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German court decides to take back control with ECB ruling
Martin Wolf in The Financial Times
The 75th anniversary of the defeat of Nazi Germany was May 8. The 70th anniversary of the Schuman declaration, which launched postwar European integration, was May 9. Just days before both, the German constitutional court launched a legal missile into the heart of the EU. Its judgment is extraordinary. It is an attack on basic economics, the central bank’s integrity, its independence and the legal order of the EU.
The court ruled against the ECB’s public sector purchase programme, launched in 2015. It did not argue that the ECB had improperly engaged in monetary financing, but rather that it had failed to apply a “proportionality” analysis, when assessing the impact of its policies, on a litany of conservative concerns: “public debt, personal savings, pension and retirement schemes, real estate prices and the keeping afloat of economically unviable companies”.
Monetary policies are necessarily economic policies. But the ECB’s policies, including asset purchases, are justified by the fact that it was — and is — failing to achieve its treaty-mandated “primary objective”, which is “price stability” defined as inflation “below, but close to, 2 per cent over the medium-term”. The EU treaty says other considerations are secondary.
The court also decreed that “German constitutional organs and administrative bodies”, including the Bundesbank, may not participate in ultra vires acts (those outside one’s legal authority). Thus, the Bundesbank may not continue to participate in the ECB’s asset purchase programmes, until the ECB has conducted a “proportionality assessment” satisfactory to the court.
Yet the EU treaty states that “neither the ECB, nor a national central bank . . . shall seek or take instructions . . . from any government of a member state or from any other body [my emphases].” The court’s instruction puts the Bundesbank into a conflict of laws.
The court is also assailing the right of the ECB to make its policy decisions independently. Germany fought hard to install central bank independence within the monetary union. Now, its constitutional court has decreed that unless the ECB satisfies the justices that it has taken full account of a highly political list of side-effects of monetary policies, asset purchases are impermissible. Courts in other member countries may see fit to decree that their national central banks cannot participate in policies they dislike. Pretty soon, the ECB will have been sliced and diced into a nullity.
Above all, the German court decreed that it can ignore an earlier ruling of the European Court of Justice in favour of the ECB, because the former “exceeds its judicial mandate . . . where an interpretation of the Treaties is not comprehensible and must thus be considered arbitrary from an objective perspective.” This is an act of judicial secession.
The EU is an integrated legal system, or it is nothing. It rests on the acceptance by all member states of its authority in areas of its competence. In a press release after the constitutional court’s judgment, the ECJ rightly responded that “the Court of Justice alone . . . has jurisdiction to rule that an act of an EU institution is contrary to EU law. Divergences between courts of the member states as to the validity of such acts would indeed be liable to place in jeopardy the unity of the EU legal order and to detract from legal certainty.” Imagine if the courts of every member state were able to decide that ECJ rulings were “arbitrary from an objective perspective”.
What are the implications?
If the German court is ultimately satisfied that the ECB adequately assessed the economic impact of its purchases, the PSPP might continue. But the courthas reduced the ECB’s future flexibility by limiting its holdings of any member country’s debt to 33 per cent of the outstanding total and insisting that asset purchases be allocated according to member states’ shares in the ECB.
In the absence of other eurozone support programmes, the chance of defaults has jumped. Indeed, spreads on Italian government bonds have duly risen a little since the court’s announcement. A crisis might ultimately ensue, with devastating effects; perhaps even a break-up of the eurozone.
Others might follow Germany in rejecting the jurisdiction of the ECJ and EU. Hungary and Poland are obvious candidates. Future historians may mark this as the decisive turning point in Europe’s history, towards disintegration.
What can be done? The ECB cannot be accountable to a national court. But the Bundesbank could provide the court with the proportionality analysis. Maybe that would be enough, albeit also a bad precedent. Or, the decision could be ignored. If a German court can ignore the ECJ, maybe the Bundesbank can ignore that court. Alternatively, the ECB could just abandon efforts to rescue the eurozone and accept whatever outcome emerges.
The EU could initiate an infringement proceeding against Germany. But its direct target would be the German government, which is caught between the EU organs on the one hand and the court on the other. It could not change the ruling.
More radically, the EU could act to create the needed degree of fiscal solidarity. But the obstacles to this are large. A new treaty looks out of the question in today’s environment of intense mutual distrust. Finally, Germany could boldly secede from the eurozone. Yet, before it makes such a decision, one hopes it, too, will be required to do a full analysis of whether that would be “proportionate”.
