On May 5th the Bundesverfassungsgericht (Federal Constitutional Court of Germany; BVerfG) ruled that both (1) the ruling of the Court of Justice of the European Union (ECJ) in Weiss (C-493/17) and (2) the public sector purchase program (PSPP) of the European Central Bank (ECB) – in the context of which 2 trillion in government debt was bought – were ultra vires; and that the Bundesbank (Federal Central Bank of Germany) could only continue its participation in the PSPP after a transitional period of 3 months, if the ECB would undertake a more substantiated proportionality assessment in a new decision (initial decision) of the Governing Council.
This might sound impressive, but it is not. In essence, the BVerfG only requires the Governing Council of the ECB and ECJ to substantiate their decisions so that those decisions would become intelligible to the BVerfG. If this requirement is not fulfilled, the Bundesbank will not be allowed to implement the PSPP and the BVerfG will not abide by the ECJ’s ruling. As the demand for further clarification by the BVerfG is rather modest and easy to satisfy, there seems to be no reason to believe, as some commentators argued, that this judgement undermines the European legal order.
This is even more true since the judgement contains – from a legal point of view – nothing unprecedented. The judgement of the BVerfG
- is not the first to declare an ECJ’s ruling ultra vires;
- adheres to constitutional safeguards that
2.1 have been endorsed by the majority of constitutional courts within the EU,
2.2 have been part of the BVerfG’s case law for more than half a century, and
2.3 did not undermine the position of EU law in those member states and that time period; - contains criticism of the ECJ’s approach that
3.1 was already included in the OMT-case,
3.2 less substantive than in its older ‘Solange I’-criticism, and
3.3 might improve the functioning of the EU legal order; - contains conditions regarding the participation of the Bundesbank in the ECB program which
4.1 are not unprecedented, and
4.2 are less substantial that in the OMT-case; - is part of the checks and balances of a multilevel legal order.
This blog discusses each of these points in more detail below.
Introduction
The facts of the case and preceding case law of both the ECJ and the BVerfG on unconventional monetary policy are discussed in my first blog post on this case. Comments on the ruling of the ECJ in the PSPP can be found in my second blog post.
In summary, in the context of the PSPP (initial decision), 2 trillion euro’s in government bonds were bought to loosen the money supply, to ease credit conditions, to boost investment and spending, and to raise the inflation level closer to 2%. The claimants argued before the BVerfG that this ECB bond buying program violated both the European treaties and German Basic Law. More specifically, they feared that the ECB was conducting economic policy (whilst, under the EU treaty, it is only allowed to conduct monetary policy) and financing the budget of the member states (which would also be forbidden under primary EU law).
The BVerfG referred five preliminary questions to the ECJ on the validity of the PSPP under primary EU law (BVerfG: PSPP-order). With its 3th and 4th preliminary question, the BVerfG demanded scrutiny of the proportionality of the PSPP. The ECJ, in response, held that the ECB program contained sufficient safeguards to prevent a transgression of the monetary mandate as well as a circumvention of the prohibition on monetary financing of the budget (Weiss C‑493/17), and found no violation of the principle of proportionality. However, in its most recent judgment, the BVerfG ruled that (1) the ECJ (a) overstepped its mandate as a court of law because its interpretation of the principle of proportionality was – without clear justification – inconsistent with the interpretation of that same principle by the ECJ in other fields of EU law; and (b) its method of reasoning was unfit to perform effective judicial review; (2) the Bundesbank can only participate in the PSPP if the ECB acts within the limits of its mandate, which requires the ECB’s Governing Council to makes a more substantiated assessment that explicitly states the reasons why it believes that the expected economic effect are not disproportionate to the monetary goal of the program (BVerfG: PSPP-judgement).
1. Ultra vires
The institutions of the European Union (EU), including the ECB and ECJ, only hold those powers conferred to it by its member states (article 4 TEU). Those powers are listed in the EU treaties (TEU and TFEU), that were approved by the member states according to their respective national constitutions (article 48.4 TEU).
Specific conditions for both the conferral of powers to and exercise of powers by the EU institutions can be found in (1) the national constitutions, (2) the treaties, (3) the legislation approving the treaties, (4) the case law of the national constitutional courts and (5) the case law of the ECJ.
