Text Of German Constitutional Court Judgment Striking Down Application For Temporary Injunction
Below is an extract of the full statement whose summary kept everyone up this morning, most certainly the headline reacting algos, and which the robots so far seem to like more than dislike.
Extracts from the decision of the Federal Constitutional Court of 12 September 2012
holds as follows:
The applications for the issue of a temporary injunction are refused with the proviso that the Treaty establishing the European Stability Mechanism (Bundestag printed paper (Bundestagsdrucksache – BTDrucks) 17/9045, pages 6 ff.) may only be ratified if at the same time it is ensured under international law that
- the provision under Article 8 paragraph 5 sentence 1 of the Treaty establishing the European Stability Mechanism limits the amount of all payment obligations arising to the Federal Republic of Germany from this Treaty to the amount stipulated in Annex II to the Treaty in the sense that no provision of this Treaty may be interpreted in a way that establishes higher payment obligations for the Federal Republic of Germany without the agreement of the German representative;
- the provisions under Article 32 paragraph 5, Article 34 and Article 35 paragraph 1 of the Treaty establishing the European Stability Mechanism do not stand in the way of the comprehensive information of the Bundestag and of the Bundesrat.
The Federal President, the German Bundestag, the Bundesrat, the Federal Government and all Land (state) governments were given the opportunity to express an opinion.
1. The Federal Government is of the opinion that both the constitutional complaints and the application in Organstreit proceedings (proceedings on a dispute between supreme Federal bodies) are patently unfounded and the applications for the issue of temporary injunctions are therefore inadmissible, or at all events unfounded.
a) Article 136 (3) TFEU does not change the orientation of the monetary union, nor does it remove the prohibition contained in Article 125 TFEU of assuming the liabilities of other Member States; it merely contains a clarification. The measures of stability support of the Member States are not measures of monetary policy for which, under Article 3 (1) point (c) TFEU, the European Union would be competent. The granting of financial assistance is a measure of economic policy, for which the Member States are competent.
b) The European Stability Mechanism is essentially structured on the model of the European Financial Stability Facility, but its capital structure makes it more efficient. With regard to the participation of the German Bundestag, therefore, the same questions arise as in connection with the European Financial Stability Facility pursuant to the judgments of the Federal Constitutional Court of 7 September 2011 and of 28 February 2012. The Act for Financial Participation in the European Stability Mechanism complies with these requirements. By reason of these provisions, there can be no automatic liability. For voting in the Board of Governors, the Treaty establishing the European Stability Mechanism provides for either mutual agreement – and thus unanimity – or a qualified majority of 80% of the votes cast. Since the Federal Finance Minister is delegated to the Board of Governors and a Permanent Secretary to the Board of Directors, it is guaranteed, together with the Act for Financial Participation in the European Stability Mechanism, that the overall budgetary responsibility of the German Bundestag is safeguarded.
The provisions of the Treaty establishing the European Stability Mechanism limit liability to a Member State’s share of the capital stock, which cannot be increased without the approval of the German Bundestag. Article 8 (5) TESM expressly provides that the liability of each ESM Member shall be limited, in all circumstances, to its portion of the authorised capital stock at its issue price and that no ESM Member shall be liable, by reason of its membership, for obligations of the ESM. The maximum amount for which Germany would be liable is therefore approximately 190 billion euros. This – like the temporary existence of the guarantees for the European Financial Stability Facility – does not result in exceeding an upper limit derived from the Basic Law or to an erosion of budget law. In addition, there is no risk-free alternative to these assistance measures. Thus, according to the assessments of the German Bundesbank, the European Central Bank, the European Commission and the International Monetary Fund, far greater political and economic damage would arise from the insolvency of individual Member States. Nor does the European Stability Mechanism constitute entry into a transfer union; long-term payments similar to financial equalisation remain out of the question.
c) The Act for Financial Participation in the European Stability Mechanism is formally in conformity with the Basic Law. Even if it was introduced without the provision for the participation of the Bundestag, it was a complete draft bill, which inter alia contained the statutory authorisation required under Article 115 (1) of the Basic Law. It was not necessary for the participation rights of the Bundestag to be dealt with in this statute.
