Headnotes

to the Order of the Second Senate of 13 October 2022

- 2 BvR 1111/21 -

Act of approval to ESM amendments

1. A “transfer of sovereign powers” within the meaning of Art. 23(1) second sentence of the Basic Law occurs when the European Union or an intergovernmental institution within the meaning of Art. 23(1) of the Basic Law is authorised to implement measures with direct consequences for those subject to the law in Germany.

2. De facto changes of the integration agenda of the European Union or its legal framework brought about by the conclusion of international treaties that do not involve changes of primary law – independent of the question of whether such a change outside of Art. 48 of the Treaty on European Union is permissible under EU law or constitutional law – generally do not amount to a transfer of sovereign powers to the European Union.

FEDERAL CONSTITUTIONAL COURT

- 2 BvR 1111/21 –

IN THE NAME OF THE PEOPLE

In the proceedings
on
the constitutional complaint

the Federal Constitutional Court – Second Senate –

with the participation of Justices

Vice-President König,

Huber,

Hermanns,

Müller,

Kessal-Wulf,

Langenfeld,

Wallrabenstein

held on 13 October 2022:

2. The constitutional complaint is dismissed.

R e a s o n s :

A.

The complainants, six members of the 19th German Bundestag invoking their right to democratic self-determination as citizens, challenge with their constitutional complaint the Act of Approval to the Agreement of 27 January 2021 Amending the Treaty of 2 February 2012 Establishing the European Stability Mechanism (Gesetz zu dem Übereinkommen vom 27. Januar 2021 zur Änderung des Vertrags vom 2. Februar 2012 zur Einrichtung des Europäischen Stabilitätsmechanismus – ESM-ÄndÜG) and the Act of Approval to the Agreement of 27 January 2021 Amending the Agreement of 21 May 2014 on the Transfer and Mutualisation of Contributions to the Single Resolution Fund (Gesetz zu dem Übereinkommen vom 27. Januar 2021 zur Änderung des Übereinkommens vom 21. Mai 2014 über die Übertragung von Beiträgen auf den Einheitlichen Abwicklungsfonds und über die gemeinsame Nutzung dieser Beiträge – IGA-ÄndÜG). In essence, they contend that the approval given by the legislator to these two agreements was formally deficient because the agreements alter the European integration agenda.

I.

1. The European Stability Mechanism (ESM) was established between the Member States of the euro area by the Treaty of 2 February 2012 Establishing the European Stability Mechanism (ESM Treaty; Federal Law Gazette, Bundesgesetzblatt – BGBl II p. 983 ff.) and came into force in the Federal Republic of Germany on 27 September 2012 (BGBI II p. 1086). Its purpose is to mobilise funding and provide stability support under strict conditionality, appropriate to the financial assistance instrument chosen, to the benefit of ESM Members which are experiencing, or are threatened by, severe financing problems, if indispensable to safeguard the financial stability of the euro area as a whole and of its Member States (cf. Art. 3 first sentence of the ESM Treaty).

a) With the Agreement of 27 January 2021 Amending the Treaty of 2 February 2012 Establishing the European Stability Mechanism (Agreement Amending the ESM Treaty – ESM-ÄndÜ, Bundestag document, Bundestagsdrucksache – BTDrucks 19/29645, p. 13 ff.), the Member States of the euro area agreed on a reform of the ESM Treaty. In order to better address risks to the stability of the euro area, the changes are intended to strengthen the effectiveness of the precautionary financial assistance instruments used by the ESM and its competences by introducing new modalities of cooperation with the European Commission and to introduce a backstop facility to the Single Resolution Fund (SRF). The ESM is to be given the capability – independent of any application from an individual Member – to monitor and assess the macroeconomic and financial situation of its Member States, including the sustainability of their public debt, and to analyse relevant information and data. The ability to honour debt commitments in the euro area is to be strengthened and standardised, identical single-limb collective action clauses are to be introduced for government securities with a term of longer than a year starting 1 January 2022, and a legal basis is to be established upon which the Board of Governors can create an additional tranche of authorised capital in order to facilitate the assumption of rights and obligations by the European Financial Stability Facility (EFSF) (cf. BTDrucks 19/29645, p. 1 f., 10 f.).

On 12 May 2021 the Federal Government approved the draft Act of Approval to the Agreement Amending the ESM Treaty and submitted it to the Bundestag (BTDrucks 19/29645).

In its justification for the law, the Federal Government stated, inter alia, that the extent of Germany’s liability will not be changed by the Agreement Amending the ESM Treaty. [...] While a simplified procedure is to be created to permit amendments to the ESM Treaty by unanimous resolution of the Board of Governors for certain matters (cf. Art. 14(1) subpara. 2, Art. 18a(1) subpara. 2, second and third sentence and Art. 18a(6) subpara. 3 second and third sentence of the Agreement Amending the ESM Treaty), which the Board of Governors can delegate to the Board of Directors (cf. Art. 5(6)m of the ESM Treaty), in Germany, such treaty changes would nevertheless require the approval of the organs responsible for federal legislation and would only come into force after the ESM members have notified the Depository of the completion of their applicable national procedures (cf. BTDrucks 19/29645, p. 9 ff.).

b) The applicable provisions of the Agreement Amending the ESM Treaty – insofar as they are relevant here – are as follows (BTDrucks 19/29645, p. 13 ff.):

(...)

(2) The following recitals are inserted:

“(...)

(5b) The joint position on future cooperation between the ESM and the European Commission sets out the agreement on new modalities of cooperation within and outside financial assistance programmes. The European Commission and the ESM share common objectives and will exercise specific tasks related to crisis management for the euro area on the basis of European Union law and this Treaty. Therefore, the two institutions will work closely together on ESM crisis management measures with an efficient governance in pursuit of financial stability by complementing expertise. The European Commission ensures consistency with European Union law, in particular with the economic policy coordination framework. The ESM performs its analysis and assessment from the perspective of a lender. The joint position on future cooperation will be fully incorporated in a memorandum of cooperation, as set out in Article 13(8), when the amendments to this Treaty enter into force.”.

(...)

(5) The following recital is inserted:

“(9a) Member States of the European Union whose currency is not the euro and which have established a close cooperation with the European Central Bank (‘ECB’) in accordance with Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions* are expected to provide parallel credit lines for the SRF alongside the ESM. Those Member States will participate in the common backstop on equivalent terms (‘Participating Member States’). Representatives of Participating Member States should be invited to attend meetings of the Board of Governors and Board of Directors as observers in which matters regarding the common backstop will be discussed and should have the same access to information. Appropriate arrangements for sharing of information and timely coordination between the ESM and Participating Member States should be established. It should be possible to invite representatives of the Single Resolution Board (‘SRB’) as observers on an ad hoc basis to attend meetings of the Board of Governors and the Board of Directors in which backstop financing will be discussed.

____________

* OJ L 287, 29.10.2013, p. 63.”.

(...)

(12) The following recitals are inserted:

“(15a) Article 2(3) of the Treaty on the Functioning of the European Union (‘TFEU’) sets out that the Member States of the European Union shall coordinate their economic policies within arrangements determined by the TFEU. In accordance with Articles 5(1) TFEU and 121 TFEU the Member States of the European Union are to coordinate their economic policies within the Council of the European Union. Accordingly, the ESM should not serve the purpose of economic policies coordination among ESM Members for which European Union law provides the necessary arrangements. The ESM respects the powers conferred by European Union law on the Union institutions and bodies.

(15b) ESM Members recognise that swift and efficient decision-making under the backstop facility and coordination with Participating Member States participating alongside the ESM in backstop financing for the SRF is critical to ensure the effectiveness of the common backstop and of resolutions financed therewith, as reflected by the terms of reference of the common backstop endorsed by the Heads of State or Government of the Member States whose currency is the euro at the Euro Summit of 14 December 2018 in inclusive format. The terms of reference foresee criteria for disbursements under the backstop facility including inter alia the principles of last resort and fiscal neutrality over the medium term, full compliance with Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010* (‘SRMR’) and with Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012** (‘BRRD’), and permanence of the legal framework. The terms of reference foresee a decision by the ESM on the use of the backstop, as a rule, within 12 hours as of the request by the SRB, extendable by the Managing Director to 24 hours in exceptional cases, especially in the case of a particularly complex resolution operation, while respecting national constitutional requirements.

____________

* OJ L 225, 30.7.2014, p. 1.

** OJ L 173, 12.6.2014, p. 190.”.

(...)

B. The Articles are amended as follows:

(15) Article 3 is replaced by the following:

“Article 3

Purposes

1. The purpose of the ESM shall be to mobilise funding and provide stability support under strict conditionality, appropriate to the financial assistance instrument chosen, to the benefit of ESM Members which are experiencing, or are threatened by, severe financing problems, if indispensable to safeguard the financial stability of the euro area as a whole and of its Member States. Where relevant in order to internally prepare and enable it to appropriately and in a timely manner pursue the tasks conferred on it by this Treaty, the ESM may follow and assess the macroeconomic and financial situation of its Members including the sustainability of their public debt and carry out analysis of relevant information and data. To this end, the Managing Director shall collaborate with the European Commission and the ECB to ensure full consistency with the framework for economic policy coordination provided for in the TFEU.

2. The ESM may provide the backstop facility to the SRB for the SRF to support the application of the resolution tools and exercise of resolution powers of the SRB as enshrined in European Union law.

3. For these purposes, the ESM shall be entitled to raise funds by issuing financial instruments or by entering into financial or other agreements or arrangements with ESM Members, financial institutions or other third parties.

4. Without prejudice to paragraph 1, the conditionality applied shall be appropriate to the financial assistance instrument chosen, as laid down in this Treaty.”.

(16) In Article 4(4), the first sentence is replaced by the following:

“By way of derogation from paragraph 3 of this Article, an emergency voting procedure shall be used where the European Commission and the ECB both conclude that a failure to urgently adopt a decision to grant or implement financial assistance, as defined in Articles 13 to 18, would threaten the economic and financial sustainability of the euro area.”.

(17) Article 5 is amended as follows:

(a) n paragraph 4, the following sentence is added:

“Representatives of Participating Member States participating alongside the ESM in backstop financing for the SRF shall also be invited to participate, as observers, in the meetings of the Board of Governors when matters regarding the common backstop will be discussed.”;

(...)

(18) Article 6 is amended as follows:

(a) in paragraph 3, the following sentence is added:

“Representatives of Participating Member States participating alongside the ESM in backstop financing for the SRF shall also be invited to participate, as observers, in the meetings of the Board of Directors when matters regarding the common backstop will be discussed.”;

(...)

