L’obiettivo del presente articolo è duplice. Il primo è quello di “inserire” la sentenza della Corte costituzionale tedesca (anche, BVerfG) nel più generale “conflitto” tra Repubblica di Germania e Unione europea in merito alla creazione di un sistema di gestione delle crisi nel settore della politica monetaria (il programma SMP nel 2010, il programma OMT nel 2012). Il secondo obiettivo è quello di contestare quanto sostenuto dalla Corte costituzionale tedesca in tale sentenza; cioè che la Corte di giustizia dell’Unione europea avrebbe accettato le “richieste” formulate dal BVerfG nel rinvio pregiudiziale. E’ vero il contrario: la Corte costituzionale tedesca ha dovuto “allineare” la propria sentenza alla decisione Gauweiler della Corte di giustizia.

SOMMARIO:

I. Introduction. - II. The birth of the ECB program to protect the effective exercise of monetary policy during a crisis: from the SMP to the OMT. - III. The Eurozone financial crisis as a regulatory crisis. The causes of its start and its development. The legal means singled out in order to resolve the crisis. - IV. The role of the German Republic in creating the “intergovernmental drift” of the Eurozone crisis. The peculiarity of the “OMT case”. - V. The various criticisms addressed to it by the Bundesbank in 2010-2012 ... . - ... and the criticism by the BVerfG in the 2014 preliminary reference. The ECB, the BVerfG and the “understanding” of OMT program: worlds apart. - VII. The Gauweiler judgment of the Court of Justice. The legality of the requirement of no ex ante limitation of bond purchases in the OMT program. - VIII. The judgment of the BVerfG, the lawfulness of the OMT program and the alleged accommodation of the Court of Justice to the German Court’s preliminary reference “requests”. - IX. The BVerfG judgment, “the humiliation of recognizing the position taken in its referral as erroneous” and other “inaccuracies” contained therein. - X. Conclusions. Winners and losers of the OMT case: the Bundesbank, the BVerfG, the Court of Justice, the ECB and European legal scholarship. - NOTE

I. Introduction.

In an article of mine on the OMT case of early 2016 I had anticipated that: «Against the generalized criticism of the preliminary reference of the BVerfG, and also of the convincing Gauweiler judgment, the German Court is unlikely to confirm the final judgment in its assessment of the unconstitutionality of the OMT, leaving it then space only for the formulation of general disapproving criticism» [1]. The German Court issued on 21 June 2016 [2] a judgment that decides, after the 2015 Gauweiler judgment of the Court of Justice [3], the “OMT case”. In this judgment the BVerfG, in contrast to what was telegraphed in its 2014 preliminary reference [4], confirmed the legality of the OMT program. In the reasoning of the judgment, the BVerfG criticized some aspects of the Gauweiler judgment and set out some additional implementing conditions to the OMT program. These are not provided for in the Gauweiler judgment but are implicitly contained in the 2012 ECB decision. As is well known, the Outright Monetary Transactions (OMT) program is the crisis management tool for an effective protection exercise of monetary policy adopted by the European Central Bank (ECB) in 2012 in one of the more virulent periods of the Eurozone crisis. With the present article, I would like firstly to put the BVerfG judgment into the context of a drawn-out conflict between the German Republic and the European Union regarding the setting up of the crisis management tool in the area of monetary policy, the SMP program in 2010 and the OMT program in 2012. Secondly, I would like to show that contrary to what the BVerfG claims in its judgment, namely that the Court of Justice did accept in its judgment the “requests” of the German Court issued in its preliminary reference, quite the opposite is true.

II. The birth of the ECB program to protect the effective exercise of monetary policy during a crisis: from the SMP to the OMT.