The ECJ consistently holds that (1) the primacy of EU law follows from the nature of EU law and (2) that this primacy implies that national courts are obliged to set their own national constitution aside whenever that constitution is incompatible with the interpretation of EU law by the ECJ (Foto-Frost C-314/85). Thus the ECJ believes that all valid European law ranks higher in the hierarchy of norms than all national law (including the national constitution).
Several courts disagree with the ECJ and believe that both the direct effect of EU law within the national legal order and primacy of EU law are essentially constitutional questions. Accordingly, they argue that their constitution can limit the primacy of EU law and the courts are willing to perform their own review of the compliance of EU acts to some or all five conditions mentioned above, including the national constitution, the legislation approving the treaties and the case law of the national constitutional courts (see title 2 of this blog).
The judgement of the BVerfG was the third case in which the highest court of an EU member state openly stated that an EU institution had overstepped its competence and that the transgressing act would not enjoy primacy of application within their national legal order.
Firstly, on 31 January 2012 – more than eight years before the current BVerfG-case – the Ústavní soud České republiky (Constitutional Court of the Czech Republic; CCCR) ruled on the ‘Slovakian pension’-case (Pl. ÚS 5/12). In its judgement, it found the ECJ ruling (Landtová C‑399/09) in an analogous case to be ultra vires: “we cannot do otherwise than state, in connection with the effects of ECJ judgment of 22 June 2011, C-399/09 on analogous cases, that in that case there were excesses on the part of a European Union body, that a situation occurred in which an act by a European body exceeded the powers that the Czech Republic transferred to the European Union under Art. 10a of the Constitution; this exceeded the scope of the transferred powers, and was ultra vires.”
Secondly, almost five years later, the Højesteret (Danish Supreme Court) followed the example of its Czech counterpart in the ‘Ajos’-case (nr. 15/2014 of 6 December 2012). In that case, the Danish judges held that the ECJ’s decision in the same case (Dansk Industri C‑441/14) was ultra vires and would not enjoy primacy: “the Law on accession does not provide the legal basis to allow the unwritten principle prohibiting discrimination on grounds of age to take precedence over Paragraph 2a(3) of the Law on salaried employees in so far as the provision is contrary to the prohibition.”[1]
In Germany, a case that was very similar to the ‘Ajos’-case reached the BVerfG, namely the ‘Honeywell’-case (BVerfG: Honeywell-order). In that case, the BVerfG clarified that it would not perform an ultra vires review if an EU institution made small missteps (insufficiently qualified breaches of competence), but that it would do so if the breach at stake would be manifest and structurally significant for the division of competences between the EU and the member states. However, as the conditions for an ultra vires review were not fulfilled in the ‘Honeywell’-case, the complaint was ruled to be unfounded. The ‘PSPP’-case is, therefore, the first in which the BVerfG finds that the conditions for ultra vires review were met and was willing to deem the actions of the ECJ and ECB to be ultra vires.
The decision to declare an act of an EU institution ultra vires is without doubt a rare event, but it is not unprecedented within the European Union. In the past, the European legal order and effective implementation of EU law survived just fine. As long as the ultra vires review is only used in extreme cases as an ultimum remedium, there seems to be little to assume that the European legal order would suddenly disintegrate after this third case.
2. Constitutional limits
2.1 Other Member States
The Czech Republic, Denmark and Germany are not the only EU member states that have “constitutional safeguards protecting their constitutional identity and the limits on transferring sovereign powers to the European Union.” (BVerfG: OMT-judgement, no. 142)
The BVerfG already stated in its OMT-order that “[w]ith respect to their own area of influence, a large majority of constitutional and supreme courts of the other Member States shares the view of the Federal Constitutional Court that the precedence (of application) of Union law does not apply without limits, but that it is restricted by national (constitutional) law.” (BVerfG: OMT-judgement, no. 142) The BVerfG thus indicates that those safeguards result from constitutional traditions common to the Member States, which thus constitute a general principle of EU law (article 6.3 TEU) that binds the EU, including the ECJ.