(19) In Article 7(4), the following sentence is added:

“The Managing Director and the staff of the ESM shall be responsible only to the ESM and shall be completely independent in the performance of their duties.”.

(20) Article 12 is amended as follows:

(a) the following paragraph is inserted:

“1a. The ESM may provide the backstop facility for the SRF, without prejudice to European Union law and the competences of European Union institutions and bodies. Loans under the backstop facility shall only be granted as a last resort and to the extent that it is fiscally neutral in the medium term.”;

B. in paragraph 3, the following sentence is added:

“Single-limb aggregated voting shall apply to all new euro area government securities, with maturity above one year, issued on or after 1 January 2022.”;

C. the following paragraph is added:

“4. When exercising the tasks conferred on it in this Treaty, the European Commission will ensure that financial assistance operations provided by the ESM under this Treaty are, where relevant, consistent with European Union law, in particular with the measures of economic policy coordination provided for in the TFEU.”.

(21) Article 13 is amended as follows:

(a) paragraph 1 is amended as follows:

(i) the introductory wording is replaced by the following:

“1. An ESM Member may address a request for stability support to the Chairperson of the Board of Governors. Such a request shall indicate the financial assistance instrument(s) to be considered. On receipt of such a request, both (i) the Managing Director and (ii) the European Commission in liaison with the ECB, shall be entrusted by the Chairperson of the Board of Governors to together discharge the following tasks:”;

(ii) point (b) is replaced by the following:

“(b) to assess whether public debt is sustainable and whether stability support can be repaid. This assessment shall be conducted in a transparent and predictable manner while allowing for sufficient margin of judgment. Wherever appropriate and possible, such an assessment is expected to be conducted together with the IMF;”;

(b) paragraph 2 is replaced by the following:

“2. On the basis of the request of the ESM Member and the assessments referred to in paragraph 1 of this Article, a proposal by the Managing Director based on these assessments and, where applicable, the positive assessments referred to in Article 14(1) and (2), the Board of Governors may decide to grant, in principle, stability support to the ESM Member concerned in the form of a financial assistance facility.”;

(c) in paragraph 3, the first subparagraph is replaced by the following:

“3. If a decision pursuant to paragraph 2 is adopted other than with respect to a precautionary conditioned credit line, the Board of Governors shall entrust (i) the Managing Director and (ii) the European Commission in liaison with the ECB, together and, wherever possible, also together with the IMF, with the task of negotiating, with the ESM Member concerned, a memorandum of understanding (an ‘MoU’) detailing the conditionality attached to the financial assistance facility. The content of the MoU shall reflect the severity of the weaknesses to be addressed and the financial assistance instrument chosen. The Managing Director shall prepare a proposal for a financial assistance facility agreement, including the financial terms and conditions and the choice of instruments, to be adopted by the Board of Governors.”;

(d) paragraph 4 is replaced by the following:

“4. The MoU shall be signed on behalf of the ESM by the European Commission and the Managing Director, subject to prior compliance with the conditions set out in paragraph 3 and approval by the Board of Governors.”;

(e) paragraph 7 is replaced by the following:

“7. Both (i) the Managing Director and (ii) the European Commission in liaison with the ECB, together and, wherever possible, also together with the IMF, shall be entrusted with monitoring compliance with the conditionality attached to the financial assistance facility.”;

(f) the following paragraph is added:

“8. Subject to prior approval by the Board of Directors by mutual agreement, the ESM may enter into a memorandum of cooperation with the European Commission detailing the cooperation between the Managing Director and the European Commission in carrying out the tasks entrusted to them pursuant to paragraphs 1, 3 and 7 of this Article, and referred to in Article 3(1).”.

(22) Article 14 is replaced by the following:

“Article 14

ESM precautionary financial assistance

1. ESM precautionary financial assistance instruments provide support to ESM Members with sound economic fundamentals which could be affected by an adverse shock beyond their control. The Board of Governors may decide to grant precautionary financial assistance to an ESM Member whose government debt is sustainable in the form of a precautionary conditioned credit line or in the form of an enhanced conditions credit line in accordance with Article 12(1), subject to the fulfilment of eligibility criteria to be applied for each type of such assistance as provided for in Annex III.

The Board of Governors may decide to change the eligibility criteria for ESM precautionary financial assistance and amend Annex III accordingly. Such amendment shall enter into force after the ESM Members have notified the Depositary of the completion of their applicable national procedures.

2. The conditionality attached to a precautionary conditioned credit line shall consist of continuous respect of the eligibility criteria provided for in Annex III to which the ESM Member concerned shall commit in its signed request pursuant to Article 13(1) highlighting its main policy intentions (‘Letter of Intent’). On receipt of such a Letter of Intent, the Chairperson of the Board of Governors shall entrust the European Commission with the task of assessing whether the policy intentions included in the Letter of Intent are fully consistent with the measures of economic policy coordination provided for in the TFEU, in particular with any act of European Union law, including any opinion, warning, recommendation or decision addressed to the ESM Member concerned. By way of derogation from Article 13(3) and (4), no MoU shall be negotiated.

3. The conditionality attached to an enhanced conditions credit line shall be detailed in the MoU, in accordance with Article 13(3), and be coherent with the eligibility criteria provided for in Annex III.

4. The financial terms and conditions of the ESM precautionary financial assistance shall be specified in a precautionary financial assistance facility agreement, to be signed by the Managing Director.

5. The Board of Directors shall adopt the detailed guidelines on the modalities for implementing the ESM precautionary financial assistance.

6. The Board of Directors shall regularly consider, at least every six months or after the ESM Member has drawn funds for the first time (via a loan or a primary market purchase), a report in accordance with Article 13(7). For a precautionary conditioned credit line, the report shall verify continuous respect of the eligibility criteria as referred to in paragraph 2 of this Article, whereas for an enhanced conditions credit line the report shall verify compliance with the policy conditions detailed in the MoU. Where the report concludes that the ESM Member continues to respect the eligibility criteria for the precautionary conditioned credit line or comply with the conditionality attached to the enhanced conditions credit line, the credit line shall be maintained unless the Managing Director or any Director requests a decision of the Board of Directors by mutual agreement whether the credit line should be maintained.

7. If the report pursuant to paragraph 6 of this Article concludes that the ESM Member no longer respects the eligibility criteria for the precautionary conditioned credit line or comply [sic] with the conditionality attached to the enhanced conditions credit line, access to the credit line shall be discontinued, unless the Board of Directors decides by mutual agreement to maintain the credit line. If the ESM Member has drawn funds before, an additional margin shall apply in line with the pricing guideline to be adopted by the Board of Governors pursuant to Article 20(2), unless the Board of Directors assesses on the basis of the report that non-compliance is due to events beyond the control of the ESM Member. If the credit line is not maintained, another form of financial assistance may be requested and granted in accordance with the applicable rules under this Treaty.”.

(...)

(26) The following article is inserted:

“Article 18a

Backstop facility

1. On the basis of a request for a backstop facility by the SRB and of a proposal by the Managing Director, the Board of Governors may decide to grant a backstop facility to the SRB covering all possible uses of the SRF as enshrined in European Union law, subject to adequate safeguards.

The criteria for the approval of loans and disbursements under the backstop facility are provided for in Annex IV. The Board of Governors may decide to change the criteria for the approval of loans and disbursements and amend Annex IV accordingly. Such amendment shall enter into force after the ESM Members have notified the Depositary of the completion of their applicable national procedures.

The Board of Governors shall determine the key financial terms and conditions of the backstop facility, the nominal cap and any adjustments to it, provisions on the procedure for the verification of compliance with the condition of permanence of the legal framework for bank resolution and on the consequences for the backstop facility and its use as well as the conditions upon which the Board of Governors may decide to terminate the backstop facility and the conditions and time limits upon which the Board of Governors may decide to continue the backstop facility pursuant to paragraph 8.

2. The backstop facility shall take the form of a revolving credit line under which loans can be provided.

3. The detailed financial terms and conditions of the backstop facility shall be specified in a backstop facility agreement with the SRB, to be approved by the Board of Directors by mutual agreement and signed by the Managing Director.

4. The Board of Directors shall adopt and regularly review the detailed guidelines on the modalities for implementing the backstop facility, including on procedures ensuring swift adoption of decisions pursuant to paragraph 5.

5. On the basis of a request for a loan by the SRB, containing all relevant information while respecting confidentiality requirements of European Union law, a proposal from the Managing Director and an assessment of the SRB's repayment capacity and, where relevant, the assessments by the European Commission and the ECB pursuant to paragraph 6, the Board of Directors shall decide by mutual agreement, guided by the criteria provided for in Annex IV, on loans and respective disbursements under the backstop facility. The Board of Directors may decide by mutual agreement to delegate to the Managing Director the task provided for in this paragraph for a specified period of time and amount, in line with the rules specified in guidelines adopted by the Board of Directors.

6. By way of derogation from Article 4(3), an emergency voting procedure shall be used where the European Commission and the ECB conclude in separate assessments that a failure to urgently adopt a decision by the Board of Directors on loans and respective disbursements under the backstop facility pursuant to the first sentence of paragraph 5 of this Article would threaten the economic and financial sustainability of the euro area. The adoption of such a decision by mutual agreement under that emergency procedure requires a qualified majority of 85 % of the votes cast. This paragraph does not apply if, and for as long as, any procedures are ongoing concerning the permanence of the legal framework for bank resolution pursuant to paragraph 8 of this Article and related provisions adopted by the Board of Governors.

Where the emergency procedure referred to in the first subparagraph is used, a transfer to an emergency reserve fund is made in order to constitute a dedicated buffer to cover the risks arising from the loans and respective disbursements approved under that emergency procedure. The Board of Directors may decide by mutual agreement to cancel the emergency reserve fund and transfer its content back to the reserve fund and/or paid-in capital.

After two instances of the use of this emergency voting procedure, the application of the first subparagraph shall be suspended until the Board of Governors decides to cancel such suspension. The Board of Governors, when deciding to cancel such suspension, shall review the voting majority required for an adoption of a decision under said procedure and set the circumstances in which a review is to take place in the future, and may decide to amend this paragraph accordingly, without lowering the voting threshold. Such amendment shall enter into force after the ESM Members have notified the Depositary of the completion of their applicable national procedures.

7. The ESM shall establish an appropriate warning system to ensure timely receipt of repayments due under the backstop facility.

