Germany and the U.s. Present: a Roadmap for Protecting State Sovereignty in the European Stability Mechanism

• Jurisdiction: United States,Federal
• Citation: Vol. 42 No. 1
• Publication year: 2013

GERMANY AND THE U.S. PRESENT: A ROADMAP FOR PROTECTING STATE SOVEREIGNTY IN THE EUROPEAN STABILITY MECHANISM

Matthew Gregory^*

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TABLE OF CONTENTS

I. INTRODUCTION ............................................................................... 134

II. BACKGROUND ................................................................................. 136

A. The BVerfG Decides ESM Respects Statehood ........................ 138
B. Sovereignty and Guns: An American Perspective .................... 143

III. ANALYSIS ........................................................................................ 147

A. A Synthesis of the Two Courts' Views ...................................... 148
B. Maintaining Autonomy ............................................................. 150
C. Limiting Liability ...................................................................... 151
D. Exit Strategy ............................................................................. 152

IV. CONCLUSION ................................................................................... 155

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I. Introduction

On September 29, 2008, the United States stock market lost roughly $1.2 trillion in market value after the House of Representatives rejected the federal government's proposed bailout plan.¹ A recession that started with a credit crunch in 2007² was causing stocks to plummet on the U.S. stock market,³ and soon, Europe would be feeling it in full force as well.⁴ Three years later, the recession's effects had gone global, leaving the European Union (EU) reeling and in desperate need of a bailout.⁵

Europe's economic crisis began with concerns over sovereign debt—the amount of debt that a country has on its books—specifically in Greece.⁶ Ireland⁷ and Portugal⁸ would soon face the same debt fears. The European Council of March 24-25, 2011, recognizing the financial fragility of the Eurozone, adopted the European Stability Mechanism (ESM) as part of a plan designed to help alleviate these concerns and prevent future crises.⁹

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With a lending capacity of €500 billion,¹⁰ the ESM is designed to be the permanent stability instrument for the EU.¹¹

The EU originally anticipated that the ESM would go into effect on July 1, 2013, following member states' approval of amendments to the Treaty on the Functioning of the European Union and the Eurozone countries sign a new ESM treaty.¹² However, soon after the German Parliament passed the measure, injunctions filed with Germany's federal constitutional court, the Bundesverfassungsgericht (BVerfG),¹³ prevented the president from signing the package. The BVerfG heard these complaints on July 10, 2012.¹⁴

With the European economies still hurting,¹⁵ the BVerfG declared that the German President had the authority to ratify the ESM.¹⁶ The court's decision cleared the way for the ESM to take effect soon and begin to stabilize the Euro.¹⁷ However, the BVerfG was quick to limit the amount of debt commitment that could be placed on Germany without its approval.¹⁸

This Note will address how the EU's primary economic decision making body, the European Central Bank (ECB), should tailor its future economic and monetary policies to alleviate the sovereignty concerns of its member states, particular those with greater financial strength like Germany. The future strength of the EU may be at risk if it fails to address these concerns because national governments' primary concerns are the interests their respective citizens, not the broader EU community.

In Part II, this Note will discuss sovereignty and its historical importance in shaping today's world. It will then examine the sovereignty and federalist principles that German and United States courts explored in the BVerfG's

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recent ruling on the ESM and the U.S. Supreme Court's decision in Printz v. United States.

In Part III, this Note will draw from the aforementioned cases the sovereignty obstacles relevant to the EU and posit a manner in which the ECB can navigate them going forward. This section will include a synthesis comparing and contrasting the courts' opinions; it will specifically address the prevailing concerns and suggest a manner in which to alleviate them.

II. Background

To fully appreciate the struggle the EU faces, one must first understand the core issue of sovereignty and its historical importance. Sovereignty refers to an independent nation or state's absolute political authority.¹⁹ In the United States, the Founding Fathers paid great attention to this principle in establishing its system of federalism, codifying it in the Articles of Confederation and Perpetual Union²⁰ and again in the U.S. Constitution via the Tenth Amendment in the Bill of Rights.²¹ Other countries such as Australia,²² Switzerland,²³ Austria,²⁴ and Germany,²⁵ also have provisions in their respective federal constitutions protecting the sovereignty of their states. This same desire to maintain autonomy is also a natural and important concern when nations collaborate and sign treaties.