These constitutional safeguards should not be conceived as an act of aggression towards the EU. Even the Belgian Constitutional Court – which has a reputation of being one of the most Europhile constitutional courts – recently followed the example of its peers. In an obiter dictum in the ‘TSCG’-case (nr. 2016/62), the Court pointed out that article 34 of the Belgian Constitution, which governs the transfer of the exercise of certain powers to international institutions (including the EU), allows those international institutions to “exercise the delegated powers in an autonomous way” but does not grant a “general license to neither the legislator, when it approves a treaty, nor the institutions concerned, when they exercise their delegated powers” (unofficial translation by the author). Article 34 thus “by no means allows a discriminatory detraction from [Belgium’s] national identity, as enshrined in its fundamental political and constitutional structures, or from the core values of the protection granted by the constitution to its legal subjects.” Legal doctrine assumes that this paragraph implies that the BCC is open to both an ultra vires review (“exercise delegated powers … but … not grant a general license … to the concerned institution, when they exercise their delegated powers”) and an identity control (“discriminatory detraction from … the core values”).
Not only the national courts, but also ECJ itself has put into question the fundamental theories underlying the primacy of EU law. The primacy of EU law is not enshrined in the EU Treaties, but is a product of the ECJ’s case law (Costa/Enel 6/64), that flowered out of the seeds of its earlier case (Van Gend & Loos 26/62). That earlier case law proclaimed the autonomy of the European legal order and granted – for the purpose of uniform implementation in the member states – legal subjects the right to directly claim certain EU-law based rights in their national legal order. However, to understand the contestable nature of that line of reasoning even at the time of the ‘Van Gend & Loos’-judgment, one should recall that only four judges out of seven, the smallest possible majority, including two judges which were added to the court in the spring of 1962, agreed with the decision.[2] If the majority would have followed the position of the reporting judge (and that of all member states that submitted written remarks in these proceedings), the direct effect and primacy of EU law would have been, even from the perspective of EU law, an internal constitutional question for the member states, as most the constitutional courts now believe it to be.
Of course, the BVerfG understands very well that – as the ECJ argues since ‘Van Gend & Loos’ – the primacy of EU law is important for a uniform and effective implementation of EU law and thus the European legal order: “If any Member State could readily invoke the authority to decide, through its own courts, on the validity of EU acts, this could undermine the precedence of application accorded to EU law and jeopardise its uniform application. […] The ultra vires review must be exercised with restraint, giving effect to the Constitution’s openness to European integration.” (BVerfG: PSPP-judgement, no. 111-112). The criteria developed by the BVerfG in the ‘Honeywell’-case delineate that restrained approach.
However, in extreme cases, as defined by the ‘Honeywell’-criteria, the BVerfG will push back, because “if the Member States were to completely refrain from conducting any kind of ultra vires review, they would grant EU organs exclusive authority over the Treaties even in cases where the EU adopts a legal interpretation that would essentially amount to a treaty amendment or an expansion of its competences” (BVerfG: PSPP-judgement, no. 111). The crux of the reasoning of the BVerfG-judgement was indeed that the BVerfG fears that the principle of conferral (and democratic control on what powers are transferred to the EU) might effectively get lost because of extensive judicial restraint of the ECJ.
According to the BVerfG, because an ultra vires review shall only occur if the EU institutions overstep the powers that were conferred to them, “it is to be expected that these instances remain rare due to the institutional and procedural safeguards enshrined in EU law.” Those tensions that will exist in such rare cases are “inherent in the design of the European Union;” and “must be resolved in a cooperative manner, in keeping with the spirit of European integration, and mitigated through mutual respect and understanding. This reflects the nature of the European Union as a union based on the multi-level cooperation of sovereign states, constitutions, administrations and courts”(BVerfG: PSPP-judgement, no. 111).
The opinion of the BVerfG that the primacy of EU law is conditional, might be surprising to someone who only studied the case law of the ECJ. But the BVerfG is far from an outlier and its position is shared by other, well respected and EU-friendly courts. Its views should not be perceived as an extreme, anti-European or specific German point of view. The BVerfG adopts a far too moderate approach for it to be considered as a trouble maker. It clearly awards European institutions as much leeway as possible to find a solution in a cooperative manner.
2.2 Older case law
The Czech, Danish and German cases build on preceding case law in which the Courts already refuted the unconditional primacy of EU law. Most legal scholars are familiar with the BVerfG’s ‘Solange I’-judgement of 1974, where the BVerfG left no doubt that it rejected the ECJ’s claim that EU law enjoyed unconditional primacy. In the years that followed, several judgements confirmed the BVerfG’s reservations with respect to the primacy of EU law (f.e. Solange II, Maastricht, Lisbon).