8. The backstop facility and its use under this Article shall be contingent upon compliance with the condition of permanence of the legal framework for bank resolution. Where the condition of the permanence of the legal framework for bank resolution is not complied with, a comprehensive review will be initiated and a decision by the Board of Governors shall be required to continue the backstop facility. Further provisions on the procedure for the verification of compliance with the condition of permanence of the legal framework for bank resolution and on the consequences for the backstop facility and its use, shall be determined by the Board of Governors pursuant to paragraph 1.

9. For the purpose of paragraph 8 of this Article, the permanence of the legal framework for bank resolution shall consist of:

(a) the permanence, as defined in Article 9(1) of the Intergovernmental Agreement of 21 May 2014 on the transfer and mutualisation of contributions to the Single Resolution Fund (‘IGA’), of the rules defined in Article 9(1) IGA; and

(b) the permanence of the principles and rules relating to the bail-in tool and to the framework on the minimum requirement for own funds and eligible liabilities laid down in BRRD, SRMR and Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012*, to the extent that these principles and rules are relevant for preserving the financial means of the SRF.

10. In implementing this Article, the ESM shall cooperate closely with Participating Member States participating alongside the ESM in backstop financing for the SRF.

____________

* OJ L 176, 27.6.2013, p. 1.”.

(...)

(33) In Article 40, the following paragraph is added:

“4. Without prejudice to Articles 8 to 11 and 39, the Board of Governors may, in order to facilitate the transfer referred to in paragraph 2 of this Article, create an additional tranche of authorised capital, to be subscribed by some or all EFSF shareholders in proportion to the contribution key set out in Annex 2 to the EFSF Framework Agreement signed on 10 June 2010 (as amended). The additional tranche shall consist of callable capital, shall have no voting rights (even if such capital is called), and shall be subject to a maximum amount corresponding to the aggregate principal amount outstanding of the EFSF loan facilities transferred multiplied by a percentage no higher than 165 %. The Board of Governors shall determine the manner and circumstances of capital calls and payments under the additional tranche.

The transfer referred to in paragraph 2 shall not increase the sum of EFSF and ESM liabilities compared to a scenario where that transfer does not take place. The additional tranche shall support the transfer of the EFSF loans and shall be reduced in line with the repayment of said loans.

The decision by the Board of Governors under the first subparagraph shall enter into force after ESM Members have notified the Depositary of the completion of their applicable national procedures.”.

(...)

(35) The following text is added as Annex III:

“Annex III

Eligibility criteria for ESM precautionary financial assistance

1. The criteria below represent the eligibility criteria for ESM precautionary financial assistance and have been determined having regard to:

(a) the Euro Summit Statement of 14 December 2018 which endorsed the term sheet on the reform of the ESM, specifying that ex ante eligibility criteria assessing sound economic and financial performance will be clarified, and that the enhanced conditions credit line (‘ECCL’) instrument will continue to be available as foreseen in the current ESM guideline; and

(b) the joint position on future cooperation between the European Commission and the ESM, as annexed to the term sheet on the reform of the ESM, as well as to the roles and competences of institutions as foreseen in the European Union legal framework.

Furthermore considering that the procedure for granting ESM precautionary financial assistance follows Articles 13 and 14 of this Treaty, and that according to Article 14(1) of this Treaty, the Board of Governors may decide to grant precautionary financial assistance to an ESM Member whose government debt is sustainable, and that the Board of Directors shall adopt the detailed guidelines on the modalities for implementing ESM precautionary financial assistance [in] accordance with Article 14(5) of this Treaty.

2. Eligibility criteria for granting a precautionary conditioned credit line (‘PCCL’):

Access to a PCCL shall be based on eligibility criteria and limited to ESM Members where the economic and financial situation is fundamentally strong and whose government debt is sustainable. As a rule, ESM Members need to meet quantitative benchmarks and comply with qualitative conditions related to EU surveillance. An assessment shall be made on whether a potential beneficiary ESM Member qualifies for a PCCL on the basis of the following criteria:

(a) respect of the quantitative fiscal benchmarks. The ESM Member shall not be under excessive deficit procedure and needs to meet the three following benchmarks in the two years preceding the request for precautionary financial assistance:

(i) a general government deficit not exceeding 3 % of GDP;

(ii) a general government structural budget balance at or above the country specific minimum benchmark*;

(iii) a debt benchmark consisting of a general government debt to GDP ratio below 60 % or a reduction in the differential with respect to 60 % over the previous two years at an average rate of one twentieth per year;

(b) absence of excessive imbalances. The ESM Member should not be identified as experiencing excessive imbalances under EU surveillance;

(c) a track record of access to international capital markets, where relevant, on reasonable terms;

(d) a sustainable external position; and

(e) absence of severe financial sector vulnerabilities putting at risk the ESM Member's financial stability.

3. Eligibility criteria for granting an ECCL

Access to an ECCL shall be open to ESM Members that are not eligible to the PCCL because of non-compliance with some eligibility criteria but whose general economic and financial situation remains strong and whose government debt is sustainable.

_____________

* The minimum benchmark is the level of the structural balance providing a safety margin against the 3 % TFEU threshold under normal cyclical conditions. It is mainly used as one of three inputs into the calculation of the minimum medium-term objective.”.

(36) The following text is added as Annex IV:

“Annex IV

Criteria for the approval of loans and disbursements under the backstop facility

1. The criteria below represent the criteria for the approval of loans and disbursements under the backstop facility and have been determined having regard to:

(a) The terms of reference of the common backstop to the SRF endorsed at the Euro Summit of 14 December 2018;

(b) Recital 15b of this Treaty recalling that terms of reference of the common backstop to the SRF endorsed at the Euro Summit of 14 December 2018 foresee criteria for disbursements under the backstop facility including inter alia the principles of last resort and fiscal neutrality over the medium term, full compliance with SRMR and with BRRD, and permanence of the legal framework;

(c) Article 12(1a) of this Treaty specifying that loans under the backstop facility shall only be granted as a last resort and to the extent that it is fiscally neutral in the medium term;

(d) Article 18a(8) of this Treaty specifying that the backstop facility and its use shall be contingent upon compliance with the condition of permanence of the legal framework for bank resolution and that further provisions on the procedure on the verification of compliance with this condition and on the consequences for the backstop facility and its use shall be determined by the Board of Governors pursuant to Article 18a(1) of this Treaty;

(e) Article 18a(5) of this Treaty specifying that the Board of Directors shall decide by mutual agreement, guided by the criteria provided for in this Annex, on loans and respective disbursements under the backstop facility,

and considering that the procedure for granting and implementing the backstop facility follows Article 18a of this Treaty and that the Board of Directors shall adopt detailed guidelines on the modalities for implementing the backstop facility in accordance with Article 18a(4) of this Treaty.

2. Criteria for the approval of loans and disbursements under the backstop facility:

(a) Recourse to the backstop facility is of last resort. Therefore:

(i) the financial means of the SRF available to be used in accordance with Article 76 of the SRMR that are not already committed to resolution actions are depleted, including the situation where there are financial means available in the SRF, but those are insufficient for the resolution case at hand;

(ii) ex post contributions are not sufficient or not immediately available; and

(iii) the SRB is not able to borrow on terms and conditions considered acceptable by the SRB in accordance with Articles 73 and 74 of the SRMR;

(b) The principle of fiscal neutrality over the medium term is respected. The repayment capacity of the SRB is sufficient to fully repay the loans granted under the backstop facility over the medium term;

(c) The requested funds are available to the ESM. In the case of cash disbursements, the ESM has obtained the funds on terms acceptable to the ESM or, in the case of non-cash disbursements, the notes are legally created and held in custody of the applicable security depository;

(d) All the parties to the IGA, in the territories of which the relevant resolution action takes place, have complied with their obligations to transfer contributions received from the institutions authorised in their territory to the SRF;

(e) There is no ongoing event of default on borrowings of the SRB from the ESM or from any other creditor, or the SRB has presented a remedy plan in respect of any such ongoing event of default which is satisfactory to the Board of Directors;

(f) The condition of permanence of the legal framework on bank resolution as defined in Article 18a(9) of this Treaty is complied with, as determined by the Board of Governors pursuant to Article 18a(1) and (8) of this Treaty; and

(g) The dedicated resolution scheme is fully compliant with European Union law and has entered into force in accordance with European Union law.”.

a) The Act of Approval to the Agreement Amending the ESM Treaty includes the following text (BTDrucks 19/29645, p. 7 f.):

(...)

Article 1

The Agreement Amending the Treaty of 2 February 2012 Establishing the European Stability Mechanism between the Federal Republic of Germany and the Kingdom of Belgium, the Republic of Estonia, Ireland, the Hellenic Republic, the Kingdom of Spain, the French Republic, the Italian Republic, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Grand Duchy of Luxembourg, the Republic of Malta, the Kingdom of the Netherlands, the Republic of Austria, the Portuguese Republic, the Republic of Slovenia, the Slovak Republic and the Republic of Finland, which was concluded at Brussels on 27 January 2021 and signed by the Federal Republic of Germany (BGBl 2012 II p. 981, 983) is approved. The Agreement is published below.

Article 2

(1) The following amendments to the Treaty Establishing the European Stability Mechanism made by decision of the Board of Governors of the European Stability Mechanism or, in the case of a delegation of this power pursuant to Article 5(6)m of the Treaty, by decision of the Board of Directors of the European Stability Mechanism require authorisation by federal law in order to come into force:

1. Amendments to the eligibility criteria set out in Annex III of the Treaty in the version of this Agreement for ESM precautionary financial assistance pursuant to Article 14(1) subsection 2 of the Treaty in the version of this Agreement,

2. Amendments to the criteria set out in Annex IV of the Treaty in the version of this Agreement for the approval of loans and disbursements under the backstop facility pursuant to Article 18a(1) subsection 2 second and third sentence of the Treaty in the version of this Agreement and

3. Amendments to the required majority for the adoption of a decision in an emergency voting procedure set out in Article 18a(6) subsection 1 second sentence of the Treaty in the version of this Agreement for loans and respective disbursements under the backstop facility and the circumstances under which a future revision of the majority vote can take place pursuant to Article 18a(6) subsection 3 second and third sentence of the Treaty in the version of this Agreement.

(2) The introduction of an additional tranche of authorised capital pursuant to Article 40(4) of the Treaty in the version of this Agreement requires an authorisation under federal law to assume the guarantees in order to enter into force.

(3) Article 2 of the Act of Approval to the Treaty of 2 February 2012 Establishing the European Stability Mechanism (BGBI 2012 II p. 981, 983) remains unchanged.

Article 3

(1) This Act will enter into force the day after its enactment.

