Gauweiler and the Legality of Outright Monetary Transactions

There is an interesting symmetry in the two leading EU cases concerning the legality of measures to tackle the financial crisis. In Pringle the argument was that the European Stability Mechanism was unlawful, because it concerned monetary policy and hence fell outside the competence of the Member States. In Gauweiler the converse argument was deployed, the principal contention from the Bundesverfassungsgericht being that the programme for Outright Monetary Transactions concerned economic policy, and was outside the remit of the European System of Central Banks. It was central to both claims that the measures infringed either Article 123 or Article 125 TFEU, which ensured that the state remained responsible for its indebtedness, limiting the extent to which EU institutions or Member States could provide financial assistance. The CJEU rejected the argument in both cases, and our recent article considers the issues raised by the Gauweiler litigation.

The discussion begins with the role of the European Central Bank in the financial crisis, and the measures it adopted to restore financial balance. This is followed by analysis of the preliminary reference from the Bundesverfassungsgericht, which is set against its well-known jurisprudence on ultra vires and identity locks. The reference was especially significant given that it was the first time that the Bundesverfassungsgericht had used Article 267 TFEU.

The focus then shifts to the CJEU’s ruling, which followed much of the reasoning of Advocate General Cruz Villalón and rejected the central tenets of the Bundesverfassungsgericht’s argument. We consider in detail the CJEU’s reasoning, and juxtapose this to the Bundesverfassungsgericht’s conceptualisation of the case. The central assumptions of the two courts differed, with the CJEU conceptualising the case in terms of monetary policy transmission, while the Bundesverfassungsgericht framed its reasoning in terms of the impact of OMT on interest rate spreads. It is argued that the CJEU’s reasoning is to be preferred and that its conclusion was legitimate in the light of the relevant Treaty provisions.

More specifically, the Gauweiler decision raises a number of important issues concerning different aspects of EU law, institutional as well as substantive. The article evaluates the impact of the judgment on the CJEU’s relationships with national courts under the preliminary reference procedure. It is argued that the supremacy issue cannot be resolved through textual exegesis of the wording of Article 267 TFEU. It is further argued that there is nothing illegitimate in a national court questioning the vires of an EU act via Article 267 TFEU. It should also be recognised, by way of counter-balance to the preceding argument, that the preliminary reference procedure is based on co-operation between national courts and the CJEU, and that the CJEU has no obligation to agree with the points raised by the referring court. 

We believe for the reasons elaborated in the article that the CJEU’s legal and economic reading of the contested issues is preferable to that of the Bundesverfassungsgericht. It can be accepted that others may differ in this regard, but it is nonetheless difficult to contend that the national court’s view is so self-evidently correct as to justify playing the ultra vires card and refusing to apply the decision within Germany. Contestation as to the legal divide between economic and monetary policy under the Lisbon Treaty is reflective of the inherent factual linkage between the twin components of economic and monetary union. The appropriate inquiry is therefore whether the CJEU’s characterisation of the OMT programme as being concerned with monetary policy carries conviction, notwithstanding that it has some impact on economic policy. When viewed in this way the CJEU’s judgment withstands scrutiny.

The penultimate section of the article considers the Bundesverfassungsgericht’s possible response to the CJEU’s ruling. This is perforce conjecture, but it is possible nonetheless to make reasoned inquiry as to aspects of the CJEU’s ruling that the Bundesverfassungsgericht might be able to accommodate, and those that it will feel more difficult to accept. As regards the risk of a debt cut, the article argues that the Gauweiler ruling should not be understood as an authority for the proposition that a ‘haircut’ on bonds held by the ECB would always be compatible with the Treaties. However, such a debt cut would not necessarily be incompatible, in our opinion, with the EU Treaties. The final section of the article places this inquiry as to the Gauweiler ruling into the broader context of other judicial review actions concerning the legality of measures adopted to deal with the financial crisis, primarily focusing on judicial review of resolution actions under the Bank Recovery and Resolution Directive.

Our article on ‘Gauweiler and the Legality of Outright Monetary Transactions’ was published in the European Law Review (2016) 41: 1-24 and is available on Westlaw. It can also be accessed here.