The European Court of Justice as the Driving force Behind Integration?

OLYMPUS DIGITAL CAMERAOn Tuesday 14 October 2014 the European Court of Justice (CJEU) held a first hearing of the trial on the legitimacy of ECB’s Outright Monetary Transactions Programme (OMT). During this preliminary ruling procedure, initiated by the German Federal Constitutional Court (BVerfG), the CJEU began investigating a possible transgression of competences by the European Central Bank (ECB). The BVerfG did not hide the fact that they believed the ECB to be guilty. But since it related to European Law, the CJEU, as the legal guardian of the Treaties, was in charge (Höltschi, 2014).

Through the OMT programme, introduced on 2 August 2012, the ECB can buy government bonds on secondary markets if a country fulfils certain criteria. Although not directly intervening on new issue markets, the programme was intended to lower borrowing costs for countries that faced irrationally high interest rates on primary markets (ECB, 2012). The announcement underlined ECB’s willingness to save the euro by doing “whatever it takes”, as Mario Draghi (2012) had phrased it just a week before. And it worked. Interestingly enough, until now OMT has not been applied (BVerfG, 2014). By simply declaring its readiness to intervene, the ECB had achieved its desired outcome. The bond market reacted and crucial candidates like Spain or Italy were able to refinance themselves for significantly lower interest rates (Altavilla, Giannone & Lenza, 2014).

Not everyone was happy though, as the ECB’s governing council did not take the decision unanimously. German Bundesbank president Jens Weidmann did not support the implementation of the programme and many German politicians shared his opinion (Steen, 2012). Ironically called Outside Mandatory Transactions, the OMT, in contrast to its unsuccessful predecessor is unlimited in time and volume (ECB, 2012). It is no surprise that some critics therefore argue that the programme de facto implies monetary financing (Yiangou, O’Keeffe & Glöckler, 2013). As this is prohibited by the Maastricht Treaty, it partly explains the explosive nature of the case. Further, representatives of the Bundesbank were particularly concerned about dropping the disciplining impact financial markets have on national budgets (Deutsche Bundesbank, 2012). In the following national legal procedure, in which the ECB participated, the BVerfG concluded that the ECB had overstepped its mandate (BVerfG, 2014). Under these circumstances, the only option a national court has is to forward the case to the CJEU.

Should the CJEU justify the ECB’s actions, Germany will have lost competences they might have never been willing to give up. Or to put it in another way, the CJEU accomplished what politics would have never been capable of and legally shifted further competences to the European Union.

The accusation of being the engine of integration has stuck to the CJEU for years. It was in 1963 when its predecessor granted individuals the right to directly invoke European law. One year later the Costa/E.N.E.L. case took things even further and gave European integration a big leg-up. The case serves as an important example. Although there was – and still isn’t – any legal norm that granted EU law supremacy over national legislation, the court overruled an Italian electricity nationalisation law, referring to the special and original nature of community law (Vauchez, 2010). With regard to the factual irreversibility of CJEU rulings, this issue gains even further relevance. The CJEU subsequently established this principle in various decisions. As a consequence of the supremacy, the authority of the CJEU was drastically increased, but more importantly it enabled intensive European integration. In this context, it is particular the rulings that allowed for the completion of the internal market that stand out (Höpner & Schäfer, 2008).

But what are the reasons for this tendency towards a supranational, centralised interpretation of legislation? The court’s natural aim for more power, as mentioned above, seems to be the most intuitive answer. By favouring EU law at the expense of national legislation, the CJEU extended its range of influence. There is, however, more to consider than that.

A lot of the lawsuits that reach the CJEU are submitted by the commission. As an institution of the European Union, the commission is interested in furthering European integration in the way the CJEU is said to be. Among other things, it is responsible for infringement proceedings. If a country does not comply with the commission’s orders, the case will be taken to court where the CJEU has to decide if EU law actually had been breached, as stated by the commission. Similarly, preliminary ruling procedures, like the one discussed above, contain EU law interpretation requests from courts in member states. With both types of lawsuits, the CJEU faces decisions that are caused by vague legal norms. If it wasn’t for those legal shortcomings the CJEU would not be provided with the opportunity to drive European integration (Höpner, 2010). This leads to the question is it a coincidence, or even surprising, that these norms suffer from ambiguity?