(2) The day on which the Agreement, pursuant to Article 5(1) therein, enters into force for the Federal Republic of Germany shall be published in the Federal Law Gazette.

2. On 11 May 2021, the Federal Government also introduced the draft Act of Approval to the Agreement of 27 January 2021 Amending the Agreement of 21 May 2014 on the Transfer and Mutualisation of Contributions to the Single Resolution Fund (Agreement Amending the Intergovernmental Agreement) (cf. BTDrucks 19/29566). This is intended to enable the adaption of the framework of the European Banking Union with the amended ESM Treaty.

a) The framework for the European Banking Union predominately consists of the Single Supervisory Mechanism (cf. Decisions of the Federal Constitutional Court, Entscheidungen des Bundesverfassungsgerichts – BVerfGE 151, 202 <211 ff. para. 3 ff., 303 ff. para. 158 ff.> – European Banking Union ), the Single Resolution Mechanism (Directive 2014/59/EU of the European Parliament and European Commission of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, OJ EU No. L 173 of 12 June 2014 p. 190 ff. <BRRD Directive> and Regulation (EU) No 806/2014 of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010, OJ EU No. L 225 of 30 July 2014 p.1 ff. <SRM Regulation>; cf. BVerfGE 151, 202 <238 ff. para. 23 ff., 337 ff. para. 231 ff.> – European Banking Union ) and the Intergovernmental Agreement (BGBI II p. 1298 ff.). The purpose of this framework is to maintain financial stability in the euro area (cf. COM <2017> 592 final, p. 3; BTDrucks 19/29645, p. 32).

Under the framework for the Single Resolution Mechanism, the powers of resolution for credit institutions are allocated to a committee, the Single Resolution Board (SRB). The Board is the owner of the Single Resolution Fund (Art. 67(3) of the SRM Regulation). Pursuant to Art. 67(2) second sentence of the SRM Regulation, under no circumstances shall the EU budget or the national budgets of individual Member States be held liable for expenses or losses of the Single Resolution Fund. Art. 67(4) of the SRM Regulation provides that the contributions referred to in Arts. 69 through 71 thereof shall be raised from the national resolution authorities and transferred to the Fund in accordance with the Agreement. The imposition of the bank levy is not based on the SRM Regulation, which does not contain provisions establishing any obligation to pay on the part of credit institutions, but on national law – in Germany, the Restructuring Fund Act (cf. BVerfGE 151, 202 <368 f. para. 303 ff.> – European Banking Union ). The use of the Single Resolution Fund is contingent upon the entry into force of the Agreement (cf. Art. 1 subsection 3 of the SRM Regulation). The transfer of [...] nationally raised funds to the Single Resolution Fund also takes place on the basis of the Agreement (cf. BVerfGE 151, 202 <369 f. para. 306 ff.> – European Banking Union ).

On 21 May 2014, the Federal Republic of Germany and other Member States declared that the Agreement as a whole [...] are to be interpreted in a manner that they do not create any obligation of joint liability of the Contracting Parties, of amending the ESM Treaty, or in particular, of any public financial support or measures impinging on the budgetary sovereignty and fiscal responsibilities of the Contracting Parties (cf. BGBl II p. 1318 f.).

b) In the Agreement Amending the Intergovernmental Agreement (BTDrucks 19/29566, p. 9), the contracting parties agreed to a reform of the Intergovernmental Agreement. The amendments affect provisions for mutualisation of ex post contributions and serve to provide for an effective and early introduction of the common backstop before the end of the transitional period, by making additional funds available for the repayment of ESM credit lines to the Single Resolution Fund if the backstop is used to finance resolution actions. In particular, it is provided that upon recourse to the Single Resolution Fund, ex post and mutualised contributions are only charged after the existing resources of the Single Resolution Fund are exhausted, that ex post contributions will be charged first to those contracting parties that are affected by the resolution case to be financed, that the transfer of ex post contributions from the contracting parties as a group (mutualised) will only occur thereafter and that the mutualisation of ex post contributions to the Single Resolution Fund must be limited in amount and based on the target size of the Fund (cf. BTDrucks 19/29566, p. 8).

c) The Act of Approval to the Agreement Amending the Intergovernmental Agreement includes the following text (BTDrucks 19/29566, p. 7 f.):

(...)

Article 1

The Agreement Amending the Treaty of 21 May 2014 on the Transfer and Mutualisation of Contributions to the Single Resolution Fund between the Kingdom of Belgium, the Republic of Bulgaria, the Czech Republic, the Kingdom of Denmark, the Federal Republic of Germany, the Republic of Estonia, Ireland, the Hellenic Republic, the Kingdom of Spain, the French Republic, the Republic of Croatia, the Italian Republic, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Grand Duchy of Luxembourg, Hungary, the Republic of Malta, the Kingdom of the Netherlands, the Republic of Austria, the Republic of Poland, the Portuguese Republic, Romania, the Republic of Slovenia, the Slovak Republic and the Republic of Finland, which was concluded at Brussels on 27 January 2021 and signed by the Federal Republic of Germany (BGBl 2014 II p. 1298, 1299) is approved. The Agreement is published below.

Article 2

(1) This Act will enter into force the day after its enactment.

(2) The day on which the Agreement, pursuant to Article 5(1) therein, enters into force for the Federal Republic of Germany shall be published in the Federal Law Gazette.

3. On 11 May 2021, the Federal Government also introduced the draft of the Second Act on the Amendment of the ESM Financing Act (BTDrucks 19/29586) and the Second Act on the Amendment of the Federal Debt Act and other Acts (BTDrucks 19/29572) in the Bundestag .

4. In its 234th session on 11 June 2021, the Bundestag approved the Act of Approval to the Agreement Amending the ESM Treaty, the Act of Approval to the Agreement Amending the Intergovernmental Agreement, the Second Act on the Amendment of the ESM Financing Act and the Second Act on the Amendment of the Federal Debt Act and other Acts without changes with the votes of the CDU/CSU, SPD and BÜNDNIS 90/DIE GRÜNEN (cf. Plenary minutes of the Bundestag , Plenarprotokoll des Bundestags – BTPlenarprotokoll 19/234, p. 30271 f.). The Bundesrat approved the Act of Approval to the Agreement Amending the ESM Treaty and the Act of Approval to the Agreement Amending the Intergovernmental Agreement in its 1006th session on 25 June 2021 (cf. Bundesrat document, Bundesratsdrucksache – BRDrucks 533/21 <Resolution>; BRDrucks 534/21 <Resolution>; Plenary minutes of the Bundesrat , Plenarprotokoll des Bundesrates – BRPlenarprotokoll 1006, p. 334 f.) and resolved to refrain from submitting an application pursuant to Art. 77(2) of the Basic Law (Grundgesetz – GG) regarding the Second Act on the Amendment of the ESM Financing Act and the Second Act on the Amendment of the Federal Debt Act and other Acts (cf. BRDrucks 506/21 <Resolution>; BRDrucks 508/21 <Resolution>, BRPlenarprotokoll 1006, p. 335 f.).

II.

With their constitutional complaint of 23 June 2021, the complainants assert that the Act of Approval to the Agreement Amending the ESM Treaty and the Act of Approval to the Agreement Amending the Intergovernmental Agreement violate their rights under Art. 38(1) first sentence and Art. 20(1) and (2) in conjunction with Art. 79(3) of the Basic Law. [The complainants seek a review of the formal lawfulness of a transfer of sovereign powers (formelle Übertragungskontrolle )].

[…]

III.

The Federal President, the Bundestag , the Bundesrat , the Federal Chancellery and the Federal Ministry of Finance were notified of the constitutional complaint proceedings and the application for a preliminary injunction and given the opportunity to submit a statement. The Federal Government [...] and the German Bundestag [...] submitted statements.

[…]

IV.

On the request of the Federal Constitutional Court of 24 June 2021, the Federal President declared – in line with established German state practice (cf. BVerfGE 123, 267 <304>; 132, 195 <195 ff. para. 1 ff.>; 153, 74 <131 para. 90> – Unified Patent Court ; 158, 210 <227 para. 44> – Unified Patent Court II – preliminary injunction) – that he would refrain from certifying and promulgating the Act of Approval to the Agreement Amending the ESM Treaty until the Federal Constitutional Court rendered its decision in the principal proceedings. It was therefore unnecessary for the Federal Constitutional Court to consider the application for a preliminary injunction.

B.

The constitutional complaint is dismissed. It is inadmissible because the complainants have failed to sufficiently demonstrate and substantiate the possibility of a violation of their right to democratic self-determination derived from Art. 38(1) first sentence of the Basic Law.

I.

Pursuant to § 92 of the Federal Constitutional Court Act (Bundesverfassungsgerichtsgesetz – BVerfGG), a constitutional complaint must set out the constitutional requirements the challenged measure fails to meet. Complainants must therefore state the extent to which a measure is considered to violate the fundamental rights or rights equivalent to fundamental rights specified in the complaint (cf. BVerfGE 99, 84 <87>; 120, 274 <298>; 142, 234 <251 para. 28>; 149, 346 <359 para. 23>). If the issues raised in the constitutional complaint have already been addressed in the existing case-law of the Federal Constitutional Court, the violation of asserted rights must be substantiated in accordance with the constitutional standards developed by the Court (cf. BVerfGE 99, 84 <87>; 101, 331 <346>; 142, 234 <251 para. 28>; 149, 346 <359 para. 23>).

II.

The complainants’ submissions regarding the possibility that the challenged acts of approval violate their right to democratic self-determination following from Art. 38(1) first sentence of the Basic Law do not satisfy the requirements in § 23(1) second sentence and § 92 of the Federal Constitutional Court Act. Domestic acts of approval of international treaties may be challenged in constitutional complaint proceedings if the treaty contains provisions that directly affect the legal sphere of the individual complainant (see 1. below). However, the complainants have failed to sufficiently substantiate a potential violation of Art. 38(1) first sentence of the Basic Law (see 2. below).

1. Domestic acts of approval of international treaties may be challenged in constitutional complaint proceedings if the treaty contains provisions that directly affect the legal sphere of the individual complainant (cf. BVerfGE 6, 290 <294 f.>; 40, 141 <156>; 84, 90 <113>; 123, 148 <170>; 153, 74 <131 para. 93> – Unified Patent Court ). This also applies to international treaties for the further development of the European Union (cf. BVerfGE 89, 155 <171>; 123, 267 <329>) and establishing or changing intergovernmental institutions that supplement or are otherwise closely tied with the European Union (cf. BVerfGE 135, 317 <384 f. para. 122>; 153, 74 <131 para. 93> – Unified Patent Court ).