The BVerfG refrained from objecting to declaration no. 17 on the primacy of EU-law because “[w]ith Declaration no. 17 Concerning Primacy annexed to the Treaty of Lisbon, the Federal Republic of Germany does not recognise an absolute primacy of application of Union law, which would meet with constitutional objections” (BVerfG: Lisbon-judgement, no. 331). For the BVerfG it was sufficiently clear, from article 4.2 first sentence TEU, that EU law would not be allowed to claim primacy over the constitutional identity of the Member States. For the outside world, it should also have been sufficiently clear that, if declaration no. 17 entailed such absolute primacy, the Federal Republic of Germany could not have approved the Treaty of Lisbon because that “would meet with constitutional objections” (BVerfG: Lisbon-judgement, no. 331).
For over half a century it has been common knowledge that the BVerfG holds the view that the national constitution conditions the primacy of EU law within the territory of the Federal Republic of Germany. Although the disagreement has been fundamental and long lived, the number of cases in which the ECJ and BVerfG deviated in their final judgement, have been extremely scarce due to the restraint both courts have shown in the past. As long as the number of cases stay that low, there is little reason to fear the disintegration of the European legal order.
2.3 Effects of conditionality
The position of the BVerfG and constitutional and supreme courts in other member states neither substantially hindered the uniform and effective implementation of EU law in those states, nor led to the disintegration of the European legal order. The same holds for the three cases in which the Courts found that the activities of the ECJ were ultra vires.
Rather, the conditionality of the primacy of EU law pushed the ECJ to take up a role as defender of fundamental rights and liberties (see title 3 of this blog). The criticism of the BVerfG, if taken seriously by the ECJ, can thus further strengthen the European legal order.
3. Criticism
3.1 Same as in the OMT-case
In line with the ‘Honeywell’-conditions, the BVerfG is willing to grant the ECJ considerable leeway with respect to the interpretation of EU law. “One must also take into account that the Court of Justice has a right to tolerance of error” (BVerfG: OMT-judgement, no. 149). But the judicial mandate of the ECJ is not without limits. The ECJ transgresses its judicial competence if its decision “is manifestly utterly incomprehensible and thus objectively arbitrary” (BVerfG: OMT-judgement, no. 149). The PSPP-judgement is the first in which the BVerfG believes that the ECJ transgressed its judicial mandate, consequently declaring the ruling of the ECJ to be ultra vires.
The BVerfG holds the ECJ to the same standard as the one applying to other courts in Germany. German courts are allowed to make their own interpretation of the law – without depriving the legal subject from its access to a judge – as long as that interpretation does not become incomprehensible to the BVerfG and thus untenable (e.g. BVerfG: Honeywell-order in relation to the Federal Labour Court when it interprets EU law). The words used by the BVerfG in its PSPP-judgement (“not comprehensible” and “arbitrary from an objective perspective”) seem to have shocked some commentators. However, these words have a particular meaning within German constitutional law and should not be equated with its common derogatory use.
The BVerfG’s criticism in the PSPP-judgement is essentially the same as in the OMT-judgement (BVerfG: OMT-judgement, no. 181-189). The ECJ – according to the BVerfG – seems to be willing to accept the claims about the facts, made by the institution under review, as facts even if (1) those claims are contested, (2) the outcome of the review depends on those facts, and (3) the review should protect fundamental constitutional interests, namely the competences of the member states and the democratic control on government. The criticism was later repeated in both the PSPP-order (BVerfG: PSPP-order, no. 119) and now resurfaces for a third time in the PSPP-judgement of the BVerfG (BVerfG: PSPP-judgement no. 133-153).
The BVerfG believes the methodological approach of the ECJ to undermine two principles enshrined in the EU treaties, namely the right to an effective remedy before a court (articles 2 and 6 TEU and article 47 Charter) and the principle of proportionality in the exercise of conferred powers (article 5 TEU): “As the economic policy effects of the PSPP are disregarded completely, the application of the principle of proportionality by the CJEU cannot fulfil its purpose, given that its key element – the balancing of conflicting interests – is missing. As a result, the review of proportionality is rendered meaningless.” (BVerfG: PSPP-judgement, no. 38) This is unacceptable for the BVerfG, especially because the delineation between the monetary competences of the ECB, on the one hand, and the economic competences of the member states, on the other hand, completely depends on these effects, according to the standards that the ECJ itself developed in the ‘Pringle‘- and ‘Gauweiler‘-cases.