The question relates to the above-suggested inability of European politics to promote further integration. Aware of the CJEU European-friendly attitude, some politicians might evade and actively support transferring their responsibilities to an external actor such as the ECJ.

But what’s at stake? One might argue that all of this is for the greater good. Certainly numerous figures and tables would prove that point and could illustrate how increased integration benefitted all of Europe. But that’s not how democracy works. Certainly a supreme court that oversteps its mandate does not compare to a benevolent dictatorship. But there is a reason that an institution is designed the way it is. The issue serves to highlight a different aspect of the discussion on the democracy deficit the European Union suffers from. It further raises questions on how serious the European Union takes the separation of powers.

In some cases of promoting European integration, the CJEU may have circumvented the principle of subsidiarity. More importantly though it is highly doubtful that its actions have always been in accordance with the principle of conferral. This brings us back to the OMT trial.

The case itself, although important, is not the centre of interest. Instead the final verdict will indicate how much rule bending the CJEU will tolerate in order to save the euro. Does the end justify the means?

Recent developments on Europe’s government bond markets sent out alarming signals and once again remind us that the crisis is not yet over. The risk of deflation provides further incentives for OMT similar interventions (Spiegel, 2014). Under these circumstances, the case becomes even more important.

Fintan Oeri is from Basel, Switzerland, and studying fan MSc in International Political Economy at the School of Politics and International Relations. University College Dublin (UCD). This blog post was written as part of his assignment for a module in European Political Economy.

References

Altavilla, C., Giannone, D., & Lenza, M. (2014). The Financial and Macroeconomic Effects of the OMT Announcements (Working Paper No. 352). Retrieved from Center for Studies in Economics and Finance website: http://www.csef.it/WP/wp352.pdf

Bundesverfassungsgericht. (2014). 2 BvR 2728/13. Retrieved from https://www.bundesverfassungsgericht.de/entscheidungen/rs20140114_2bvr272813.html

Deutsche Bundesbank. (2012). Stellungnahme gegenüber dem Bundesverfassungsgericht zu den Verfahren mit den Az. 2 BvR 1390/12, BvR 1439/12, 2 BvR 1824/12, 2 be 6/12. Retrieved from http://www.handelsblatt.com/downloads/8124832/1/stellungnahme-bundesbank_handelsblatt-online.pdf

Draghi, M. (2012, August). Verbatim of the remarks made by Mario Draghi. Speech presented at the Global Investment Conference, London, UK.

European Central Bank (2012, September): Box 1: Monetary policy measures decided by the Governing Council on 6 September 2012. Monthly Bulletin. Retrieved from https://www.ecb.europa.eu/pub/mb/html/index.en.html

Höltschi, R. (2014, October 14). Anleihe-Kaufprogramm der EZB: Gegner und Verteidiger kreuzen die Klingen. Neue Zürcher Zeitung. Retrieved from http://www.nzz.ch/wirtschaft/gegner-und-verteidiger-des-omt-kreuzen-die-klingen-1.18404031

Höpner, M. & Schäfer, A. (2008). Die Politische Ökonomie der europäischen Integration, Schriften aus dem Max-Planck-Institut für Gesellschaftsforschung Köln, No. 61. Frankfurt: Campus Verlag.

Höpner, M. 2010. Warum betreibt der Europäische Gerichtshof Rechtsfortbildung? Die Politisierungshypothese. MPIfG Working Paper, No. 10/2, Cologne: Max Planck Institute for the Study of Societies.

Spiegel P. (2014, October 14). ECB defends bond-buying plan at top EU court. The Financial Times. Retrieved from http://www.ft.com/intl/cms/s/0/389d1502-5325-11e4-b917-00144feab7de.html#axzz3GOWyaNrr

Steen, M. (2012, September 06). Weidmann isolated as ECB plan approved. The Financial Times. Retrieved from http://www.ft.com/intl/cms/s/0/3651b028-f846-11e1-b0e1-00144feabdc0.html#axzz3GOWyaNrr

Vauchez, A. (2010). The transnational politics of judicialization. Van Gend en Loos and the making of EU polity. European Law Journal, 16 (1), 1-28.

Yiangou, J., O’Keeffe, M. & Glöckler, G. (2013). ‘Tough Love’: How the ECB’s Monetary Financing Prohibition Pushes Deeper Euro Area Integration. Journal of European Integration, 35 (3), 223-237.

 

 

 

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