Such an act of approval can be challenged in constitutional complaint proceedings even before it enters into force, provided that the legislative process – not including certification of the act by the Federal President and its promulgation – has already concluded and provided that the complainant can assert a possible violation of fundamental rights (cf. BVerfGE 1, 396 <411 ff.>; 24, 33 <53 f.>; 112, 363 <367>; 123, 267 <329>; 153, 74 <132 para. 94> – Unified Patent Court ; 157, 332 <378 para. 76> – ERatG – preliminary injunction proceedings ). If constitutional challenges were not allowed at that stage, Germany would risk assuming treaty obligations under international law that it could not fulfil without violating its Constitution (cf. BVerfGE 153, 74 <132 para. 94> – Unified Patent Court ).

Standing to lodge a constitutional complaint against an act of approval may also exist on the grounds of a possible violation of the right to democratic self-determination following from Art. 38(1) first sentence of the Basic Law (see a) below). However, the Federal Constitutional Court only reviews an act of approval to an international treaty on the basis of Art. 23(1) second and third sentence of the Basic Law if a transfer of sovereign powers to the European Union or to an intergovernmental institution that supplements or is otherwise closely tied with the European Union is at stake (see b) below).

a) Art. 38(1) first sentence of the Basic Law guarantees the individual the right to vote in elections to the German Bundestag . This right is not limited to ensuring the formal legitimation of (federal) state power, but also protects the right of a citizen to be subjected only to such public authority as they can legitimate and influence (cf. BVerfGE 123, 267 <341>; 142, 123 <191 para. 128>). It must be kept in mind that Art. 38(1) first sentence of the Basic Law, as a fundamental right to democratic self-determination, generally does not provide standing to challenge parliamentary decisions, parliamentary laws. However, its scope does extend to structural changes in how the state is organised that may occur, inter alia, when sovereign powers are transferred to the European Union or other supranational organisations (cf. BVerfGE 129, 124 <169>; 142, 123 <190 para. 126>).

aa) Art. 38(1) first sentence of the Basic Law protects citizens against a transfer of sovereign powers under Art. 23(1) of the Basic Law, when such transfer would exceed the limits set by Art. 79(3) in conjunction with Art. 23(1) third sentence of the Basic Law by eroding the essence of the principle of the sovereignty of the people (Art. 20(1) and (2) of the Basic Law). The Federal Constitutional Court examines whether this is the case in the review on the basis of constitutional identity (Identitätskontrolle ), examples of which include the judgments on the Maastricht Treaty, the Lisbon Treaty and the ESM Treaty (cf. BVerfGE 89, 155 ff. 123, 267 ff.; 132, 195 ff.; 135, 317 ff., 151, 202 <287 ff. para. 120 ff.> – European Banking Union ; 153, 74 <133 para. 96, 152 para. 136> – Unified Patent Court ; 154, 17 <86 ff. para. 101 ff.> – PSPP asset purchase programme of the ECB ).

The transfer of sovereign powers to an international organisation that supplements or is otherwise closely tied to the EU cannot be permitted to have an effect on the constitutional principles enshrined in Arts. 1 and 20 of the Basic Law (Art. 23(1) third sentence of the Basic Law in conjunction with Art. 79(3) of the Basic Law).

bb) Art. 20(1) and (2) in conjunction with Art. 79(3) of the Basic Law also ensures – within the scope of applicability of Art. 23(1) of the Basic Law – that the formal requirements of Art. 23(1) second and third sentence of the Basic Law for the transfer of sovereign powers are observed. This is the grounds for a review of the formal lawfulness of a transfer of sovereign powers (formelle Übertragungskontrolle ) (cf. BVerfGE 153, 74 <152 para. 137> – Unified Patent Court ). If an act of approval to an integration measure is intended to authorise EU institutions, bodies, offices and agencies, or an international organisation that supplements or is otherwise closely tied to the EU, to exercise certain powers, but fails to do so with legal effect due to a violation of Art. 23(1) third sentence in conjunction with Art. 79(2) of the Basic Law, it lacks democratic legitimation (cf. BVerfGE 153, 74 <151 f. para. 134 ff.> – Unified Patent Court ).

b) However, the Federal Constitutional Court only reviews an act of approval to an international treaty on the basis of Art. 23(1) second and third sentence of the Basic Law if Art. 23(1) applies to the integration measure in question (see aa) below) and if a transfer of sovereign powers to the European Union or to an intergovernmental institution that supplements or is otherwise closely tied with the European Union is at stake (see bb) below). A mere de facto change of the integration agenda of the EU is not sufficient (see cc) below).

aa) Pursuant to Art. 23(1) second sentence of the Basic Law, the Federation may transfer sovereign powers to the European Union or other intergovernmental institutions that supplement or are otherwise closely tied with the European Union (cf. BVerfGE 153, 74 <144 para. 120> – Unified Patent Court ). Art. 23(1) of the Basic Law does not require that the transfer of sovereign powers be made directly to institutions, bodies, offices and agencies of the European Union (cf. BVerfGE 153, 74 <145 para. 122> – Unified Patent Court ). Rather, it is informed by a broad understanding of the term “European Union”, which, in principle, comprises the entire organisational framework and integration agenda of the European Union and, under certain conditions, also includes international bodies and organisations that are separate from the European Union, but nevertheless supplement or are otherwise closely tied to the European Union (cf. BVerfGE 153, 74 <144 ff. para. 120 ff.> – Unified Patent Court ; for the broad understanding of Art. 23(2) first sentence of the Basic Law, cf. BVerfGE 131, 152 <199 ff.>).

Following the established case-law of the Second Senate, the question of whether an intergovernmental body or organisation can be regarded as supplementing or otherwise closely tied with the European Union cannot generally be determined by one single criterion and instead requires an overall assessment of the circumstances, goals, content and effect of the provision at issue (cf. BVerfGE 131, 152 <199>; 153, 74 <146 para. 124> – Unified Patent Court ). Relevant indications in this regard can include the extent to which a project or institution is anchored in primary law or has a secondary or tertiary legal basis, and thus has a qualified contextual connection to the integration agenda of the European Union; the involvement of EU institutions, bodies, offices and agencies in the realisation of the project; and whether an institution is restricted to EU Member States. Other indications suggesting that a project supplements or is otherwise closely tied with the European Union are if its purpose is inherently intertwined with a policy area for which competence has been conferred upon the European Union; and if the parties involved opted to coordinate the project on the basis of international law precisely because previous initiatives to create a legal framework set out directly in EU law failed to secure the necessary majorities (cf. BVerfGE 131, 152 <199 f.>; 153, 74 <146 f. para. 125> – Unified Patent Court ).

bb) The review of an act of approval to an international treaty on the basis of Art. 23(1) second and third sentence of the Basic Law in conjunction with Art. 79(2) and (3) of the Basic Law is warranted only when a transfer of sovereign powers to the European Union or to an intergovernmental institution within the meaning of Art. 23(1) of the Basic Law is at stake (see (1) below). Art. 23(1) second sentence of the Basic Law only authorises the transfer of individual sovereign powers that are sufficiently defined in the treaty (see (2) below). A “transfer of sovereign powers” within the meaning of Art. 23(1) second sentence of the Basic Law occurs when the European Union or an intergovernmental institution is authorised to implement measures with direct consequences for those subject to the law in Germany. In the present proceedings, it is not necessary to decide whether provisions that simply relate to political or economic issues of significance also fall within this category (see (3) below).

(1) The element of a transfer of sovereign powers in Art. 23(1) second sentence of the Basic Law mirrors the older provision contained in Art. 24(1) of the Basic Law. The wording, system and history of these two provisions suggest that they can be interpreted along the same lines ([...]).

Prior to the inclusion of the current version of Art. 23 in the Basic Law in 1992, the transfer of sovereign powers in the European context took effect on the basis of Art. 24(1) of the Basic Law. With the founding of the European Union upon the entry into force of the Maastricht Treaty on 1 November 1993 (BGBl II 1992 p. 1253 ff.; BGBl II 1993 p. 1947), Art. 24(1) of the Basic Law was found to be an insufficient basis for Germany’s participation in the European Union, such that going forward, it was decided that a specialised and more specific constitutional basis for Germany’s membership in the European Union should be developed (cf. BTDrucks 12/6000, p. 20). Thus, in matters of European integration, Art. 23(1) second sentence of the Basic Law sets out a qualified requirement of a statutory provision (BVerfGE 123, 267 <355>) and supersedes Art. 24(1) of the Basic Law (cf. BVerfGE 153, 74 <143 para. 119> – Unified Patent Court ) and Art. 59(2) first sentence of the Basic Law (cf. BVerfGE 89, 155 <199>; 123, 267 <387>) as lex specialis . In terms of regulatory technique, it retains the mechanism of a “transfer of sovereign powers”, which is to be understood in the same manner as under Art. 24(1) of the Basic Law, and it subjects such a transfer to stricter procedural requirements – particularly in conjunction with its third sentence – with a view toward the further development of the European Union (cf. BVerfGE 153, 74 <144 f. para. 120 ff.> – Unified Patent Court ).

(2) Art. 23(1) second sentence of the Basic Law – like Art. 24(1) – only authorises the “transfer” of individual sovereign powers, whereby the powers must be sufficiently specified as to their content and scope ([...]). A transfer of “sovereign authority” as such ([...]) is impermissible. Whether the sovereign powers in question at the domestic level belong to legislative, executive or judicial organs, or to the Federation or a Land , is irrelevant ([...]).

(3) When the European Union or an intergovernmental institution is authorised to implement measures with direct consequences for those subject to the law in Germany, a “transfer of sovereign powers” within the meaning of Art. 23(1) second sentence of the Basic Law has undoubtedly occurred. Whether provisions that simply relate to political or economic issues of significance also fall into this category need not be decided in the present proceedings.

(a) Ordinarily, a transfer of sovereign powers only occurs if the European Union or an intergovernmental institution has been authorised to establish rights and obligations for residents of Germany without the intervention of the German legislator or other German authorities, i.e. powers that have direct legal consequences ([…]). This is the case when the European Union or the intergovernmental organisation can issue legally binding orders with direct effect on individuals or German organisations, without a domestic act of implementation from the German legislator, authorities or courts ([...]).

