July 13, 2020

Volume X, Number 195

July 13, 2020

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July 10, 2020

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German Federal Constitutional Court Judgment of 5 May 2020 Prohibits Bundesbank from Participating in ECB’s Public Sector Asset Purchase Programme

On 5 May 2020 the German Federal Constitutional Court (Bundesverfassungsgericht) rendered a judgement in a number of individual constitutional complaints (Verfassungsbeschwerden) of German citizens against the European Central Bank’s (ECB) Public Sector Asset Purchase Programme (PSPP) of 2015.

The judgment was based on a provision contained in the German constitution which prohibits the German Parliament (Bundestag) and German Federal Council (Bundesrat) from changing certain provisions of the German Constitution even if there is a 2/3 majority.

Article 79 (3) of the German Constitution provides that Article 1 (which protects human dignity) and Article 20 may never be changed (Ewigkeitsklausel – Eternity Clause). Article 20 provides that that the Federal Republic of Germany is a democratic and federal Republic, that sovereignty rests with the German people and that the German Parliament is bound by the German Constitution and the German Government is bound by the German Constitution and Acts of Parliament.

Based on the principle of democracy and the overall responsibility of the German Parliament for German budgetary policy (Haushaltspolitische Gesamverantwortung) which must not be transferred to the European Union, the Bundesverfassungsgericht held that the German Parliament and the German Government have not duly checked and insured that the consequences of the monetary policy objects of ECB’s Public Sector Purchase Programme are not disproportional to the consequences of the PSPP on economic and fiscal policy. The Bundesverfassungsgericht said that the ECJ Judgment of 11 December 2018 (Case C-493/17) which was rendered with respect to the PSPP is irrelevant because it was, in respect of the principle of proportionality, incomprehensible (schlechterdings nicht mehr nachvollziehbar) and ultra-vires.

The Bundesverfassungsgericht ordered Bundesbank, subject to a grace period of 3 months, not to participate any longer in purchases under the PSPP and to wind down all purchases made in the past in an orderly way, insofar as the ECB Council has not proven the proportionality of the PSPP.

The judgment is not subject to appeal to any other court, and is therefore final.

The judgment does not directly settle the question whether the ECB’s “whatever it takes” policy is inconsistent with the German Constitution. But it does make clear that there is a limit beyond which the German Parliament would have lost effective control of German budgetary policy, and that breaching that limit would be unconstitutional. As an illustration, the judgement suggests that borrowing of €2,000bn would clearly be beyond the limit, but it does not say where below that number it considers the limit to be.

The practical effect of the judgment is that the German Government must now urgently seek a proportionality justification from the ECB.

The judgment makes clear that it does not concern any financial assistance measures taken by the European Union or the ECB in the context of the current coronavirus crisis. That is because those measures did not form part of the case (which dates back to 2015). But it has laid out some important principles which could be expected to apply to the current measures as well.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume X, Number 126


About this Author

Jens Rinze, Squire Patton Boggs, Structured Finance Attorney,

Dr. Jens Rinze is a partner in the Frankfurt office and heads the Financial Services Practice Group in Germany. His practice focuses on capital markets, structured finance, banking, insurance and other finance industry related transactions, in particular securitization, real estate finance, acquisition finance, receivables finance and asset finance  as well as other forms of structured finance and capital markets instruments (including the regulatory aspects thereof) as well as the restructuring and work-out of such transactions. Moreover, he advises financial...

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