The BVerfG finds that in other fields of EU law the ECJ takes factual restrictions (for fundamental rights) and factual circumstances (for indirect discrimination) into account and requires objective examination (through statistical data, ad hoc data or by other means) to determine whether measures have equivalent effect (for fundamental freedoms of the single market). The same focus on actual effects can be found where the ECJ stresses general principles of effectiveness and equivalence and “even in relation to provisions allocating competences the CJEU takes the actual effects of a contested measure into account in its legal review, for instance, when interpreting the competence for harmonisation measures concerning the internal market pursuant to Art. 114 TFEU […] or reviewing compliance with the regime on aid granted by Member States pursuant to Arts. 107 and 108 TFEU” (BVerfG: PSPP-judgement, no. 152)
The BVerfG thus wonders why in this field of law the ECJ deviates and “completely disregards the economic effects of the PSPP” (BVerfG: PSPP-judgement, no. 146). Without further justification “the interpretation undertaken by the CJEU is not comprehensible from a methodological perspective” (BVerfG: PSPP-judgement, no. 153). The demand of the BVerfG is clear and rather modest: the ECJ is invited to either explain the deviation of its own case law or comply with it.
(The criticism of the BVerfG with respect to the ECB’s Governing Council is similarly modest: the BVerfG invites that institution to substantiate its proportionality test.)
3.2 Older case law
The criticism made by the BVerfG is rather specific. It is based on a divergence between the interpretation of the principle of proportionality (1) in the case law of the ECJ on the delineation of the monetary and economic competence and (2) its case law in other fields of EU law.
The scope of its criticism is thus much narrower than in its older ‘Solange I’-criticism. Where a lack of a sufficient level of protection of fundamental rights and freedoms concerns all fields of EU law, this criticism has a more limited scope of application, namely the field of monetary competence of the Union.
The nature of its criticism is also less fundamental. Fundamental rights and freedoms are the highest substantive norms. The problem that the BVerfG now points out, is more formal: the ECJ should either clarify why it deviates from its interpretation in other fields of EU law or take the same steps as in other cases.
In sum, the BVerfG’s current criticism of the ECJ’s approach is more limited than its previous criticism, both in terms of scope and nature. We should not blow it out of proportion. Whilst it is, indeed, a fundamental disagreement, it is not more fundamental than past disagreements.
3.3 Effects of criticism
In the past, the criticism of the BVerfG has often given an impetus to reflect on how the ECJ should perform its mandate and how the EU legal order can be improved. This has led to a better protection of fundamental rights and freedoms within EU law and can be seen as a way in which we can deal with the current criticism. No one should feel obliged to agree with the criticism of the BVerfG, but ignoring it or starting an infringement procedure does not seem to be the most constructive way of dealing with it and will only escalate the conflict.
4. Conditions
4.1 In the OMT- and PSPP-judgement
In the ‘PSSP’-case the BVerfG holds that “[f]ollowing a transitional period of no more than three months allowing for the necessary coordination with the ESCB, the Bundesbank may thus no longer participate in the implementation and execution of [PSPP], […] unless the ECB Governing Council adopts a new decision that demonstrates in a comprehensible and substantiated manner that the monetary policy objectives pursued by the ECB are not disproportionate to the economic and fiscal policy effects resulting from the programme. On the same condition, the Bundesbank must ensure that the bonds already purchased under the PSPP and held in its portfolio are sold based on a – possibly long-term – strategy coordinated with the ESCB.” (BVerfG: PSPP-judgement) In other words, the Bundesbank can only participate in the PSPP if the ECB Governing Council substantiates its proportionality test in considerations 4 and 5 (initial decision).