The OMT (like the previous version of the program, the SMP) is an open market operation program (art. 18 ESCB Statue) enacted by the ECB in July-September 2012 aimed at guaranteeing the effective exercise of its monetary policy in a crisis scenario. The birth of the OMT program is based on a principle decided by the ECB before the start of the Eurozone crisis. The ECB argued that excessive spreads in the interest rates of government bonds of different Eurozone Members would effectively eliminate the possibility of the ECB to exercise its monetary policy using ordinary “levers”, first of all, through the setting of money interest rates [5]. Excessive spreads would thus undermine the singleness of the ECB monetary policy as defined in the Treaties, and the correct transfer of ECB monetary policy impulses. The OMT, not unlike the SMP program, allowed intervention in exceptional situations when interest rates of Eurozone States’ bonds became irrationally high as a consequence of market conditions. Through bond purchases, and according to the principle of supply and demand, the OMT would bring these rates to a rational level. In this sense, the OMT does not transform the ECB into a “lender of last resort”, as erroneously feared by the BVerfG (Preliminary reference, para. 94). The ECB’s objective is not the stability of the Eurozone but the protection of the effective exercise of its monetary policy (this is actually recognized by the BVerfG itself in its judgment of 21 June 2016 - see BVerfG judgment, para. 3.c). The OMT can achieve this result because the program does not provide for ex ante quantitative limits of the OMT size. And in fact this is one of the features of the OMT decision, that reads: «No ex ante quantitative limits on the size of Outright Monetary Transactions [are permitted]». This ensures that the ECB, regardless of the market situation, will succeed in bringing interest rates to rational levels (and in any case to keep them at sustainable levels). The OMT’s important incidental effect is that, by not allowing interest rates on government bonds of States in financial stress to reach levels that make their debt unsustainable, Eurozone States are prevented from defaulting on their debt, thereby making the euro irreversible (at least from and economic point of view). Given the exceptional nature of this program, the OMT decision, [continua ..]

III. The Eurozone financial crisis as a regulatory crisis. The causes of its start and its development. The legal means singled out in order to resolve the crisis.

The Eurozone financial crisis is the result of the choice of Member States, at the time of the creation of Economic and Monetary Union (EMU), not to establish institutions to tackle EMU economic and monetary crises. The absence of such institutions was justified in the following terms by the ex member of the ECB Executive Board, Jürgen Stark: «There were no bailouts or rescue facilities because they weren’t ever supposed to be necessary» [6]. In other words, prior to the crisis, owing to a problem of unsatisfactory regulation by the Member States (based nevertheless on a clear political choice), there were no institutional tools to counter systemic crises relating to Member States’ public debt or to address the impact of a crisis on the ECB’s monetary policy. The cause of the onset of the Greek crisis in October 2009, as now agreed by many and recently acknowledged by the President of the Bundesbank, Jens Weidmann [7], was the 2003 decision of France and Germany to breach the Stability Pact without being sanctioned [8]. The de facto suspension of the Stability and Growth Pact, along with the severe limitations of the European statistical system for the correctness of the budgetary data provided by the Member States and the emergence of the real dimension of the Greek public debt in 2009 [9], created the situation which then led to the start of the financial crisis. The mismanagement of the Irish crisis through the Franco-German Deauville Pact of October 2010 as well as the mismanagement of the second Greek crisis created a contagion effect that spread to Portugal, Spain, Italy [10]. As I have tried to outline elsewhere [11], the Eurozone crisis was solved by the creation of crisis management institutions as the crisis unfolded, firstly through the two crisis management institutions that were not foreseen in the original framework of the EMU: the European Stability Mechanism (ESM) for the management of crises related basically to Member States’ debt, and the Outright Monetary Transactions (OMT) aimed at guaranteeing the effective exercise of the ECB monetary policy in a crisis scenario. Moreover, during the crisis, also the legal framework for the “day-to-day” managing of the Economic Union - the Stability and Growth Pact (SGP) - was modified through the amendment of the so-called “six-pack” and “two-pack” as well as of the [continua ..]

IV. The role of the German Republic in creating the “intergovernmental drift” of the Eurozone crisis. The peculiarity of the “OMT case”.