§ 4 ESMFinG subjects all matters of the European Stability Mechanism which relate to the overall budgetary responsibility of the German Bundestag to the consent of the Bundestag plenary session. § 7 ESMFinG provides for comprehensive rights of information of the German Bundestag in matters of the European Stability Mechanism. There is a double safeguard when capital stock is increased. Under the Act of assent, the German representative must be authorised by a Federal statute for an alteration of the financial assistance instruments. In addition, for changes of the conditions for financial assistance which have no effect on the total financing volume, and for the provision of additional instruments within existing financial assistance measures, § 5 (2) no. 2 ESMFinG provides for the consent of the budget committee. The budget committee supervises the implementation of the agreements entered into for the grant of financial assistance. Finally, § 6 ESMFinG provides for a special committee for the purchase of government bonds on the secondary market, although this is only competent to make decisions where there are requirements of particular confidentiality. The waiver of a right of veto for Germany in the cases of capital calls under Article 9 (2) and (3) TESM is appropriate and safeguards the creditworthiness of the European Stability Mechanism.
d) The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union is intended to create a strong orientation towards stability, for its central provisions oblige the Contracting Parties to lay down the precept of budgetary discipline in their national law, preferably in constitutional law. Article 3 TSCG does not create a material new restriction of the budget autonomy of the Member States, but puts into concrete terms the already existing provisions of European Union law. In addition, the Treaty guards against excessive public debt and in this way prevents further state financial crises in future; in this way it also supplements the Treaty establishing the European Stability Mechanism substantively and functionally. The monitoring of the budgetary and economic partnership programmes of the Member States contained in Article 5 TSCG is not an impermissible restriction of the legislative discretion of the budget legislature. Nor is the obligation to submit budgetary and economic partnership programmes to the Council of the European Union and to the European Commission contained in Article 5 (1) sentence 3 TSCG a restriction, for lack of associated legal consequences. The limitation of government borrowing is compatible with the Basic Law, since in this case it is only the definition of a framework to be filled in by the Member States and this framework precisely corresponds to the model of the German brake on debt. The proposals which Article 3 (2) TSCG requires the European Commission to make on common principles for national correction mechanisms and on the time-frame for convergence towards the medium-term budget objective under Article 3 (1) point (b) sentence 3 TSCG are merely interpretation guides putting the provision in concrete terms.
The indefinite duration of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union – and of the Treaty establishing the European Stability Mechanism – is not a violation of the constitution. It is quite customary for important agreements under international law to be entered into without a fixed term or a termination clause. Even a treaty entered into for an indefinite period of time may be terminated at any time by all contracting parties by mutual agreement. In addition, in the case of fundamental changes of the circumstances existing at the date of entry into the treaty a party may withdraw from the treaty on the basis of Article 62 of the VCLT.
e) The applications for the issue of temporary injunctions must be refused. In the present fragile situation, an appreciably delayed ratification of the two treaties entails massive consequences for some Member States. Since the Federal Republic of Germany has a share of somewhat more than 27% of the capital in the European Stability Mechanism, the latter cannot enter into effect without the deposit of the German instrument of ratification. The Federal Government proceeds on the assumption that it is urgently necessary to permit at most short-term uncertainty to arise as to the progress of the German ratification procedure. The Federal Constitutional Court has already, in particular cases, taken account of the prospects of success in the main proceedings in the proceedings on the issue of temporary injunctions; it is requested that the Court so proceed in the present case too.
2. The German Bundestag regards the applications in the principal proceedings as inadmissible in so far as they are directed against the Act of assent to Article 136 (3) TFEU and assert a violation of Article 3 (1), Article 14 and Article 20 of the Basic Law; in this respect, the applicants are not entitled to apply. Apart from this, the applications in the principal proceedings are patently unfounded.
a) The Act of assent to the European Council decision to amend Article 136 TFEU does not impair the position of the German Bundestag laid down in the Basic Law. In the unanimous agreement of the Member States of the European Union, Article 125 TFEU does not prevent the voluntary grant of assistance. Article 136 (3) TFEU once more makes this clear and is sufficiently specific. The provision serves to safeguard the stability of the monetary union and specifically does not make it possible to introduce a comprehensive liability and transfer union, but instead gives selective authorisation, in a situation which is sufficiently clearly discernible, for assistance measures for a limited period of time; in addition, it contains strict conditionality. The accusation that convention proceedings should have been conducted is mistaken, because Article 136 (3) TEU does not expand the competence of the European Union.
b) The Act of assent to the Treaty establishing the European Stability Mechanism and the Act for Financial Participation in the European Stability Mechanism do not impair the budgetary responsibility of the budget legislature. The Treaty establishing the European Stability Mechanism makes it sufficiently clear what burdens it creates. The requirement of specificity does not exclude the possibility that the provisions of the Treaty are autonomously further developed, but instead is aimed to enable parliament to follow the process of development sufficiently and to guide it effectively.