One point is clear: The constitutional court has decreed that Germany, too, can take back control. As a result it has created a possibly insoluble crisis.
The 75th anniversary of the defeat of Nazi Germany was May 8. The 70th anniversary of the Schuman declaration, which launched postwar European integration, was May 9. Just days before both, the German constitutional court launched a legal missile into the heart of the EU. Its judgment is extraordinary. It is an attack on basic economics, the central bank’s integrity, its independence and the legal order of the EU.
The court ruled against the ECB’s public sector purchase programme, launched in 2015. It did not argue that the ECB had improperly engaged in monetary financing, but rather that it had failed to apply a “proportionality” analysis, when assessing the impact of its policies, on a litany of conservative concerns: “public debt, personal savings, pension and retirement schemes, real estate prices and the keeping afloat of economically unviable companies”.
Monetary policies are necessarily economic policies. But the ECB’s policies, including asset purchases, are justified by the fact that it was — and is — failing to achieve its treaty-mandated “primary objective”, which is “price stability” defined as inflation “below, but close to, 2 per cent over the medium-term”. The EU treaty says other considerations are secondary.
The court also decreed that “German constitutional organs and administrative bodies”, including the Bundesbank, may not participate in ultra vires acts (those outside one’s legal authority). Thus, the Bundesbank may not continue to participate in the ECB’s asset purchase programmes, until the ECB has conducted a “proportionality assessment” satisfactory to the court.
Yet the EU treaty states that “neither the ECB, nor a national central bank . . . shall seek or take instructions . . . from any government of a member state or from any other body [my emphases].” The court’s instruction puts the Bundesbank into a conflict of laws.
The court is also assailing the right of the ECB to make its policy decisions independently. Germany fought hard to install central bank independence within the monetary union. Now, its constitutional court has decreed that unless the ECB satisfies the justices that it has taken full account of a highly political list of side-effects of monetary policies, asset purchases are impermissible. Courts in other member countries may see fit to decree that their national central banks cannot participate in policies they dislike. Pretty soon, the ECB will have been sliced and diced into a nullity.
Above all, the German court decreed that it can ignore an earlier ruling of the European Court of Justice in favour of the ECB, because the former “exceeds its judicial mandate . . . where an interpretation of the Treaties is not comprehensible and must thus be considered arbitrary from an objective perspective.” This is an act of judicial secession.
The EU is an integrated legal system, or it is nothing. It rests on the acceptance by all member states of its authority in areas of its competence. In a press release after the constitutional court’s judgment, the ECJ rightly responded that “the Court of Justice alone . . . has jurisdiction to rule that an act of an EU institution is contrary to EU law. Divergences between courts of the member states as to the validity of such acts would indeed be liable to place in jeopardy the unity of the EU legal order and to detract from legal certainty.” Imagine if the courts of every member state were able to decide that ECJ rulings were “arbitrary from an objective perspective”.
What are the implications?
If the German court is ultimately satisfied that the ECB adequately assessed the economic impact of its purchases, the PSPP might continue. But the courthas reduced the ECB’s future flexibility by limiting its holdings of any member country’s debt to 33 per cent of the outstanding total and insisting that asset purchases be allocated according to member states’ shares in the ECB.
In the absence of other eurozone support programmes, the chance of defaults has jumped. Indeed, spreads on Italian government bonds have duly risen a little since the court’s announcement. A crisis might ultimately ensue, with devastating effects; perhaps even a break-up of the eurozone.
Others might follow Germany in rejecting the jurisdiction of the ECJ and EU. Hungary and Poland are obvious candidates. Future historians may mark this as the decisive turning point in Europe’s history, towards disintegration.
What can be done? The ECB cannot be accountable to a national court. But the Bundesbank could provide the court with the proportionality analysis. Maybe that would be enough, albeit also a bad precedent. Or, the decision could be ignored. If a German court can ignore the ECJ, maybe the Bundesbank can ignore that court. Alternatively, the ECB could just abandon efforts to rescue the eurozone and accept whatever outcome emerges.
The EU could initiate an infringement proceeding against Germany. But its direct target would be the German government, which is caught between the EU organs on the one hand and the court on the other. It could not change the ruling.