This corresponds to the case-law of the Federal Constitutional Court’s Second Senate going back to the decision in Solange I , according to which Art. 24(1) and Art. 23(1) second sentence of the Basic Law make possible an opening in the domestic legal order that allows European law to become directly effective and applicable, curtailing the exclusive sovereign authority of the Federal Republic of the Germany within the Basic Law’s scope of application (cf. BVerfGE 37, 271 <280>; 58, 1 <28>; 73, 339 <374>; 149, 346 <361 para. 29>; 153, 74 <155 para. 143> – Unified Patent Court ). In the case of Eurocontrol , for example, the Senate found that a transfer of sovereign powers within the meaning of Art. 24(1) of the Basic Law had occurred with regard to, among other things, the air traffic control services that Eurocontrol performs and its ability to impose fees on the businesses that use its air traffic control services and facilities (cf. BVerfGE 58, 1 <31 ff.>; 59, 63 <86 f.>). The Senate also found that a transfer of sovereign powers within the meaning of Art. 23(1) of the Basic Law had occurred in connection with the Unified Patent Court due to the conferral of judicial competences upon a supranational court and the conferral of law-making competences upon that court’s administrative bodies (cf. BVerfGE 153, 74 <154 f. para. 143> – Unified Patent Court ). Finally, the Senate has not ruled out the possibility that CETA could transfer (or further transfer) sovereign powers to the newly established system of tribunals and committees (cf. BVerfGE 143, 65 <95 para. 58>; Federal Constitutional Court, Order of the Second Senate of 9 February 2022 - 2 BvR 1368/16 -, para. 185 – CETA ).

(b) The question of whether a transfer of sovereign powers also occurs in a case when the European Union or the intergovernmental institution is not conferred with powers with direct legal consequences, but is nevertheless authorised to act in a sovereign manner which has de facto effect ([…]) or which carries a foreseeable risk of de facto interferences with fundamental rights ([…]) need not be decided in these proceedings. However, in its NATO Double-Track Decision , the Senate has asserted that Art. 24(1) of the Basic Law could not be read as meaning that a transfer of sovereign powers can only ever occur when an intergovernmental institution is assigned powers with direct legal consequences for individuals (cf. BVerfGE 68, 1 <94>).

The legislative history of Art. 23(1) second sentence of the Basic Law (cf. para. 89 above) and the fact that the limitation clause contained therein applies to all expansions of the integration agenda and to any textual changes in primary law (cf. BVerfGE 123, 267 <355 f.>) also argue in favour of finding that a “transfer of sovereign powers” has occurred if there are de facto consequences, as does the modern understanding of state or sovereign action from a democratic and fundamental rights perspective. According to this understanding, non-imperative impairments of interests protected by fundamental rights – such as those resulting from the informational activities of the public sector (cf. BVerfGE 105, 252 <273>; 105, 279 <299 ff.>), identification in the annual reports on the protection of the Constitution (cf. BVerfGE 113, 63 <76 ff.>), state action under private commercial law (cf. BVerfGE 128, 226 <244 f.>), or statements of members of the Federal Government in regard to the equal opportunities of political parties under Art. 21(1) of the Basic Law (cf. BVerfGE 138, 102 <113 ff. para. 38 ff.>; 148, 11 <25 ff. para. 44 ff.>; 154, 320 <335 ff. para. 47 ff.> – Seehofer Interview on the Homepage of the Federal Ministry of the Interior; Judgment of the Second Senate of 15 June 2022 - 2 BvE 4/20 -, para. 73 ff. – Statement of Federal Chancellor Merkel in South Africa) – are deemed equivalent to conventional imperative interferences if the immediacy, finality and severity of the resulting impairment are shown, in an overall assessment, to be the same as with traditional interferences by a public authority ([…]).

Also arguing in favour of such an interpretation is the fact that the requirements of democratic legitimation under Art. 20(1) and (2) of the Basic Law not only relate to so-called acts of a decisional character (Handeln mit Entscheidungscharakter ), but also to administrative acts of state under private law (cf. BVerfGE 147, 50 <134 f. para. 218 f.>). It follows that all measures of entities exercising public authority require democratic legitimation and must be attributable to the people’s will and be justified before it (cf. BVerfGE 77, 1 <40>; 83, 60 <72>; 93, 37 <66>; 107, 59 <87>; 130, 76 <123>; 147, 50 <134 para. 218>). This also applies when the state, in performance of its duties, makes use of a company that is incorporated under private law, but is in whole or in part state-owned (cf. BVerfGE 147, 50 <134 f. para. 219>).

(c) Whether and under what circumstances a transfer of sovereign powers within the meaning of Art. 23(1) second sentence of the Basic Law could occur through a provision of an act of approval that merely relates to political or economic issues of significance need not be decided in these proceedings.

However, a transfer of sovereign powers to the European Union or an intergovernmental institution that supplements or is otherwise closely tied to the European Union generally can be ruled out if they are merely authorised to take measures that have no direct consequences to the legal sphere of citizens. This applies to, for example, the specific structure of institutions, bodies, offices and agencies of the European Union, their organisation and procedural rules, their conduct towards third parties, or to the mere authorisation of financing activities.

This does not conflict with the Senate’s discussion in its judgment on the EFSF and European financial assistance for Greece, in which it concluded that an authorisation to assume a guarantee or the creation of a temporary international mechanism to maintain the liquidity of countries in the monetary union could – in view of the German Bundestag ’s right to determine the budget and its overall budgetary responsibility – give rise to obligations for the Federal Republic of Germany which, in their effects, amounted to a transfer of sovereign powers (cf. BVerfGE 129, 124 <171 f.>). This discussion only served to explain how citizens were individually, presently and directly affected in their right to democratic self-determination under Art. 38(1) first sentence of the Basic Law in light of the contractual assumption of guarantee and payment obligations at the expense of the federal budget; by contrast, the question of whether there was a transfer of sovereign powers to the EFSF or Greece was not an issue. Similarly, in its decision to deny a request for preliminary injunction against the ratification of the Act approving the 2020 Own Funds Resolution of 15 April 2021, the Senate assumed that neither the 2020 Own Funds Resolution nor the temporary recovery instrument “Next Generation EU (NGEU)” provided for in Regulation (EU) 2020/2094 constituted a transfer of sovereign powers, since these did not alter the integration agenda or the powers conferred upon the European Union within the meaning of Art. 5(1) first sentence and (2) of the Treaty on European Union (TEU) (cf. BVerfGE 157, 332 <378 f. para. 79 f.> – ERatG – preliminary injunction ), but instead, “merely” relate to financial transfers between the European Union and the Member States.

In regard to the ESM, the Senate has already stated that the inclusion of Art. 136(3) in the Treaty on the Functioning of the European Union (TFEU) does not transfer any sovereign powers (cf. BVerfGE 132, 195 <250 para. 134>; 135, 317 <408 para. 182>). An increase of the capital stock of the ESM would neither be an amendment of the Basic Law (cf. Art. 79(1) and (2) GG) nor a transfer of sovereign powers to the European Union that would amend the content of the Basic Law (cf. Art. 23(1) second and third sentence in conjunction with Art. 79(2) GG) (cf. BVerfGE 135, 317 <388 para. 129>). The ESM merely provides financial assistance to the contracting states and does not take any measures that would have, in any manner, an effect on individual persons subject to the law. This is also the case when the ESM and a contracting state enter into a Memorandum of Understanding with conditions that obligate the contracting state to undertake reforms, the implementation of which may (later) lead to interferences with fundamental rights or other measures requiring democratic legitimation. In this case, the Memorandum of Understanding must be transposed into national law and must invoke the exercise of national sovereign powers to the extent required ([...]). In its decision on the Unified Patent Court of 13 February 2020, the Senate once again confirmed this assessment (cf. BVerfGE 153, 74 <145 para. 123> – Unified Patent Court ).

cc) De facto changes of the integration agenda of the EU or its legal framework brought about by the conclusion of international treaties that do not involve changes of primary law – independent of the question of whether such a change outside of Art. 48 TEU is permissible under EU law or constitutional law (cf. BVerfGE 129, 124 <172>) – generally do not amount to a transfer of sovereign powers. This finds support not only in the wording of Art. 23(1) second sentence of the Basic Law and its connection to the right to democratic self-determination derived from Art. 38(1) first sentence in conjunction with Art. 20(1) and (2) and Art. 79(3) of the Basic Law, but also in the methodological principle of interpreting the Constitution in a manner that gives it the greatest efficacy (cf. BVerfGE 6, 55 <72>; 32, 54 <71>; 39, 1 <38>; 43, 154 <167>; 51, 97 <110>; 103, 142 <153>; 155, 310 <344 para. 76> – Municipal Education Package ) and avoids a “blurring” of the required constituent elements of Art. 23(1), Art. 24(1) and Art. 59(2) of the Basic Law. Therefore, instances in which international treaties provide for institutions, bodies, offices and agencies of the European Union to carry out functions as “commissioned administrative agents” on behalf of an intergovernmental institution or international organisation (Organleihe ) do not fall under Art. 23(1) second sentence of the Basic Law. Even when such a conferral of functions takes place outside of the procedure actually intended for it in Art. 48(1) TEU (cf. BVerfGE 131, 152 <217>), its arrangement under an international treaty is only to be assessed against Art. 23(1) second and third sentence of the Basic Law if sovereign powers are transferred in order to carry out such functions.

It makes no difference that the Senate, in its judgment on the Lisbon Treaty, extended the scope of Art. 23(1) second sentence of the Basic Law beyond the establishment of new powers with direct legal consequences for individuals in Germany, broadening it to include all expansions of the European integration agenda and any textual changes in primary law (cf. BVerfGE 123, 267 <355 f.>; […]), such that even for simplified revision procedures within the meaning of Art. 48(6) and (7) TEU and even for the use of evolutionary or flexibility clauses, the legislative organs of the Federation bear a responsibility with regard to European integration, which is comparable to the ratification procedure, and a legal protection that corresponds to the situation of ratification is ensured (cf. BVerfGE 123, 267 <355 f.>). The purpose of this passage was not to relativise the constituent element of a “transfer of sovereign powers”, but instead to substantiate in those proceedings that any change in the European integration agenda requires a legislative authorisation from the German Bundestag in order to “respect the responsibility for integration and to protect the constitutional structure” (BVerfGE 123, 267 <355>), and to make clear that any such acts taken without a legislative foundation lack democratic legitimation (cf. BVerfGE 142, 123 <189 para. 123>; 151, 202 <285 para. 115> – European Banking Union ; 154, 17 <85 para. 99> – PSPP asset purchase programme of the ECB ), with the consequence that constitutional legal protection, most notably in the form of ultra vires review, can be invoked.