It is not my goal to make value judgments about how the German Republic chose to direct and control for its part the development and solution of the Eurozone crisis. Instead, I aim to identify the dynamics that led to the development of the crisis in order to perform a correct legal analysis. It is beyond doubt that, in the definition of the crisis management institutions, the German Republic insisted that the most important aspects of these institutions had to be drafted in intergovernmental agreements so as to prevent their being modified by a majority vote according to the Community method. The decision to enact measures with acts outside the confines of EU law allowed for the well-known Eurozone crisis “intergovernmental drift”. This was the case with the permanent 2012 ESM bail-out fund. The fund was in fact established through an intergovernmental agreement after the amendment of art. 136 TFEU. The temporary 2010 European Financial Stability Facility (EFSF) bail-out fund was also established outside the framework of EU law. The EFSF was established in the form of a private company under Luxembourg law whose shareholders were the Eurozone Member States. Even the main principles of the Stability and Growth Pact set out in the “six pack” (including the so-called “golden rule” of balancing the budget) were inserted into the Fiscal Compact [12], an intergovernmental agreement. In the Banking Union, certain aspects of the bank restructuring fund are set out in an intergovernmental agreement. Discussions at the European level are now focused on the creation of the European deposit insurance system (the so-called Banking Union “third leg”) through another intergovernmental agreement [13]. The OMT program is the only crisis management tool that was approved, as an ECB decision, by a simple majority (art. 10.2 ESCB Statute). In other words, no Member State could unilaterally impose its veto at the time of its adoption. By the same token, no part of the OMT decision could be “crystallized” in an intergovernmental agreement. The “OMT case” must be understood in light of the dynamic of this “intergovernmental drift”. In particular, it must be understood as the desire of the Member States (in particular Germany) to amend unilaterally, outside the Community method, the crisis management measures. Indeed, the “OMT case” is basically the means by which [continua ..]

V. The various criticisms addressed to it by the Bundesbank in 2010-2012 ... .

Both the SMP and the OMT program have been criticized by the German Republic, specifically by both the Bundesbank and the BVerfG. The first wave of the Bundesbank’s criticism was formulated, based on financial reasons, as the ECB rolled out its first bond purchase program, i.e. the 2010 SMP program. The program was widely criticized by the Bundesbank’s President at that time, Axel Weber, and by one of the ECB’s Executive Board members (and former Bundesbank Deputy President), Germany's Jürgen Stark. In particular, President Weber complained that the injection of liquidity into the market would create «substantial stability risks» [14]. Furthermore, it was feared that this decision would favor an uncontrolled increase in inflation [15]. Over time, these fears proved unfounded. What is relevant here is that both of them, lacking the possibility to veto the SMP program (as unanimity in the Council pursuant to art. 10.2 ESCB Statute was not provided for) decided to resign from their posts in 2011. The Bundesbank’s second area of criticism was raised against the new ECB program for the protection of the effective exercise of the ECB’s monetary policy [16], i.e. the OMT. In fact, Jens Weidmann, as Bundesbank President, was the only of the (at that time) 23 members of the ECB Governing Council who on 2 August 2012 voted against the decision on the possibility of establishing a new bond-buying program [17]. Subsequently, the ECB Governing Council approved on 6 September 2012 the strict OMT activation and exercise requirements. The OMT formally replaced the SMP. There were two reasons that pushed in 2012 the Bundesbank to oppose the new bond-buying program. In the words of President Weidmann, there was a risk that the ECB would «overstep its mandate»; furthermore, the program was «tantamount to financing Governments by printing bank notes» [18]. In other words, the Bundesbank stopped criticizing the ECB’s (SMP) bond-buying program from an economic/financial point of view (issues that after two years had proved to be unfounded) and started to raise criticisms about the OMT program on a point of law – a peculiar perspective for an entity like the Bundesbank. The two criticisms raised by the Bundesbank President (such a program was illegal because in breach of both the [continua ..]

... and the criticism by the BVerfG in the 2014 preliminary reference. The ECB, the BVerfG and the “understanding” of OMT program: worlds apart.