It is not the first time that the BVerfG sets forth the conditions under which the Bundesbank can participate in an ECB program. In the ‘OMT’-case, the BVerfG held that “[t]he German Bundesbank may only participate in the programme’s implementation if and to the extent that the prerequisites defined by the Court of Justice (para. 199) are met, i.e. [1] purchases are not announced, [2] the volume of the purchases is limited from the outset, [3] there is a minimum period between the issue of the government bonds and their purchase by the ESCB that is defined from the outset and prevents the issuing conditions from being distorted, [4] the ESCB purchases only government bonds of Member States that have bond market access enabling the funding of such bonds, [5] purchased bonds are only in exceptional cases held until maturity and [6] purchases are restricted or ceased and purchased bonds are remarketed should continuing the intervention become unnecessary.” (BVerfG: OMT-judgement)
4.2 Comparison
The conditions for the participation of the Bundesbank in the OMT-program took the form of six substantive constraints. In comparison, only one formal constraint is – for now – imposed onto the Bundesbank for participation in the PSPP. The conditions in the current case are, thus, much lighter than before. The PSPP-judgement also allows for a transitional period. This can be explained by the fact that, at the time of the OMT-judgement, no purchases had been made under the OMT-program, whereas 2 trillion euro of government debt has already been purchased under the PSPP.
As the ECB board members and affiliated publications have been discussing the topic of side-effects for a while now, it should not be difficult to meet the requirement of a more substantiated and explicit statement of reasons on the proportionality of the program. It suffices that those arguments are now formalized in a discussion and in the subsequent decision of the Governing Council that should then describe the foreseen effect on economic policy, the weight of those effects and explain the balancing of those effects with the foreseen benefits for the monetary goal of price stability.
Technically, that is, indeed, all there is to remember from this judgement: the BVerfG asks the ECB Governing Council to explain its reasoning in the formal decision. This requirement is very common in administrative law and anchored in constitutional case law of several member states. Its seems reasonable to assume that it might even be an element of the constitutional traditions common to the Member State, therefore being promoted to a general principle of EU law (article 6 TEU).
5. Checks and balances
5.1 Moderate state
In a moderate state, powers are dispersed over several institutions in the hope that each of them might be able and willing to stop the other when they transgress the bounds of power. “Pour qu’on ne puisse abuser du pouvoir, il faut que, par la disposition des choses, le pouvoir arrête le pouvoir.” (Montesquieu, L’Esprit des Lois) If some conflict would arise between different parts of the government due to one part of government contending that another part has transgressed its powers, it is not a failure of our system of government, but exactly what we hoped for.
The holders of power should, in fact, disagree on how power can and should be exercised. Otherwise they would never hold each other to a hold. “Mais le mal est que ces tribunaux différens sont formés par des magistrats du même corps; ce qui ne fait gueres qu’une même puissance.” (Montesquieu, L’Esprit des Lois) This tension creates the conflict out of which the moderate state is born. Thus “each department should have a will of its own” and “each department [should be given] the necessary constitutional means and personal motives to resist encroachments of the others.” (Hamilton and Madison, Federalist Papers nr. 51) The lively disagreement between different parts of government is thus not an unintended but an intended outcome of our structure of government. It is only “where ambition counters ambition” that the polity will be able to uphold the division of powers agreed upon and the “constituent parts may, by their mutual relations, be the means of keeping each other in their proper places” (Hamilton and Madison, Federalist Papers nr. 51).
In a multilevel government, the powers are not only distributed horizontally amongst the legislative, executive and judicial branches, but also vertically amongst several levels of government. Such a dispersion of powers allows the lower level to moderate the decisions on the higher level and vice versa. “Comme la souveraineté de l’Union est gênée et incomplète, l’usage de cette souveraineté n’est point dangereux pour la liberté. […] Quand le gouvernement central qui la représente a ordonné souverainement, il doit s’en rapporter, pour l’exécution de son commandement, à des agents qui souvent ne dépendent point de lui, et qu’il ne peut diriger à chaque instant. Les corps municipaux et les administrations des comtés forment donc comme autant d’écueils cachés qui retardent ou divisent le flot de la volonté populaire. La loi fût-elle oppressive, la liberté trouverait encore un abri dans la manière dont on exécuterait la loi ; et la majorité ne saurait descendre dans les détails, et, si j’ose le dire, dans les puérilités de la tyrannie administrative.” (Tocqueville, De la démocratie en Amérique)
Both the ECJ and ECHR have been one of the main forces that – in cooperation with normal, administrative and constitutional judges of the member states – pushed back both the legislative and executive branches of those member states into the constraints to which these branches have committed themselves. These European courts have been a force of moderation with respect to the exercise of state power by their relentless scrutiny of all sorts of transgressions and circumventions of the rules agreed upon by the parties to their respective treaties. However, the ECJ itself also holds substantial power. It is thus subject to the same mechanisms of criticism and – in rare and extreme cases – even push back against its decisions when it is believed to violate the limits of its powers. That should not be a problem per se.
