European Commission declares war on German arrogance

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 BERLIN — Castrations are never pleasant. 

That’s especially true for the recipient, of course, which explains the howls of protest emanating east of the Rhine on Wednesday over a European Commission decision to issue Germany formal notice that it faces a possible infringement procedure and lawsuit over a ruling by its constitutional court that countermanded the EU’s own Court of Justice.

“The Commission is provoking enormous conflicts in the EU,” said Bernd Lucke, a German economics professor and former MEP who has spearheaded a number of legal challenges to EU policy. He accused Brussels of trying to rob national constitutions of their “core identity,” by ensuring that EU law reigned supreme.

Peter Gauweiler, a former conservative politician who over the years has brought countless lawsuits to Germany’s highest court seeking changes to European Central Bank policy, said the Commission was “disregarding the sovereignty of the citizens of its members and principle of democracy.” 

So what happened? Last year, Germany’s highest court, the Bundesverfassungsgericht, ruled that the Court of Justice of the European Union had overstepped its bounds in granting the ECB carte blanche to undertake a controversial policy of buying member states’ debt, an emergency measure the bank implemented during Europe’s debt crises to keep the euro from collapsing.  

The German court (often referred to simply as “Karlsruhe” after the city where it’s based) ruled that the Bundesbank, the largest central bank in the euro area, could not be permitted to participate in the bond purchase programs unless the ECB could show they were really necessary. 

While that subsequently took place and the Bundesbank has continued to make the purchases, the case set off alarm bells in Brussels. 

That’s because beneath the legal mumbo jumbo, Karlsruhe was effectively declaring itself to be the ultimate arbiter of EU law. Not only that, but it did so with a flourish of unapologetic German arrogance, upbraiding Europe’s highest courts for a decision that wasn’t just “not comprehensible” but ultra vires (beyond its legal powers).  

The Commission worried that Karlsruhe’s move would encourage other countries to feel free to ignore rulings by the EU court. That both Poland and Hungary quickly welcomed Karlsruhe’s call suggested that concern wasn’t misplaced. 

But the bigger reason the Commission couldn’t just let the matter drop had more to do with Germany. As long as the world believes Karslruhe has the power to counter the EU’s highest court, which is based in Luxembourg, it will be free to do so, leaving a degree of uncertainty about any number of high-stakes European decisions. 

Of particular annoyance to Brussels is how the mere whisper of “Karlsruhe” can strike fear in the hearts of investors, roiling markets and making it difficult to implement policy. It’s a pattern that has played out for years in countless cases revolving around the ECB and Europe’s bailout funds. 

A decision by the court in March, for example, to suspend ratification of Europe’s €750 billion pandemic recovery fund until it had reviewed a number of German legal challenges left debt markets on tenterhooks for weeks. 

Karlsruhe let the program go forward in the end, but the episode offered another reminder of the court’s immense influence. Had the German judges decided the other way, the emergency fund would have likely collapsed and a good chunk of the European economy along with it.

At its core, the Commission’s threat is about putting Germany in its place. The fact that the EU executive is currently led by a German — Ursula von der Leyen — makes the decision all the more notable. But if anyone in Brussels understands the culture of German jurisprudence and how intractable it can be, it’s von der Leyen, a trained doctor and longtime minister in Angela Merkel’s Cabinet, where she spent years surrounded by lawyers. 

The only institution Germans trust more than their beloved Bundesbank is the Karlsruhe court. That trust filters down through the entire legal system, which Germans generally regard as second to none. But the confidence in the system, critics say, also filters up — into the heads of the lawyers and judges who run it. 

If Germans have a reputation abroad for lecturing others, within Germany that stereotype is often applied to members of the bar, charitably referred to as Besserwisser (know-it-alls), less charitably as Klugscheisser (shitters of wisdom). That said, the lawyers often are right, which is why court decisions are accepted as sacrosanct.

Knowing that culture is necessary to understanding both the ease with which Karlsruhe made its bond-buying decision and why the court’s justices were so surprised by the negative reaction to it across Europe. 

It also helps explain why getting Karlsruhe under control won’t be easy. 

“I hope the European Commission has thought this through to the end,” said Daniel Caspary, a conservative German MEP, who is the head of Merkel’s conservative CDU/CSU group in the European Parliament. “I wouldn’t have taken this step and don’t consider it clever.” 

Indeed, it’s not even clear in terms of procedure how Brussels believes it can achieve its ultimate aim of neutering Karlsruhe by subordinating it to the European court. 

The first step — a stern letter from the Commission to the German government threatening an infringement  process — isn’t likely to get very far. 

Berlin is expected to respond that it has no power to influence Karlsruhe, given the separation of powers anchored in Germany’s constitution. 

At a briefing for reporters in Brussels on Wednesday, a spokesman for the Commission made a vague reference to the possibility for “a change in the case law in Germany,” which could somehow resolve disputes. 

But given that the interpretation of case law falls under the purview of Karlsruhe and that it is unlikely to neuter itself, just how that would work is a mystery. 

One possibility might be to make changes to Germany’s constitution, known as the Basic Law, but that would require a two-thirds majority in both chambers of parliament, a high threshold for a controversial change such as this. 

That doesn’t mean it won’t happen in the end. Establishing the primacy of the Luxembourg court would give the EU the kind of clarity in decision-making critics say has hampered its evolution. 

Most of Europe would be jubilant. 

That’s why if Karlsruhe cares about the EU as much as it claims, it might do well to sacrifice its vigor in the name of the greater good.

This article is part of POLITICO’s premium policy service: Pro Financial Services. From the eurozone, banking union, CMU, and more, our specialized journalists keep you on top of the topics driving the Financial Services policy agenda. Email [email protected] for a complimentary trial.



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