2. In light of the foregoing, the complainants have failed to sufficiently demonstrate and substantiate a violation of Art. 38(1) first sentence of the Basic Law. They have not demonstrated that the Agreement Amending the ESM Treaty might lead to a transfer of sovereign powers to the ESM or to the EU, or that a (de facto) change in the framework of the EU integration agenda that might violate their rights under Art. 38(1) first sentence of the Basic Law is at issue (see a) below). The same applies to the Agreement Amending the Intergovernmental Agreement (see b) below).

a) The complainants have failed to substantiate that the Agreement Amending the ESM Treaty leads to a transfer of sovereign powers to the ESM. They did not address the express findings of the Federal Constitutional Court, according to which the ESM Treaty does not lead to a transfer of sovereign powers (cf. BVerfGE 153, 74 <145 para. 123> – Unified Patent Court ) (see aa) below). They have also failed to demonstrate that a de facto change in the framework of the EU integration agenda might violate their rights under Art. 38(1) first sentence of the Basic Law (see bb) below).

aa) With regard to the Agreement Amending the ESM Treaty, the complainants have failed to substantiate any transfer of sovereign powers to the ESM or the European Union, whether through the revision of the emergency voting procedure (see (1) below), through other provisions (2) below), or through the increased use of the European Commission and European Central Bank as commissioned administrative agents for tasks of the ESM (see (3) below).

(1) With regard to the revision of the emergency voting procedure applicable to the backstop (Art. 18a(6) of the Agreement Amending the ESM Treaty), the complainants merely assert that the design of this procedure shifts political ownership of the activation of the backstop to the European Commission and the European Central Bank. In their reasoning, they cite views represented in the literature on the definition of a transfer of sovereign powers, as well as the case-law of the Federal Constitutional Court. However, they do not explain how Art. 18a(6) of the Agreement Amending the ESM Treaty – by extending the existing emergency voting procedure in Art. 4(4) of the ESM Treaty to the new backstop instrument – opens the domestic legal order in a way that allows European law to become directly effective and applicable, curtailing the exclusive sovereign authority of the Federal Republic of Germany within the Basic Law’s scope of application (cf. BVerfGE 37, 271 <280>; 58, 1 <28>; 73, 339 <374>; 153, 74 <155 para. 143> – Unified Patent Court ) or that the legal sphere of individuals is affected.

In any case, the decision-making process of the ESM’s bodies regarding the granting of financial assistance does not, as such, constitute an exercise of sovereign powers. It only concerns payment transactions between the ESM, the Single Resolution Board and individual members of the ESM. Such transactions do not directly affect the legal sphere of citizens – even when the citizens act for legal persons that hold fundamental rights within the meaning of Art. 19(3) of the Basic Law – and do not require democratic legitimation from the point of view of Art. 20(1) and (2) of the Basic Law. With its power to decide on the provision of financial assistance to the contracting states of the ESM and to the Single Resolution Board as a European Union agency (cf. Art. 42(1) second sentence of the SRM Regulation) and the duties associated therewith, such as the monitoring of debt obligations, the ESM does not assume any sovereign powers relating to the legal sphere of natural or legal persons under private law. If the integration agenda of the ESM itself does not give rise to any authority to exercise sovereign powers, a mere procedural regulation such as Art. 18a(6) of the Agreement Amending the ESM Treaty does not constitute an authorisation to exercise sovereign powers.

(2) With respect to other provisions of the Agreement Amending the ESM Treaty – in particular concerning the establishment of a backstop facility for the Single Resolution Fund under Art. 18a of the Agreement Amending the ESM Treaty – the complainants have also failed to demonstrate that such provisions transfer sovereign powers to the ESM.

(a) First, the ESM may de lege lata provide assistance to contracting parties if they can no longer meet their obligation to grant credit lines to the Single Resolution Board in order to ensure that it has sufficient financing (cf. ESM, 2016 Annual Report, p. 73; […]).

(b) Second, the new provisions remove a power of the ESM to directly re-capitalise banks that was introduced in the meantime.

Art. 15 of the ESM Treaty permits the indirect re-capitalisation of banks and, on the basis of Art. 19 of the ESM Treaty, direct recapitalisation of banks is possible. This instrument, with which the ESM can directly provide re-capitalisation to financial institutions (cf. Art. 2(2) of the Guideline on Financial Assistance for the Direct Recapitalisation of Institutions), without burdening the national budgets of the contracting states ([...]), could constitute an exercise of sovereign powers within the meaning of Art. 23(1) second sentence of the Basic Law, as it directly affects the legal sphere of legal persons with regard to private law and therefore requires democratic legitimation under Art. 20(1) and (2) of the Basic Law. In accordance with Art. 12 of the ESM Treaty, financial assistance is provided subject to strict conditionality of an institution-specific, sector-specific, or economic nature, which is set out in an agreement with the financial institution to be assisted as well as the contracting state that has made the application (cf. BTDrucks 18/2580, p. 12). Even if it is sometimes argued that, notwithstanding the direct provision of financial assistance to the financial institutions, it is the respective contracting state that should be regarded as the recipient or beneficiary of the bank re-capitalisation ([...]), the authority to issue funds directly to a credit institution and to agree on the corresponding conditions could be viewed as an exercise of sovereign powers, which the ESM Treaty does not actually allow.

The instrument was transferred to the ESM by decision of the Board of Governors of 8 December 2014 (cf. BGBl II pp. 1016 f., 1356) on the basis of Art. 19 of the ESM Treaty, after the German representative was authorised to give consent by Art. 1 of the Act Amending the Financial Assistance Instruments Pursuant to Article 19 of the Treaty of 2 February 2012 Establishing the European Stability Mechanism of 29 November 2014 (cf. BGBl II p. 1015). Whether the Act of 29 November 2014 constitutes – against this background – an impermissible approval of an ultra vires act need not be decided, because it is not the subject of the Agreement Amending the ESM Treaty and, in fact, the direct re-capitalisation of banks is to be abolished in parallel with the introduction of the backstop for the Single Resolution Board (cf. BTDrucks 19/29645, p. 12, 33). Thus, the tasks of the ESM will (once again) be limited exclusively to the regulation of financial transfers between the ESM and its members as well as the ESM and the Single Resolution Board, which have no direct impact on the legal sphere of citizens in Germany and therefore do not require democratic legitimation within the meaning of Art. 20(1) and (2) of the Basic Law. In any case, the ESM will (once again) merely be “an international financial institution based on international law” ([…]).

(3) Insofar as the complainants contend that the Agreement Amending the ESM Treaty increases the scope of functions to be carried out by the European Commission and the European Central Bank as commissioned administrative agents on behalf of the ESM, the complainants have failed to substantiate that sovereign powers are transferred to the ESM or to the EU.

The current version of the ESM Treaty already provides for the European Commission and European Central Bank to take action on behalf of the ESM. On 20 June 2011, the governments of the Member States of the European Union expressly authorised the contracting parties of the ESM Treaty to request the European Commission and the European Central Bank to perform the relevant tasks (cf. Recital 10 of the ESM Treaty). The European Commission and the European Central Bank exercise the assessments to be conducted pursuant to Art. 4(4) subpara. 1 of the ESM Treaty. The European Commission, in liaison with the European Central Bank, exercises the assessments to be conducted pursuant to Art. 13(1) third sentence of the ESM Treaty, the assessments provided for in Art. 14(6) of the ESM Treaty, the negotiation of the “Memorandum of Understanding” with the relevant ESM member (cf. Art. 13(3) subpara. 1 of the ESM Treaty) and the monitoring of compliance with the conditionality attached to the financial assistance facility (cf. Art. 13(7) of the ESM Treaty). The European Commission also signs the Memorandum of Understanding on behalf of the ESM (cf. Art. 13(4) of the ESM Treaty) and carries out post-programme surveillance with the Council of the European Union within the framework of Arts. 121 and 136 TFEU (cf. Recital 17 of the ESM Treaty). Decisions on interventions on the secondary market to address contagion are to be taken on the basis of an analysis of the European Central Bank (cf. Art. 18(2) of the ESM Treaty).

Pursuant to the Agreement Amending the ESM Treaty, the European Commission shall ensure consistency with European Union law, in particular with the economic policy coordination framework (cf. Recital 5b of the Agreement Amending the ESM Treaty). In this regard, the Managing Director of the ESM shall collaborate with the European Commission and the European Central Bank to ensure full consistency within the framework for economic policy coordination provided for in the TFEU (cf. Art. 3(1) second and third sentence of the Agreement Amending the ESM Treaty). In the context of precautionary financial assistance, the European Commission is tasked with assessing whether the policy intentions included in the Letter of Intent are fully consistent with the measures of economic policy coordination provided for in the TFEU and, in particular, with any act of European Union law, including any opinion, warning, recommendation or decision addressed to the ESM Member concerned (cf. Art. 14(2) second sentence of the Agreement Amending the ESM Treaty). In the future, the European Commission shall carry out in liaison with the European Central Bank – and now also the Managing Director – the assessments to be conducted pursuant to Art. 13(1) third sentence of the ESM Treaty from 2012 and 2021, the negotiation of the “Memorandum of Understanding” with the relevant ESM member (cf. Art. 13(3) subpara. 1 of the Agreement Amending the ESM Treaty) and the monitoring of compliance with the conditionality attached to financial assistance facility (cf. Art. 13(7) of the Agreement Amending the ESM Treaty). Going forward, the “Memorandum of Understanding” will be signed not only by the European Commission, but also by the Managing Director (cf. Art. 13(4) of the Agreement Amending the ESM Treaty). The European Central Bank shall also participate in post-programme surveillance, as the European Commission exercises the surveillance in consultation with the European Central Bank and the Council of the European Union (Arts. 121 und 136 TFEU; Recital 18 of the Agreement Amending the ESM Treaty). The remaining tasks of the European Commission and the European Central Bank – with the exception of their participation in the emergency voting procedure pursuant to Art. 18(6) of the Agreement Amending the ESM Treaty – remain unchanged.

The new tasks performed by the European Commission serve to ensure that the measures taken by the ESM are in keeping with EU law, in particular, the framework for coordinating economic policy (cf. Recital 5b and Art. 3(1) third sentence of the Agreement Amending the ESM Treaty) and the measures for economic policy coordination (cf. Art. 12(4) and Art. 14(2) second sentence of the Agreement Amending the ESM Treaty). The existing framework (cf. Art. 13(3) subpara. 2 of the ESM Treaty) already required that the “Memorandum of Understanding” be negotiated by the European Commission in liaison with the European Central Bank (Art. 13(3) subpara. 1 of the ESM Treaty) and be fully consistent with the measures of economic policy coordination provided for in the TFEU, including any opinion, warning, recommendation or decision addressed to the ESM Member concerned. As a result of the Agreement Amending the ESM Treaty, this task will extend beyond the “Memorandum of Understanding” to all of the tasks conferred upon the European Commission as well as the already-existing financial assistance instruments under the ESM Treaty (cf. Art. 12(4) of the Agreement Amending the ESM Treaty). This is congruent with the functions conferred on the European Commission by EU law (cf. Art. 121(2)-(5), Art. 126(2) ff. TFEU). The complainants have failed to demonstrate that this amounts to a transfer of sovereign powers.