5.2 Conflict
Although most of us might crave for harmony and order, as a society we strongly rely (against our moral sentiments and instincts) on conflict to perform certain tasks in the Great Society (Friedrich Hayek, Law Legislation and Liberty). The fundamental processes steering the main pillars of our society – the market, democracy and rule of law – all thrive on competitive processes, which foster and channel conflict to the benefit of society.
- The market lives off creative destruction through harsh competition and the elimination of competitors. That process itself is conflict driven (one conquers the market at the expense of the incumbent) and has significant short term negative effects (threatening the existence of that competitor and the livelihood of its employees). In the long run, however, it makes each generation better off than the previous one by gradually improving efficiency of production and quality of products.
- The same holds for politics where a democratic process allows for competition between politicians and elimination of failed policies. The process itself is conflict driven (new leaders gain power by opposing those who already have it, removing the old ones from office through the ballot box and eventually dismantle the policies of their predecessors) and has significant short term negative effects (inducing exaggerated and divisive rhetoric that functions as a signaling device to represent clear alternative for current policy). In the long run, however, this allows public opinion to hold a grip on government and to push back against abuses of power.
- In the same manner, judges are asked to uphold the rule of law, and thus constantly frustrate other parts of government in the execution of their plans. That process is conflict driven (annulling for example acts of the executive and legislative branch) and has significant negative effects in the short term (by frustrating plans of the executive that are incompatible with legislation; and plans of the legislator that are incompatible with the constitution). However, it also has significant long term advantages, allowing us to discipline the game of politics (that is to have a constitution with individual fundamental rights and freedoms) and grant the voter influence over how state power is exercised over them (establishing a parliamentary democracy).
Some commentators focus only on the conflict itself and its negative side effects. They only hear the harsh words and actions by competitors in business, politics and court; and cry in despair for a better world in which there would be total harmony. But such harmony would mean that those who hold economic, political or judicial power would be uncontested. If people with power are inclined to abuse unchecked powers, that harmonic world would in the long run become unbearable. Its fine to ask for restraint in how we deal with conflict, but not to refrain from conflict altogether.
The EU, ECB and ECJ should thus not be shielded from the pain of conflict (and the frustration of full and effective implementation of their plans) that the others have to endure. Although we might miss some available opportunities for an optimal policy that an Enlighted despot – or a brilliant economist – might attain with unchecked powers, in a moderate state we are willing to forgo this chance for heaven on earth to avert the well-known risk of unchecked powers.
The BVerfG’s demand for an explicit and substantiated statement of reasons with respect to the application of the proportionality test seems to be a rather modest demand and push back that deserves an honest debate, instead of a reaction – espoused by some commentators – of outrage. Their criticism on the reasoning or the conclusions of the BVerfG should be welcomed as a contestation of the BVerfG’s power. But it is difficult to grasp how, in a moderate state of multilevel governance, it is deemed to be an appropriate response to reply that unconditional submission to a single centralized body is the only way in which the political order can function. The essence of our constitutional tradition has, for more than 700 years, exactly been the rejection of that idea.
Conclusion
The BVerfG judgement in the ‘PSPP’-case might be a rare case in which (1) a national judge finds an EU act ultra vires and (2) states the conditions under which the national institutions can give effect to it. However, it is not unprecedented and if past experience can serve as a guide, (1) there is no reason to believe that this will lead to the unraveling of the European legal other and (2) it is even to be hoped that it might help us to improve that legal order. The criticism by the BVerfG has been stated before and can be remedied rather easily. The conflict that appeared is not the failure of our legal order but the checks and balances in full swing. It might not be pretty, but it is part of the process through which power is kept under control.
Jitte Akkermans
[1] The link to the English translation of the decision on the website of the Danish Supreme Court no longer works. http://www.supremecourt.dk/supremecourt/nyheder/pressemeddelelser/Documents/Judgment%2015-2014.pdf
[2] Morten Rasmussen, ‘Revolutionizing European law: A history of the Van Gend en Loos judgment’ [2014] ICON 136, 148, 153-154.
Corporate Finance Lab 
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