More radically, the EU could act to create the needed degree of fiscal solidarity. But the obstacles to this are large. A new treaty looks out of the question in today’s environment of intense mutual distrust. Finally, Germany could boldly secede from the eurozone. Yet, before it makes such a decision, one hopes it, too, will be required to do a full analysis of whether that would be “proportionate”.
One point is clear: The constitutional court has decreed that Germany, too, can take back control. As a result it has created a possibly insoluble crisis.
Wednesday 2 May 2018
Friday 19 May 2017
The courts and matters of faith
Peter Ronald deSouza in The Hindu
We need to make a distinction between matters of conscience and matters of faith
There is an uncanny similarity of argument between the Rashtriya Swayamsevak Sangh (RSS) and the All India Muslim Personal Law Board (AIMPLB) on controversies that have to do with belief. This is illustrated best in their respective positions on the Ram Setu and the triple talaq debates.
In 2005, on the Ram Setu issue, the RSS stated that their opposition to the UPA government’s plan to dredge a canal between Rameswaram, off the coast of Tamil Nadu, and the islands of Mannar, near Sri Lanka, was a “matter of faith and hence required no substantiation”.
Twelve years later the counsel for the AIMPLB has offered a similar argument in the Supreme Court when making his client’s case on the practice of triple talaq. A Constitution Bench of five justices is to decide on whether the practice of divorce by triple talaq is consistent with the protections guaranteed to individuals by the Indian Constitution. In opposition to pleas that the practice be considered unconstitutional, the AIMPLB counsel stated that triple talaq “is a matter of faith. Hence there is no question of constitutional morality and equity”.
This argument that matters of faith be given special status needs to be assessed. Why should matters of faith be given immunity from scrutiny?
Three responses can be offered to this question. Let me, on grounds of brevity, refer to them as (i) the special status of faith, (ii) the issue of validity, and (iii) ethical codes in modern democracies.
Special status of faith
At the outset we must acknowledge that faith, as religious belief, must have special status in any constitutional order. It constitutes the core of an individual’s sense of self and is the basis of a believer’s conscience.
Belief is a matter of personal choice and no external authority, whether state, cultural community, or religious congregation, can tell an individual what her beliefs should be. To do so is to violate the individual’s freedom of conscience guaranteed by most constitutional systems and human rights covenants. But on matters of faith, an important distinction has to be made.
All ‘matters of conscience’ are ‘matters of faith’, but not all ‘matters of faith’ are ‘matters of conscience’. It is only matters of conscience that are protected by the freedom-granting provisions of the Constitution. Matters of conscience are individual-centric. They have an ethical core that guides the choices that an individual makes.
They endow the world with meaning and give the individual purpose. In contrast, the ‘matters of faith’ which the RSS and the AIMPLB are referring to — while they may look similar to ‘matters of conscience’ — are not so for they are group, not individual, centric. They have a component that is based on evidence, whether this is textual, historical, or empirical. In other words, the belief is contingent on the evidence. For example it would take the following form: ‘we believe X because it is said so in our holy book’.
It is the ‘because of’ component that demands analytical and scientific scrutiny of the matters of faith. Does the holy book actually say so? Did Lord Ram really build the Setu?
Further, when matters of faith have harmful social consequences, they must be subject to scrutiny since the Constitution guarantees the individual protection from harm.
This is the basis of all social reform in our history.
When the AIMPLB says that triple talaq has evolved in the last 1400 years, it has inadvertently conceded that the practice is not cast in stone. Let the court’s intervention be part of that evolution.
The issue of validity
The many advances in linguistics, cultural anthropology, gender studies and, of course, the natural sciences can make the probing of the ‘because of’ component of the belief very exciting. For example, a textual analysis of a holy book using a study of old and new grammar, or the etymology of the word, or its placement in a sentence are all ways of arriving at the meaning of the statement.
Textual analysis has advanced considerably and hence is available to determine the validity of the interpretation being offered by scriptural authority. The many schools of Islamic jurisprudence are testimony to this plurality of interpretations.
To that can be added the modern tools of linguistic analysis, gender studies, human rights jurisprudence, and cultural anthropology. The validity of triple talaq must be subject to textual interpretation. Similarly with the Ram Setu claim. It too must be scrutinised by modern science.
Ethical codes in democracies
The most difficult issue in this debate is how to respond to the situation where, after scrutiny, the matter of faith is found to be valid but considered by many in need of change such that it conforms to the contemporary ethics of human rights.
