Aedan MacRae

Aedan MacRae

The EU: Deeper into disunity

Reading Time: 6 minutes

From the legal tussles between German and European institutions, to the endless struggle over economic responses to the pandemic, Aedan MacRae charts the descent of the European Union deeper into disunity.

The onset of the coronavirus crisis has again ignited conflicts between many EU member-states. In particular, differences over the economic response the union (and more specifically the eurozone) should take to the pandemic have shattered any façade of a united front in tackling the pandemic’s effects. First the proposal for common a debt instrument (coronabonds) forwarded by Italy and other ‘debtor’ members was dashed by the Netherlands and other ‘creditor’ members. Next came Spanish proposals for perpetual bonds to create a massive recovery fund. Here rather than rejection, the European Council fudged the decision. Worryingly however, a new edition of the austerity and bailout madness of the eurozone crisis is still very possible.

Now further evidence of the fraying seams of the European project has been generated by Germany’s Federal Constitutional Court in Karlsruhe (the Bundesverfassungsgericht). On Tuesday 5 May the court ruled that the European Central Bank had failed to display ‘proportionality’ in the formulation of its quantitative easing (QE) programme in 2015. This was essentially the ECB’s programme for buying up member-state state bonds in order to provide additional funding (or liquidity).

The court’s message was the ECB had acted beyond its mandate by straying beyond monetary policy into economic policy. Whilst the German court cannot halt the ECB’s QE programme unilaterally, it can prevent the integral involvement of the Bundesbank (the German central bank). Being the largest and most wealthy member-state, this would be a deadly blow to the EU and ECB’s ability to holistically tackle Covid-19’s economic fallout. The German court has set a three-month deadline for the ECB to prove it considered the proportionality of its QE programme. If at the end of these three months it has not provided such an assessment, the Bundesbank will be barred from taking part in the QE programmes. However, the ECB has suggested it is unlikely to provide a proportionality assessment, as they fear that doing so will open the floodgates to challenges from other national judiciaries. The charge of extending beyond one’s mandate has now been reversed and placed squarely at the door of the German constitutional court. Whether the ECB provides an assessment to the satisfaction of the German constitutional court or not, this ruling has far broader implications.

Firstly, it questions the limits of how far common European institutions can go in tackling an economic crisis, such as the one presented by Covid-19. Second, it develops a precedent for national courts and institutions to curtail EU law. The proportionality and scope of the ECB’s QE programmes, and the institution more broadly, fall within remit of the European Court of Justice (ECJ). In this ruling therefore, the German constitutional court has undermined the authority of the ECJ, opposing some of its previous legal reasoning. As Martin Sandbu declares, the German court has “set a bomb under the EU legal order”.

Many observers may look on appreciatively at a national constitutional court questioning the legal underpinnings and implications of perceived technocratic decisions. However, these observers should consider the ramifications of the court’s decision. If one member-state’s constitutional court can question the ECJ’s competence in presiding over EU level decisions, then what stops every other constitutional court across the union following suit?

Particularly relevant here is the message this sends to populist governments, particularly those of Hungary and Poland, who have been walking the democratic tightrope. The Polish governing party, Law and Justice, who have efficiently dismantled the independence of the nation’s judiciary, will see this as a particular boon. They have passed national laws undermining the primacy of the ECJ and have sought to prevent any judge appealing to the European court. Now the ruling from Germany’s constitutional court gives them more credible support for their position that the ECJ cannot be used to question their policy and reforms. Thus, whilst judicial probing of possibly questionable decisions from Europe’s institutions is crucial, undermining the institution which is supposed to do this is dangerous. If the ECJ is not to be considered a higher authority than national courts, far-right and populist parties can continue to utilise compromised national judiciaries to push their agenda through. It would become very messy if every national constitutional court took up the role of interpreting EU law in place of the ECJ.

Crucially, this decision also calls into question the use of common economic approaches to solving the EU’s economic problems. This is an absurd thought when one considers that EU member states operate within a single market and many share a common currency. Whilst the court’s decision relates to the public sector purchase programme (PSPP) which was initiated in the midst of the eurozone crisis, it implicitly also questions the legitimacy of the ECB’s new pandemic emergency purchasing programme (PEPP). Thus, the ruling has unnecessarily questioned the ECB’s main instrument for funding the bloc’s economic response to the pandemic. In this instance, rather than conflicting governments impairing the EU’s capacity for collective action, it is a national judiciary.