In the Treaty on European Union (Maastricht Treaty), signed in 1992, concessions were made from the outset that protected the rights of certain nations and their laws.²⁶ As the EU expanded, new treaties were agreed to in order to help the EU deal with problems that arose. One such treaty, the Treaty of Lisbon, was signed in December 2007 to replace a previously

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proposed European Constitution, which the French and Dutch governments opposed.²⁷ The new treaty replaced Article 3 of the Treaty on European Union,²⁸ which dealt with the powers conferred on both the EU and its member states.²⁹ The new version included the provision, "[c]ompetences not conferred upon the Union in the Treaties remain with the Member States."³⁰ It should be noted that, like in the case of the ESM decision this Note analyzes, the BVerfG ruled on the constitutionality of the Treaty of Lisbon before it was ratified.³¹ The chief concern in that case, like the ESM case, was maintaining national sovereignty.³² There, the BVerfG found the Treaty did not violate Basic Law,³³ but ruled that an accompanying law was in violation due to "the Bundestag³⁴ and the Bimdesrat³⁵ [not being] accorded sufficient rights of participation in European lawmaking procedures and treaty amendment procedures."³⁶ In permitting the Treaty, the court laid a clear precedent for the future, saying that it will strike down anything running afoul of the "inviolable core content of the constitutional identity of the Basic Law and Article 23(1), Third Sentence, in conjunction with Article 79(3) of the Basic Law . . . ."³⁷

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In today's EU, the ideal of state sovereignty requires equal, if not greater, attention than in the past. The stakes are now much higher, given the global economic uncertainty, and countries simply cannot afford to be without a voice in policy making in this market. The ECB is seeing its arsenal of powers expand,³⁸ and thus will likely be responsible for much of the economic plans of the EU. It will also need to keep the principles of state autonomy in mind as it further carves out plans to pull Europe out of its financial crisis. That is precisely why Germany's highest court took a close look at the ESM treaty.³⁹ While the BVerfG's decision offers guidance for how to satisfy Germany's constitutional concerns, the ECB would also gain valuable insight into issues of state sovereignty by looking to U.S. case law. An analysis of Printz v. United States,⁴⁰ a gun control case dealing with states' rights, along with the BVerfG's decision will help illuminate for the ECB its member states' concerns. In Part II.A, this Note will delve into the German court's decision and the sovereignty issues presented. Part II.B will do the same for the U.S. Supreme Court's decision in Printz.

A. The BVerfG Decides ESM Respects Statehood

The BVerfG faced immense pressure from both the Chancellor and the German public when reviewing this case.⁴¹ The entire world was watching and waiting;⁴² some even believed the future of the EU rested with the

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German court.⁴³ The ESM needed Germany's ratification for it to ever take effect because of a provision in the ESM treaty that required ratification by members totaling at least ninety percent of the ESM's capital calls.⁴⁴ If enacted, the ESM would serve as an emergency fund to ensure the financial stability of the Euro zone.⁴⁵ The plan creates a €700 billion backstop for member states, when combined with prior commitments.⁴⁶ The fund could provide support in the following ways: (1) provide loans to troubled member states;⁴⁷ (2) implement a bond-buying program to purchase debt instruments from troubled countries via the primary market⁴⁸ and the secondary market;⁴⁹ (3) extend credit lines when needed;⁵⁰ (4) grant loans to countries whose financial institutions need help in "re-capitalisation."⁵¹ While the consensus was that these options would help stem the recession and provide much needed support for the EU, opponents were concerned with the other details; accordingly, despite a last minute request for delay,⁵² the BVerfG focused on the opponents' concerns.

The critical issue before the German court was whether accepting the ESM treaty's requirements violated the German Constitution, specifically Article 79(3) (the "Eternity Clause"), which makes it impossible for "any

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national commitment to violate [constitutionally outlined] principles."⁵³ In essence, Germany's highest court sought to ensure that by agreeing to the terms of the European bailout plan, Germany would not be giving up too much of its national sovereignty. The BVerfG was primarily concerned with the following issues of autonomy: (1) ensuring that Germany maintains control over its budgetary matters;⁵⁴ (2) limiting Germany's liability to that of its own choosing rather than obligations potentially based on decisions of other states;⁵⁵ and (3) not being able to exit the Treaty, if...