When the counsel for the AIMPLB says that there is “no question of constitutional morality and equity” in matters of faith, he is building a wall, a fashion these days, behind which the orthodox will police their community. Such a wall must not be built. It has no place in a constitutional democracy.
We need to make a distinction between matters of conscience and matters of faith
There is an uncanny similarity of argument between the Rashtriya Swayamsevak Sangh (RSS) and the All India Muslim Personal Law Board (AIMPLB) on controversies that have to do with belief. This is illustrated best in their respective positions on the Ram Setu and the triple talaq debates.
In 2005, on the Ram Setu issue, the RSS stated that their opposition to the UPA government’s plan to dredge a canal between Rameswaram, off the coast of Tamil Nadu, and the islands of Mannar, near Sri Lanka, was a “matter of faith and hence required no substantiation”.
Twelve years later the counsel for the AIMPLB has offered a similar argument in the Supreme Court when making his client’s case on the practice of triple talaq. A Constitution Bench of five justices is to decide on whether the practice of divorce by triple talaq is consistent with the protections guaranteed to individuals by the Indian Constitution. In opposition to pleas that the practice be considered unconstitutional, the AIMPLB counsel stated that triple talaq “is a matter of faith. Hence there is no question of constitutional morality and equity”.
This argument that matters of faith be given special status needs to be assessed. Why should matters of faith be given immunity from scrutiny?
Three responses can be offered to this question. Let me, on grounds of brevity, refer to them as (i) the special status of faith, (ii) the issue of validity, and (iii) ethical codes in modern democracies.
Special status of faith
At the outset we must acknowledge that faith, as religious belief, must have special status in any constitutional order. It constitutes the core of an individual’s sense of self and is the basis of a believer’s conscience.
Belief is a matter of personal choice and no external authority, whether state, cultural community, or religious congregation, can tell an individual what her beliefs should be. To do so is to violate the individual’s freedom of conscience guaranteed by most constitutional systems and human rights covenants. But on matters of faith, an important distinction has to be made.
All ‘matters of conscience’ are ‘matters of faith’, but not all ‘matters of faith’ are ‘matters of conscience’. It is only matters of conscience that are protected by the freedom-granting provisions of the Constitution. Matters of conscience are individual-centric. They have an ethical core that guides the choices that an individual makes.
They endow the world with meaning and give the individual purpose. In contrast, the ‘matters of faith’ which the RSS and the AIMPLB are referring to — while they may look similar to ‘matters of conscience’ — are not so for they are group, not individual, centric. They have a component that is based on evidence, whether this is textual, historical, or empirical. In other words, the belief is contingent on the evidence. For example it would take the following form: ‘we believe X because it is said so in our holy book’.
It is the ‘because of’ component that demands analytical and scientific scrutiny of the matters of faith. Does the holy book actually say so? Did Lord Ram really build the Setu?
Further, when matters of faith have harmful social consequences, they must be subject to scrutiny since the Constitution guarantees the individual protection from harm.
This is the basis of all social reform in our history.
When the AIMPLB says that triple talaq has evolved in the last 1400 years, it has inadvertently conceded that the practice is not cast in stone. Let the court’s intervention be part of that evolution.
The issue of validity
The many advances in linguistics, cultural anthropology, gender studies and, of course, the natural sciences can make the probing of the ‘because of’ component of the belief very exciting. For example, a textual analysis of a holy book using a study of old and new grammar, or the etymology of the word, or its placement in a sentence are all ways of arriving at the meaning of the statement.
Textual analysis has advanced considerably and hence is available to determine the validity of the interpretation being offered by scriptural authority. The many schools of Islamic jurisprudence are testimony to this plurality of interpretations.
To that can be added the modern tools of linguistic analysis, gender studies, human rights jurisprudence, and cultural anthropology. The validity of triple talaq must be subject to textual interpretation. Similarly with the Ram Setu claim. It too must be scrutinised by modern science.
Ethical codes in democracies
The most difficult issue in this debate is how to respond to the situation where, after scrutiny, the matter of faith is found to be valid but considered by many in need of change such that it conforms to the contemporary ethics of human rights.
When the counsel for the AIMPLB says that there is “no question of constitutional morality and equity” in matters of faith, he is building a wall, a fashion these days, behind which the orthodox will police their community. Such a wall must not be built. It has no place in a constitutional democracy.
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