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Judging the Bankers (or Not): The Rise of the ECB and the Transformation of EU Constitutionalism

Nicole Scicluna, Department of Political Science and International Studies (POLSIS), University of Birmingham

The European Central Bank (ECB) embodies the politicised technocracy that characterises EU governance. It was pushed to centre stage by the euro crisis and by national governments’ unwillingness or inability to come up with timely and credible solutions. Despite protestations by former chief, Jean-Claude Trichet, that the Bank’s monetary interventions could not and would not replace decisive government action, that is largely what happened. Fiscal policy coordination among euro area states is still a work in progress, while the ECB’s ascent as a political actor continued, and even accelerated, under current president, Mario Draghi. Hence, it was Draghi’s promise in July 2012 to do ‘whatever it takes‘ to save the euro that was the turning point in the crisis, pulling the currency back from the brink.

However, the ECB’s rise is neither uncontested nor uncontroversial. As its de jure mandate has not expanded alongside its de facto role, the Bank operates under an ever-threatening cloud of semi-legality. The sympathetic opinion of European Court of Justice (ECJ) Advocate General, Pedro Cruz Villalon, on the Bank’s euro area bond buying programme must have been received then as a very welcome ray of light.

The opinion was released on 14 January, a fortuitous bit of timing that boosted the Bank’s legitimacy in the lead up to its long-awaited announcement of eurozone quantitative easing (QE) on 22 January. Taken together with Syriza’s victory in the Greek elections a few days later, the Advocate General’s opinion may indicate a shift away from the austerity focus that has so far dominated the euro crisis response. However, this is not necessarily cause for optimism – on the contrary, it is likely to strengthen centrifugal tendencies within the EU.

This is because, like Syriza’s debt relief agenda, the ECB’s initiatives face stiff opposition from the eurozone’s most powerful member – Germany. In fact, the Advocate General’s opinion is the latest salvo in a constitutional battle that could still tear the currency union apart. The dispute stems from a German challenge to the Outright Monetary Transactions (OMT) programme, an initiative to buy euro area government bonds on secondary markets, subject to strict conditions. OMT was announced in September 2012, giving concrete expression to Draghi’s pledge, and though it has never been used, it is credited with calming markets and stabilising the eurozone. However, its German critics argued that OMT exceeded the ECB’s mandate and undermined rules that keep the euro area from becoming a ‘transfer union’ perennially propped up by payments from fiscally strong to weak states.

The case came before Germany’s powerful Constitutional Court (Bundesverfassungsgericht, BVerfG), which is regarded as something of an outlet for euroscepticism. The mere fact that it reserves the right to assess the constitutionality of EU acts puts the BVerfG into potential conflict with the Court of Justice in Luxembourg. And though it has never invalidated an EU legal provision, it has repeatedly stressed the limits to the European project. This outlook is encapsulated by the ‘yes, but’ formula BVerfG decisions often take – that is, that integration may go so far, but no farther. Exactly where the line is remains unknown, but the Court gave its clearest indication yet that it had been crossed in February 2014 in remarks that accompanied its referral of the OMT case to the ECJ. Though ostensibly reserving its judgement pending the ECJ’s interpretation, the BVerfG all but rejected OMT as an unconstitutional transgression of the ECB’s monetary policy mandate as well as the prohibition on monetary financing of state debt.

The Advocate General saw matters differently. In his opinion (which informs the ECJ, but is not binding), he noted that the ECB must be afforded a high degree of discretion in designing and implementing technical policies. It is relevant, moreover, that OMT was conceived in response to an acute crisis – it is an ‘unconventional monetary policy measure’, but a monetary policy measure, nonetheless. Accordingly, Cruz Villalon concluded that OMT does not encroach upon the economic policy competences of the member states, nor does it unlawfully circumvent the prohibition on monetary financing of eurozone governments.

In some ways, this is a contest between a strict and narrow adherence to the law and the original intentions of its drafters (i.e. the member states), and a broader, more politically expedient reading of the EU treaties. It may seem odd that the ECJ – a judicial body after all – favours the latter, but the Court, too, is very much a politicised actor, which has facilitated deeper European integration since the 1950s. Nevertheless, the constitutional edifice it constructed is precarious. It relies on national courts’ acceptance of the principles of the uniformity and supremacy of EU law, as interpreted by the ECJ. If the European Justices endorse the Advocate General’s opinion, Luxembourg and Karlsruhe will be on a collision course. The German judges will have to choose between backing down from their robust condemnation of OMT and openly breaching EU law.

The second option is much more radical and, therefore, less likely. Nevertheless, choosing the first option will also have far-reaching consequences. Endorsing the empowerment of the ECB, without a formal change to its mandate, means acquiescing in the transformation of the EU from a community of law into one characterised by an ‘extraordinary measures’ style of governance in which power is concentrated in the hands of a small number of key figures (such as the leaders of the most powerful member states) and institutions (such as the ECB). Insofar as such a course conflicts with more institutionally inclusive and democratically legitimate forms of governance it, too, could eventually fracture the Union.

Suggested Citation: Nicole Scicluna, Judging the Bankers (or Not): The Rise of the ECB and the Transformation of EU Constitutionalism, Int’l J. Const. L. Blog, Feb. 13, 2015, at http://www.iconnectblog.com/2015/02/judging-the-bankers-or-not-the-rise-of-the-ecb-and-the-transformation-of-eu-constitutionalism

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Published on February 13, 2015
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