The overall budgetary responsibility of the Bundestag is not endangered. The European Stability Mechanism cannot make any decisions with budget significance which have not already been approved by the legislature in the Treaty or which need a legislative decision in the course of further development. The authority to generate outside capital is therefore no more questionable than the authority to be able to grant financial assistance in the form of a loan and in other forms. Calls on capital merely result in fulfilling an obligation already created. There can be no increase against its will or without its consent of the shares allocated to the Federal Republic of Germany, for under Article 8 (5) TESM the liability of a Member State is limited “in all circumstances” to its portion of the authorised capital stock. In particular, this provision cannot be overridden by the provisions on the revised increased capital call (Article 25 (2) TESM). The consequential effects are also clear; the purpose of the action, the scope of the operation and the ESM equity capital available are clearly limited. The danger of automatic events is excluded both contractually and procedurally. Admittedly, the European Stability Mechanism is of a permanent nature, but the assistance measures are not. These are intended to achieve a return to complete autonomy and by reason of the conditionality they are necessarily limited in duration. The sums to be paid by the Member States do not burden the budget immediately, but at most are to be paid in stages over a period of time. It is in fact possible for the latitude to be extended by reviewing whether the maximum lending volume is appropriate, under Article 10 TESM, but this does require the cooperation of the legislature. The danger of substantial losses in carrying out operations under Article 21 TESM is so small that it may be disregarded.
Even in the unlikely event that the Federal Republic of Germany has completely paid in its capital contributions and there is a sudden devaluation of the capital stock, the burdens arising from this would merely increase German state deficit by approximately eight percentage points. The Federal Republic of Germany would then have a level of indebtedness of approximately 90% of the gross domestic product, which would not deprive future budget legislatures of all latitude. However, in these conditions it would only be possible to observe the brake on debt by relying on the emergency clause. According to the calculations of the Federal Ministry of Finance and the Federal Audit Office (Bundesrechnungshof), all rescue measures at the present time would result in a conceivable maximum burden of approximately 310 billion euros, and it is not to be expected that this would be realised suddenly. A waiver of the measures of assistance in question would be highly likely to start a process which would result in burdens for the present and for future budget legislatures which would be equally large or even larger.
The democratic supervision of the work of the European Stability Mechanism is largely effected by way of rights of approval and participation. The fundamental decisions of the European Stability Mechanism are subject to approval in the German Bundestag. The office holders involved in the decisions of the European Stability Mechanism are subject to sufficient parliamentary monitoring and are therefore democratically legitimated. On a second level, the acts of the German representatives require the approval of the budget committee; the plenary session, however, may assume the matter to itself at any time. The mechanisms of governance and monitoring are so far upstream that parliament can exercise influence on the process of deciding on the granting of assistance.
c) The conditions of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union do not constitute a curtailment of budgetary sovereignty, but serve to restrict the German liability risk. The Treaty relates to the law of the European Union, without being intended to change the law. Thus the Treaty creates no direct legal effects on the budgets of the Member States, but only indirect effects by way of the sanctions; a budget Act which violates the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union does not cease to be legally valid.
By reason of the federal structure of the Federal Republic, the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union differs in some respects from the brake on debt in the Basic Law, but these differences do not result in a substantially different legislative concept. The state as a whole, that is, the Federal and Länder governments and local authorities and all other public budgets, are subject to this. Sanctions by the bodies of the European Union may be directed solely to the Federal Government; there is no scope for a reach-through to Länder or local authorities. The road of debt reduction provided in the Basic Law is defined by Article 143d (1) of the Basic Law, while the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union leaves it to be put into concrete terms by the European Commission. Admittedly, it is not certain that the European Commission will ultimately decide on an identical road of debt reduction to that provided in the Basic Law; however, the Commission has a duty to take account of country-specific risks and in this respect may orient itself towards the legal position of the Member State in question.
The substantive provisions of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union scarcely add to the number of substantive commitments. The Member States assume the obligations of their own volition and are not compelled to participate, not even de facto. The Treaty arranges for the autonomous enforcement of voluntary contractual agreements and complies with already existing provisions of European Union law. It is true that Article 7 TSCG with its “reverse” rule on a qualified majority is an innovation, but this has no constitutional relevance for the budgetary sovereignty of the national parliaments; the agreement on a particular voting procedure does not modify the excessive deficit procedure in substance. Nor is there a transfer of substantive legislative competencies to other bodies with sovereign power. Article 8 TSCG merely grants the Court of Justice the competence with regard to compliance with Article 3 (2) TSCG to decide legal actions of the Contracting Parties and in the case of a violation to impose a penalty payment on a Contracting Party.
Admittedly, the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union contains no express provision for termination or withdrawal, but this does not exclude the application of the general rules of termination of international law.
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