This all speaks to the more fundamental question of whether the EU can maintain the conflicting supranational and intergovernmental facets of its character. Recent crises, including the present one, have shown that this is becoming more difficult. The more battered the Union becomes the less sure of its direction it seems. This drama then is about more than just economic and political crisis response; it is about the future direction of the European Union. Currently it stumbles from one crisis to the next, each time providing a response just powerful enough to maintain the status-quo, without going far enough to reinvigorate the project. It seems many European leaders and establishment parties simply “want each government to remain solely responsible for its own citizens’ needs”, as Sandbu puts it. Quite correctly, he also adds that these actors “must be honest about the path they are advocating”.

One thing the EU has proved consistently throughout its history is its resilience. This resilience however, will be tested like never before due to the magnitude of the current malady. It is for this very reason that this moment must act as a springboard for a frank debate on the future of the EU, with the buck ultimately stopping with member-states. The EU itself published a white paper three years ago, outlining five potential future paths for the EU to 2025 ranging from simply focusing on the single market to “doing much more together”. Whichever of these routes is taken in the aftermath of this crisis, if any, it will go a long way towards revealing whether the EU can is still capable of engendering transnational solidarity in place national self-interest.

To say that this decision comes at a bad time would be an understatement. The European Commission’s economic forecasts display that the divergence between member-states is not just in their positions on how to tackle the crisis but also the concrete economic consequences of the crisis. Germany’s 2020 economic downturn is projected for 6.5% and the Netherlands 6.8%, whilst Spain and Italy await downturns of 9.4% and 9.5% respectively. The EU’s economic commissioner has waned that these differences will intensify what he calls “existing social and economic fissures”. Clearly then the ability of member-states to tackle the crisis in unison has never been more important.

In response to this pressure, the EU’s two biggest political and economic powers, France and Germany, have stepped out beyond the pre-marked battle lines with a joint proposal. Given the opposing camps that Germany and France have so often occupied during the preceding months and years, the proposal is quite something. The plan is for a 500bn recovery fund, created by EU, not member-state debt. Whilst the details of how such a fund will be distributed are still unclear, this is essentially an admission by the fiscally responsible Germany that perhaps present circumstances require stimulus beyond national debt. Whilst only a proposal, it is an encouraging step beyond national interest. However, only time will tell if it goes beyond a pure symbolism, with the so called ‘frugal four’ (Austria, Sweden, Denmark and the Netherlands) already raising opposition and insisting upon potentially disastrous member-state debt. It is these member-states that the French and Germans will have to persuade and to do so they will truly have to own the proposal. The fact that these member states are continuing to impede in the face of a joint proposal from the two powerhouse member-states, is indicative of just how difficult to dismantle these tensions will be.

Whilst these tensions are far from novel, the current calamity has accentuated them and imbued them with more pressing and severe ramifications. A decision such as the one reached by Germany’s constitutional court would be significant in normal times but amid a crisis such as this, it takes on new meaning. Similarly, conflicting member-state understandings of the EU’s position in such a crisis, rooted in differing ideological approaches to integration and sovereignty, become more emphasised and dangerous. The economic positioning of some member-states, exemplified by the Dutch government, seems ever more detached from the economic reality experienced by many member-states since the creation of the single market and the euro.

What is evident from all the recent internal EU clashes, including the German judicial challenge is that they speak to something much deeper than Eurobonds, recovery funds and quantitative easing programmes. The present crisis and the tumultuous preceding years have made it patently clear that contrasting attitudes towards further European integration and the role and power of European institutions are becoming increasingly incompatible. Whilst some member-states seek to introduce a common debt instrument and move ever closer to fiscal union, the constitutional court of another member-state challenges a perceived foray into economic policy by the eurozone’s central bank. What Covid-19 and the ruling made by the German constitutional court has highlighted therefore is that the future direction of the European project is at stake. The historic tension between national sovereignty and shared power at the supranational level is once again to the fore.

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