What the Karlsruhe Decision Means For EU Politics

The decision by the German Constitutional Court to ask the European Court of Justice (ECJ) whether the European Central Bank violated the European Union Treaties when it promised to do whatever it takes to stabilize the euro, including buying sovereign bonds on financial markets, is potentially very significant for the future of European politics. The German Court announced Friday two different decisions.

First of all, it said that from its point of view “there are important reasons to assume that” the Outright Monetary Transactions Program “exceeds the European Central Bank’s monetary policy mandate and thus infringes the powers of the member states, and that it violates the prohibition of monetary financing of the budget.”

However, at the same time, by a 6-2 majority decision, Germany's top judges asked the European court in Luxembourg for a preliminary ruling on whether the ECB breached its mandate when in 2012 it agreed to do "whatever it takes" to preserve the euro. By doing so, the Karlsruhe tribunal has admitted the European nature of the ECB. Never before had the German judges asked the ECJ for a preliminary ruling on European matters.

The German tribunal has not ruled that EU law has primacy over national constitutions. Up to now, however, the Karlsruhe Court had always thought that it could have the last word on European matters as the European Union was to be considered a confederation of nation states, not a federation of component states, and democracy was based on national representation rather than European representation.

One should have no illusion. If the German judges have decided to sidestep the decision, it’s probably because they had to take into account the opinion of the political establishment. The Court’s independence is limited, as much as the one of the Bundesbank. Both are strong and credible institutions, but they have to consider the political indications coming from Berlin. It would have been very difficult for the judges to consider the OMT program in violation of EU Treaties after the federal government repeatedly gave its support to the ECB on this matter.

This said, the decision by the German Court remains particularly important for two reasons. Firstly, once again after many uncertainties Germany takes a pro-European stance. Generally speaking, the decision by the ECB to buy public debt on financial markets has provoked a strong feeling of uneasiness. Many Germans believe deep down that the ECB's sovereign bond purchases do violate the EU Treaties, but they have been ready to accept them for the sake of the euro’s future. As the German judges wrote, the OMT program has had the merit to stabilize the eurozone.

Secondly, the decision is important for legal reasons. As it needed to bow to the government’s pressure without betraying its interpretation of the ECB’s action, the Karlsruhe Court opted to refer the matter to the ECJ.

Let’s put aside for a second the decision the ECJ will make, although presumably it will uphold the ECB’s choice. By accepting the supremacy of the Luxembourg tribunal, the Karlsruhe Court is admitting indirectly the changing nature of the EU. It is no longer a confederation, although it’s not yet a fully-fledged federation. The judgement is an interesting precedent. One can presume that it will strengthen the hand of the most pro-Europeans in the German establishment and at the same time scale back the role of the Karlsruhe Court in European policy-making.