follow the FCC’s conclusions, but at the same time, did not entirely reject the national court’s approach. It remains to be seen whether the safeguards recognised by the ECJ will, in the end, satisfy the referring court.
The outcome of the case is not surprising. Given the Court’s natural unwillingness to put into question the architecture of the Union’s economic and monetary policy or to jeopardise post-crisis recovery,[11] the recognition of the legality of the OMT programme was expected. After all, the Advocate General Cruz Villalón had already found the announcement of the OMT programme, in general terms, compatible with the EU Treaties.
The centralised system of judicial review of Union acts does not provide a variety of tools for interactive dialogue between the ECJ and the referring national courts. The core of this relationship comprises of the national court having the opportunity to state their views in their referral and trust that the ECJ will, first, accept their assessment on the necessity of the referral and thereafter, take the national court’s submissions carefully into consideration in its ruling. In exchange, the ECJ will issue a ruling relying on the fact that the referring court will accept the ECJ’s interpretation of EU law as decisive and apply its ratio in good faith in its final decision.[12] All in all, the success of this interaction depends and relies on all actors showing the required mutual trust and respect for each other.[13]
Not often a case before a national court generates such a wide constitutional debate and puts into question well established structural principles of the European Union. Gauweiler has certainly secured its place in the EU law textbooks next to Pringle. The question that remains is whether this case will also be remembered as the time when the principles of supremacy of EU law and judicial cooperation evaded a real threat, or as a milestone which brought significant changes for the EU legal order, although not necessarily in the right direction.
[1] PhD Researcher, the Dickson Poon School of Law, King’s College London; PhD Associate, European Research Centre for Economic and Financial Governance. For a more detailed analysis see Takis Tridimas and Napoleon Xanthoulis, ‘A Legal Analysis of the Gauweiler Case: Between Monetary Policy and Constitutional Conflict’ 23(1) Maastricht Journal of European and Comparative Law, Special Issue (Federico Fabbrini (Ed.) (2016), p. 17-39 (forthcoming).
[2] Speech of the President of the ECB at the Global Investment Conference in London, 26.07.2012.
[3] M. Giandomenico, ‘The New European Agencies: Regulation by Information 4(2) Journal of European Public Policy (1997), pp. 262-275, 264-265.
[4] The legality of the OMT programme was unsuccessfully challenged before the General Court which held the action inadmissible. The General Court found that the applicants had failed to demonstrate that they were directly concerned by the contested act (the press release announcing the OMT programme), whose implementation, if needed, would require the issuing of additional acts by the ECB (Order of the General Court of 10 December 2013 in Case T-492/12, von Storch and Others v ECB, EU:T:2013:702). The CJEU upheld the General Court’s finding: Order of 29 April 2015 in Case C-64/14 P, von Storch and Others v ECB, EU:C:2015:300.
[5] Judgment of 27 November 2012 in Case C-370/12, Pringle, EU:C:2012:756.
[6] See e.g. Special issue ‘The OMT Decision of the German Federal Constitutional Court, 15(2) German Law Journal (2014).
[7] Judgment of 16 June 2015 in Case C-62/14 Peter Gauweiler and Others v Deutscher Bundestag, EU:C:2015:400.
[8] Editorial Comments, ‘An unintended side-effect of Draghi’s bazooka: An opportunity to establish a more balanced relationship between the ECL and member states’ highest courts’ 51 Common Market Law Review (2014), pp. 375-388, 384.
[9] Pringle, paras 46 and 55.
[10] Paras 99-100 of the FCC’s Referral.
[11] A. Hinarejos, ‘Is the ECB’s OMT programme legal? The Advocate-General’s Opinion in Gauweiler’, 17.01.2015, available at: http://eulawanalysis.blogspot.com/2015/01/is-ecbs-omt-programme-legal-advocate.html (last access on 11.12.2015)
[12] Opinion of AG Cruz Villalón on 14 January 2015 in Case C-62/14 Peter Gauweiler and Others v Deutscher Bundestag, EU:C:2015:7, para 67.
[13] A. Pliakos, G. Anagnostaras, ‘Blind Date Between Familiar Strangers: The German Constitutional Court Goes Luxemburg’ 15(2) German Law Journal (2014), pp. 369-382, 378.