The third order of criticism of the German Republic against the OMT was formulated by the BVerfG in its 2014 preliminary reference. One can see a clear trait d’union between the German Bundesbank and the German Constitutional Court in continuing the same objections regarding the legality of the OMT program. Like the Bundesbank, the BVerfG – as a result of the appeals brought before it in October 2012 - considered that the OMT program was in breach of the ECB mandate and that it violated the prohibition contained in art. 123 TFEU. The BVerfG also added, when referring the case to the Court of Justice, a new issue related to Germany’s «constitutional identity» (Preliminary reference, para. 27). In this respect, one of the BVerfG’s concerns, ultimately, was the inability of the Bundestag to exercise its powers of control over the federal budget as provided by the Federal Constitution. These powers were, in the BVerfG’s view, part of the German constitutional identity (Preliminary reference, para. 28). The BVerfG concluded, in its sui generis referral, that the OMT was a breach of both European Union law and German Constitutional law. In particular, the Court threatened the disapplication of the OMT program by all German agencies, federal and state (Preliminary reference, para. 30), in the absence of a corrective interpretation of the Court of Justice (Preliminary reference, para. 99). This conclusion of the BVerfG has been labeled as an “(offensive) invitation to the ECJ to restrict the implication of the OMT program by means of interpretation” [20]. The distance in the “understanding” of the function and structure of the program by the BVerfG, on the one hand, and the ECB (and the ECJ), on the other, is radical. It poses in doubt the mere possibility of what the German constitutional Court supported later in its final judgment: that is, that the Court of Justice in its judgment would incorporate "in essence" (par. 3.c) the requests of amendment of the OMT program formulated by the BVerfG in its preliminary reference. In fact the BVerfG, in order to reach this conclusion, fully overturned the structure of the OMT as defined by the ECB (Preliminary reference, para. 69). Indeed, the ECB drafted the program based on the following four pillars. In first place, the [continua ..]

VII. The Gauweiler judgment of the Court of Justice. The legality of the requirement of no ex ante limitation of bond purchases in the OMT program.

The Court of Justice responded to the preliminary reference of the BVerfG with the Gauweiler judgment [21]. This judgment was rightly called a «model of restraint» [22]. The Court in its judgment did not in fact seek confrontation with the BVerfG - confrontation that was already created with the previous Mangold/Honeywell judgment [23]. Rather, it sought to show the legality of the OMT «on the force of its substantive arguments» [24]. The only point disputed by the Court (Gauweiler, para. 16) related to the supposed lack of binding nature of the judgment of the Court (Preliminary reference, para. 27; the BVerfG in its final judgment conformed to the content of the Court ruling differently from what it had previously held in the preliminary reference, see infra paras. 9-10). With reference to the OMT, the Court recognized the legality of the program by clarifying that the requirements as defined there constituted a solid system of checks and balances in order to ensure that the bond-buying program was in breach of neither the mandate of the ECB nor of art. 123 TFEU. However, the Court did not follow the BVerfG’s “request” to impose new restrictions on the activation and exercise of the OMT program. To the contrary, the Court affirmed the legality of the program as drafted by the ECB in 2012 without any reservation. Moreover, the Court in para. 88 of the judgment clearly rejected the BVerfG’s “request” that the size of the OMT program should be limited ex ante (Preliminary reference, para. 101). This aspect is of particular importance with regard to the subsequent judgment of the BVerfG (see infra para. 9).

VIII. The judgment of the BVerfG, the lawfulness of the OMT program and the alleged accommodation of the Court of Justice to the German Court’s preliminary reference “requests”.

In spite of the numerous and different profiles of illegality raised by the German Republic starting from 2010, the German Constitutional Court has recognized in its judgment the legality of the OMT program. Regarding the first part of the ultra vires review, the BVerfG concluded (contrary to what it stated in the preliminary reference, Preliminary reference, paras. 56, 84, 95, 99) that the OMT program does not breach the ECB mandate. The program is in fact «to the largest extent monetary in kind» [25] (para. 3.c). In order to reach this conclusion, the Court had to elaborate a difficult analysis aimed at showing that the Court of Justice had in fact accepted the views of the BVerfG as expressed in the preliminary reference. The difficulty stems from the fact that the Court of Justice, as mentioned above, considered the OMT decision as adopted in 2012 to be lawful, without taking the BVerfG’s requests into consideration. It is no coincidence that the German Court criticized “in principle” the content of the Gauweiler judgment, arguing that the judgment «meets with serious objections on the part of the [BVerfG]» with reference to different aspects [26]. In spite of this, the German Court found that the OMT program is lawful arguing that it does not «manifestly exceed the competence attributed» to the ECB (para. 3c). This apparent contradiction is justified, according to the BVerfG, by the fact that the Court of Justice «essentially performed the restrictive interpretation of the policy decision that the Senate’s request for a preliminary ruling of 14 January 2014 held to be possible» (para. 3.c). To this end, the BVerfG made a distinction between «the decision of 6 September», on the one hand, and «the implementation of the programme» on the other. The distinction is clearly aimed at the (expected) goal of the German Court: that is, to single out a (restrictive) interpretation of the OMT program’s requirements [27]. Continuing with its ultra vires review, the BVerfG also found that the OMT is not in breach of art. 123 TFEU. That is again the opposite of what the BVerfG concluded in its preliminary reference. As the BVerfG states: «If interpreted in accordance with the Court of Justice’s judgment, the policy [continua ..]

