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Monday, July 28, 2014

Banking Union challenged at the German Constitutional Court

It emerged over the weekend that five German academics have launched another challenge at the Bundesverfassungsgericht – the German Constitutional Court (GCC) – this time against the proposals for a banking union based on the Single Supervisory Mechanism (SSM) at the ECB and the Single Resolutions Mechanism (SRM) at the Commission, with a Single Resolution Fund (SRF) set up via a separate intergovernmental treaty.

For background on all these institutions, see these links: SSM, SRM & SRF

One of those bringing the complaint is Prof Markus Kerber of Europolis (who has been heavily involved in previous suits). According to the press release the key point of the challenge is:
  • That the banking union plans overstep power given in Article 127 TFEU. This is the article which was used to create the SSM in the ECB. Essentially it seems the group take issue with the idea that this could be done since the article refers only to conferring “specific tasks upon the European Central Bank concerning policies relating to the prudential supervision of credit institutions”. The thinking seems to be that, article 127 allows for the ECB to take on certain specific tasks, but not to turn the ECB into the eurozone's single supervisor, giving it complete supervisory control over certain banks and, to an extent, superiority over national supervisors (which some might see as a transfer of power).
  • A key question will be around the amount of power transferred to the ECB. (There is no doubt it has become one of the most powerful institutions in the eurozone crisis both due to de facto action and de jure changes. There are certainly valid questions to be asked here, particularly since the level of democratic oversight is limited due to difficulties in combining this with its strict independence when it comes to monetary policy matters).
  • Although the details are yet to be released, the complaint is also likely to question the legal base of creating the SRM inside the Commission and the pooling of national funds through the SRF. The main questions here relate to the level of control and oversight from the national level, particularly whether the Commission is the right institution to take on this new role and whether it is gaining too much power - not least since the decision was taken under qualified majority voting due to the use of the single market legal base.
The group are far from alone in raising legal concerns surrounding the basis for the banking union. As we have previously noted, both the German government and the European Parliament have expressed legal concerns over the structure; the former with regards to the fiscal impact and the legal basis for pooling of funding and the latter with regards to the use of intergovernmental treaties and the circumvention of the EP. (Ironically, such intergovernmental agreements arose in large part to avoid Germany’s original concerns).  The German government’s concerns have also been mostly dismissed by the Council legal service previously.

The UK Government has also made noises about concerns around the use of the single market article (114) to create a new eurozone architecture.

As the FT notes, these cases take some time to work their way through the system and the GCC has shown a track record of generally siding with the EU, albeit often with some caveats.

Given said track record and the previous opinions expressed by the Council legal service, we can’t help but feel the outlook is already dim for this challenge. As with all eurozone policies, overturning it would likely cause huge market disturbance and shift the eurozone back towards an existential crisis – something the court is usually quite aware of.

That said, the court could add caveats in terms of the democratic assent required for banking union and the role of the Bundestag where funds are concerned. It could also pass the judgement onto the European Court of Justice, as it has done with the case over the ECB’s bond purchase programme the OMT, not least because it seems to mostly question the legality under EU treaties.

In any case, this is certainly one to watch and not just from the eurozone perspective. Any ruling could well set a precedent and have a role in determining how far the eurozone can push certain treaty articles in terms of legal bases but also how it fits with national constitutions. In other words, it could be important in determining the issue of euro-ins vs. euro-outs as the EU develops.


Jesper said...

The outcome will decide if some banks are simply too big now or if they should be allowed to grow even bigger.
I'll be surprised if the outcome is anything but: Banks should be allowed grow too big to bail out for even the combined resources of all the economies in the current and future nations in the the EU. And big banks are good for us and the economy, the bigger the better....

Banks profits comes out of the economy. Still the claim is that the fund, paid for by bank profits, will be no cost to anyone. The proof that the free lunch exists or?

Anonymous said...

The conclusions of the blog post and those of Denis Cooper are correct.

The most interesting aspect is the precedent set by the GCC in referring aspects of the OMT case to the ECJ. This flowed from an earlier decision by the GCC (Honeywell case) cf.


Following its own convoluted logic, the GCC must now do the same in the most recent case.


Anonymous said...

Not a single voter in the EUSSR has given his or her permission for this.

It is simply another example of the Eurofascist ideology that holds 500 million people in 28 European nations hostage.

Patrick Barron said...

I don't know how anyone could believe that any good can come of creating a single EU-wide banking supervisor. Surely, such a supervisor will be captured by those interests who wish the banking system to become completely socialized and an arm of EU's persistent wealth transfer agenda.

R Davis said...

It is all illegal & we & they all know this, It doesn't matter what happens regarding the UN / EU / GERMANY / THE GLOBAL BANKING ARENA anymore. There is such instability on the world stage - which has been attributed fairly & squarely on the greed & incompetence of the banking sector verbatim.
Corporate & business has no confidence in the global banking system as it stands today. The greed & corruption has done them in - alas.
Wait & see it happen right before our eyes. What is a bank for, what is it's role in the scheme of things ?...Oops they have forgotten.

R Davis said...

It is the political arena - punch drunk on free money & the power trip that comes with it.
The banking sector which is broke & needs global business to flourish so as to exist.
The world of corporate & business on all levels so as to exist.
The very business & corporate world that they have destroyed.
In Australia the Reserve Bank of Australia kept the Australian $$$ deliberately, artificially inflated & for way too long so as to claw back gambling losses. The Australian political arena not only let them but also put Australia up as surety for them.

As a result 1:- the auto industry across the board will leave Australia in 3 years - a loss of 60.000 jobs.
ALCOA will go.
The Australian Mining Industry is in the gutter & crawling.
Can you see what I mean... things must change. We have no options, we are all going to shut down the world because the banks can't get their act together /
I doubt it.

R Davis said...

So apparent is all the running about & law making for the futile attempt on the part of the EU / Germany / Banks / & the devil that encouraged to save themselves.
In vain.