European Financial Stability Facility Case [Federal Republic of Germany, Federal Constitutional Court (BVerfG)]

Summary:1The facts:A group of economists and lawyers (the claimants) brought three constitutional complaints maintaining that German financial assistance to Eurozone Member States which faced the prospect of losing access to international capital markets in the course of 2011 was contrary to the Basic Law. The claimants challenged the guarantees given by the German Parliament for the operation of the European Financial Stability Facility (EFSF) set up by the Member States of the Eurozone, with Germany guaranteeing more than 27 per cent of the total fund. Specifically, they asked the Court to overturn the German law authorizing emergency guarantees to safeguard Greek ability to pay of 7 May 2010 (up to 22.4 billion euros), the German law authorizing guarantees for the operation of the EFSF of 22 May 2010 (up to 123 billion euros), and several community and intergovernmental decisions and agreements, including the EFSM regulation of 10 May 2010, the

Held (by seven votes to one):The joined constitutional complaints were dismissed.

(1) The fundamental right to vote in Article 38 of the Basic Law protected citizens against being deprived of the constitutional order they had chosen through the transfer of tasks assigned by the Constitution to the German Parliament to supranational institutions. Budgetary powers were an essential feature of democratic government. As such, this core element of democratic self-determination could not be given up. It was not necessary that a transfer of such powers amounted to the creation of a dictatorial regime; it would fail the constitutionality test if it substantially and permanently reduced the influence of citizens on public policy. Article 38 protected voters to the extent that the powers and spending decisions of the present and future elected representatives would be so gravely restricted that they would become incapable of responding to the democratically expressed decisions of voters (p. 676).

(2) Revenue and expenditure decisions were a constitutive element of a democratic State, for which the German Parliament was responsible to the German people. The Basic Law required that the representatives elected to the German Parliament retain control over central budgetary decisions. Parliament could not transfer its budgetary responsibility to other entities by way of vague or imprecise authorizations. The Constitution barred Parliament from agreeing to financial commitments at the European and international levels that could lead over time to incalculable future expenditure, without Parliament retaining the power to authorize such spending. Intergovernmental agreements whose effect was to assume liability for fiscal decisions of other States on a permanent basis were incompatible with the German Constitution, in particular in cases where the extent of such liability was difficult to foresee. Parliament needed to retain sufficient say on how these financial resources were used. The Constitution required the Parliament's budgetary committee to agree in advance, rather than just being consulted (pp. 6769).

(3) The European Treaties were premised on a substantial, inalienable fiscal sovereignty of national parliaments which benefited from direct democratic legitimacy. The strict observance of the Union's fiscal rules ensured that the organs of the European Union enjoyed sufficient legitimacy in relation to Germany. Germany had consented to European Monetary Union (EMU) on condition of it being in the form of a stability union. This conception of EMU was enshrined in Article 125 of the Treaty on the Functioning of the European Union (TFEU), which precluded the bail-out of a Eurozone Member State. A permanent system of fiscal transfers established by intergovernmental treaty or otherwise would fundamentally upset EMU's incentives for responsible fiscal behaviour. As far as the likelihood for guarantees to be called was concerned and the possible implications for the federal budget, Parliament enjoyed a substantial margin of discretion, which the Federal Constitutional Court was bound to respect. Each programme required the unanimous approval of Eurozone Member States (pp. 67980).

(4) The right to vote did not imply a general right for individuals to constitutional scrutiny of parliamentary decisions. Only the part of the complaint in relation to the two German laws authorizing the guarantees was admissible. The complaint was inadmissible as regarded the intergovernmental decisions and agreements. As a general rule, the Court could not look into the measures taken at the European level. The narrow exception introduced in MaastrichtINTLINTL2 was inapplicable in the present case, as it was limited to cases where the constitutionally guaranteed basic rights were rendered meaningless, for instance when additional powers were to be transferred to the European Union (pp. 66971).

(5) The authorization of guarantees destined to provide liquidity support to Eurozone countries in financial distress was capable of unconstitutionally restricting the scope for future political action by Parliament. The measures would fail constitutional scrutiny if guarantees could be triggered by conduct of another Member State alone and thereby effectively stripped Parliament of its budgetary prerogative. In the present case, however, the guarantees as enacted did not infringe the Basic Law. Parliament retained the final say over spending decisions. The financial assistance was limited in time and scope, given in pursuit of clear objectives, contingent on policy conditionality and reforms to be implemented by the country assisted by the EFSF and subject to clearly defined modalities for disbursements (pp. 6813).