IX. The BVerfG judgment, “the humiliation of recognizing the position taken in its referral as erroneous” and other “inaccuracies” contained therein.

I propose to focus the present remarks only on the operative part of the BVerfG judgment; that is, the final 46 paragraphs of the 220 paragraphs of the judgment (specifically, paras. 174-220). As noted in my analysis of the OMT preliminary ruling, in that case there was a significant difference (if not contradiction) between the “theoretical” and the “operative” part of the preliminary reference [29]. Moreover, is should be noted that final judgment was not fully translated into English, unlike the preliminary reference and other key BVerfG judgments with European relevance. The summary of the judgment in English organized by the BVerfG does not allow us to fully ascertain some contradictions contained in the final decision in German. In essence, the grounds of the judgment of the BVerfG in the operative part are all aimed at demonstrating what clearly is not the case: namely, that the ECJ had fulfilled the requests in the BVerfG’s preliminary reference, thus modifying the features of the OMT program. In this sense, the way in which the BVerfG justifies its conclusion has the goal not only of avoiding «the humiliation of recognizing the position taken in its referral as erroneous» [30] but also of dissimulating its (failed) attempt to modify the content of the OMT program through the interpretation requested in the preliminary reference to the Court of Justice. The German Constitutional Court, with reference to the first part of the ultra vires review on the ECB mandate, had to argue that the Court of Justice accepted the BVerfG’s requests. The German Constitutional Court maintained that the Court of Justice «has essentially performed the restrictive interpretation of the policy decision that the Senate’s request for a preliminary ruling of 14 January 2014 held to be possible» (para. 3.c). This formulation, however, is per se an admission that the Court had not agreed to the requests from the BVerfG. In fact, the Court of Justice did not comply with those requests directly but, according to the BVerfG, only “in essence” («essentially performed»). Since the Court of Justice did not modify the OMT program, the only way for the BVerfG not to trigger an institutional crisis by declaring the OMT unlawful was to follow Goldmann’s [continua ..]

X. Conclusions. Winners and losers of the OMT case: the Bundesbank, the BVerfG, the Court of Justice, the ECB and European legal scholarship.

The “OMT case” cannot be reduced to the mere issue of Union Law interpretation between the Court of Justice and the BVerfG. In my view, the OMT case was a final “showdown” regarding the extent to which the Community method could be “bent” in order to reassure major Eurozone Member States in the design of crisis management institutions. The BVerfG with its 2014 preliminary reference sought to influence the way in which the OMT program operates. This attempt by the BVerfG was rejected by the Court of Justice in its 2015 Gauweiler judgment (supra para. 6). It upheld the lawfulness of the OMT program as formulated by the ECB in 2012. As in every “showdown” there are, in a broad sense, “winners” and “losers”. Among the “winners” one could list the ECB. The OMT case shows that it exercised its monetary competence in a lawful manner, without misusing its independence. From this point of view, one should not forget that the ECB had to enact such a program since neither the Member States nor the EU institutions, which would have been more properly competent parties to enact a measure of this kind, had enacted them [38]. Instead, they preferred to leave that role to the ECB, thereby endangering its independence and legitimacy, and turning the ECB into a “lightning rod” for criticism – as the BVerfGreference shows –; this despite the fact that the OMT program has proven lawful under EU law. Also among the “winners” one could list the Court of Justice and its role as a centralized body of binding interpretation of EU Law. The stronger Court of Justice role emerges inter alia from the fact that the BVerfG, notwithstanding its “self-proclaimed” independence from the binding nature of the judgments of the Court of Justice (Preliminary reference, para. 27), had to bring its judgment into line with the Gauweiler judgment. An important role in the “positive” conclusion of the OMT case was played by European legal scholarship. The decision of the BVerfG not to “cross the Rubicon” and not to start an institutional crisis with the Union was probably driven also by the coherent and intense criticisms raised in that scholarship against the BVerfG’s preliminary reference [39]. Among the “losers” of this [continua ..]

NOTE