Even with the EU institutions performing a broader scope of tasks as commissioned administrative agents, no decision-making powers are transferred to the European Commission (in regard to the already-applicable ESM Treaty CJEU cf. Judgment of 27 November 2012, Pringle , C-370/12, EU:C:2012:756, para. 161; GCEU, Order of 16 October 2014, Mallis and Malli / European Commission and ECB , T-327/13, EU:T:2014:909, para. 48; […]). This is reaffirmed in Recital 10 of the Agreement Amending the ESM Treaty, whereby the duties conferred by the Treaty on the European Commission and the European Central Bank do not entail any powers to make decisions of their own and that the tasks executed by those two institutions on the basis of the Treaty solely commit the ESM. The use of the European Commission as a commissioned administrative agent, like the use of the European Central Bank, continues to be limited to preparatory and supporting activities that neither affect the scope of protection of fundamental rights nor require democratic legitimation from the point of view of Art. 20(2) first sentence of the Basic Law.

While the Senate has acknowledged, in a judgment on the Federal Government’s information obligations vis-à-vis the Bundestag pursuant to Art. 23(2) second sentence of the Basic Law, that every allocation of duties and powers to the European Union and/or its bodies is therefore substantively a transfer of sovereign powers, which is even the case if the bodies are called on to carry out a duty and are granted powers “only” as commissioned administrative agents (cf. BVerfGE 131, 152 <218>), this does not change the fact that sovereign powers within the meaning of Article 23(1) second sentence of the Basic Law must be involved. This aspect is missing with respect to the tasks conferred on the European Commission and the European Central Bank under the Agreement Amending the ESM Treaty. Since the ESM is not authorised to exercise sovereign powers, the question of whether it performs its functions through its own institutions or through the institutions of other intergovernmental or international organisations as agents is, in principle, irrelevant from the point of view of Art. 23(1) second sentence of the Basic Law. The only decisive aspect in this respect is the overall agenda of the Treaty, not its organisational or procedural implementation.

bb) The complainants have also failed to demonstrate that the Agreement Amending the ESM Treaty creates de facto changes to the EU integration agenda. As such, the question of whether de facto changes to the integration agenda (cf. para. 101 f. above) might result in sovereign powers being transferred to institutions, bodies, offices and agencies of the European Union does not arise in the first place.

(1) The complainants do not assert that sovereign powers have been directly transferred to the European Union within the meaning of Art. 23(1) second sentence of the Basic Law through a change in primary law under the procedure provided for in Art. 48 TEU or through the exercise of evolutionary clauses and of bridging or “passerelle ” clauses contained in the treaty foundations.

(2) They have also failed to substantiate that the Agreement Amending the ESM Treaty is de facto functionally equivalent to primary EU law. No such equivalence is apparent in the Agreement, which merely contains minor modifications of the existing integration agenda of the ESM. This applies both to the use of the European Commission and European Central Bank as commissioned administrative agents (see (a) below) as well as in regard to Art. 136(3) TFEU (see (b) below), Art. 125 TFEU (see (c) below), Art. 126 TFEU (see (d) below) and Art. 114 TFEU (see (e) below), the participation of third-party states (see (f) below) and in regard to Art. 123 TFEU (see (g) below).

(a) Using the European Commission and the European Central Banks as agents to carry out functions of the ESM is not new, but an existing part of the EU integration agenda, as confirmed by the European Court of Justice in the Pringle case. With its involvement in the ESM, the European Commission promotes the general interests of the European Union within the meaning of Art. 17(1) TEU; the tasks conferred on the European Central Bank are also compatible with the EU Treaty and the Statute of the European System of Central Banks (cf. CJEU, Judgment of 27 November 2012, Pringle , C-370/12, EU:C:2012:756, para. 164 f.). Furthermore, the tasks conferred on these two bodies, which do not involve any decision-making powers, do not distort the powers conferred on them under primary law (cf. CJEU, Judgment of 27 November 2012, Pringle , C-370/12, EU:C:2012:756, para. 162; Judgment of 20 September 2016, Ledra Advertising / Commission and ECB , C-8/15 P, EU:C:2016:701, para. 56; […]).

The task of ensuring compliance with EU law (cf. Art. 12(4) of the Agreement Amending the ESM Treaty) corresponds with the European Commission’s obligation under primary law to promote the general interests of the European Union as well as its function as the guardian of the Treaties within the meaning of Art. 17(1) TEU (cf. CJEU, Judgment of 20 September 2016, Ledra Advertising / Commission and ECB , C-8/15 P, EU:C:2016:701, para. 59). If anything, the Agreement Amending the ESM Treaty actually limits the tasks performed by the European Commission, in that the tasks in some cases may only be carried out by the Commission in liaison with the European Central Bank, and in other cases only together with the Managing Director of the ESM.

(b) The complainants have failed to demonstrate that the reorganisation of the precautionary conditioned credit line (PCCL) in the context of the Agreement Amending the ESM Treaty replaces or changes Art. 136(3) TEU, the primary law basis of the ESM. In its judgment on the ESM, the Senate acknowledged that the ESM Treaty set in motion a fundamental redesign of the Economic and Monetary Union, as this departed – albeit only to a limited extent – from the principle of independence of national budgets that had hitherto characterised the union (cf. BVerfGE 132, 195 <247 f. para. 128>; 135, 317 <407 para. 180>; 153, 74 <145 f. para. 123> – Unified Patent Court ). However, the Agreement Amending the ESM Treaty does not alter the format of the Economic and Monetary Union.

(aa) It is not ascertainable that the design of the conditionality of the PCCL in the Agreement Amending the ESM Treaty is no longer in keeping with Art. 136(3) TFEU, according to which the granting of financial assistance under the ESM will be made subject to strict conditionality, inter alia, to ensure that the Member States pursue a sound budgetary policy (cf. CJEU, Judgment of 27 November 2012, Pringle , C-370/12, EU:C:2012:756, para. 143). Even the existing law does not provide for any (pure) conditionality, as access to a PCCL is dependent upon the fulfilment of pre-established criteria based on those listed in Art. 2(2) second sentence of the Guideline on Precautionary Financial Assistance and also requires that the economic and financial situation of the contracting state be generally sound (Art. 2(2) first sentence of the Guideline on Precautionary Financial Assistance). As the content of the “Memorandum of Understanding” must reflect the severity of the weaknesses to be addressed and the financial assistance instrument chosen (cf. Art. 13(3) subpara. 1 second sentence ESM Treaty), it may be sufficient, in the case of a PCCL, to make access contingent on the continuous fulfilment of previously defined eligibility requirements – such as the criteria set out in Art. 2(2) second sentence of the Guideline on Precautionary Financial Assistance (cf. also Art. 12(1) of the ESM Treaty; […]).

(bb) Pursuant to the Agreement Amending the ESM Treaty, the conditionality attached to a PCCL consists of continuous respect of the eligibility criteria provided for in Annex III as to which the ESM Member concerned is committed through a “Letter of Intent” – and no longer through a “Memorandum of Understanding” (cf. Art. 14(2) first sentence of the Agreement Amending the ESM Treaty). This does not entail a change in conditionality in the PCCL, nor does it entail a de facto change in Art. 136(3) TFEU.

(cc) A de facto change or addition to Art. 136(3) TFEU also does not result from the fact that the PCCL in the version of the Agreement Amending the ESM Treaty loses its character as a measure of last resort within the meaning of Art. 136(3) TFEU and Art. 12(1) of the ESM Treaty. Even under the new provisions in Art. 14(1) first sentence of the Agreement Amending the ESM Treaty, a PCCL is only to be granted when a member state could be affected by an adverse shock beyond their control.

(dd) The same applies to the complainants’ concern that the eligibility criteria in Annex III no. 2 of the Agreement Amending the ESM Treaty might not be applied in periods when the deficit-limiting provisions of the Stability and Growth Pact are suspended (such as during the COVID-19 pandemic). It is true that compliance with obligations under the Stability and Growth Pact pursuant to Art. 2(2)(a) of the Guideline on Precautionary Financial Assistance, which was previously one of the criteria for access to a PCCL, no longer applies. Annex III of the Agreement Amending the ESM Treaty as well as Art. 2(2) of the draft Guideline on Precautionary Assistance (December 2019) no longer make reference to this pact and instead set out quantitative benchmarks as one of the eligibility criteria. [...]

(ee) However, it is not clear that the already existing considerable economic discretion enjoyed by the bodies of the ESM, the European Commission and the European Central Bank would be significantly expanded or that Art. 136(3) TFEU would in fact be changed or supplemented. The new provision in Art. 14(1) second sentence of the Agreement Amending the ESM Treaty is clearer than before in specifying that access to a PCCL may only be granted subject to the fulfilment of eligibility criteria to be applied for each type of such assistance as provided for in Annex III. Individual eligibility criteria in Annex III no. 2 third sentence of the Agreement Amending the ESM Treaty are also stricter in certain respects. […]

(ff) In the case of a PCCL, where the commitments under the “Letter of Intent” are referred to as “eligibility criteria” (cf. Art. 14(2) first sentence, (6) second sentence, (7) first sentence of the Agreement Amending the ESM Treaty), the contracting state continues to be subject to ongoing monitoring by the Managing Director of the ESM and the European Commission, who are entrusted with monitoring compliance with the “conditionality” attached to the financial assistance facility pursuant to Art. 13(7) of the Agreement Amending the ESM Treaty. Art. 14(2) first sentence of the Agreement Amending the ESM Treaty, which relates to the PCCL, also addresses the “conditionality” attached to the PCCL and Art. 5(1) of the draft Guideline on Precautionary Financial Assistance (December 2019), which regulates monitoring in the context of precautionary financial assistance as a whole, does not differentiate between the PCCL and the Enhanced Conditions Credit Line (ECCL) as a second variant of precautionary financial assistance instruments of the ESM that is linked to “conditionality”.

(c) Nor do the revisions to the PCCL and the introduction of a backstop facility through the Agreement Amending the ESM Treaty lead to de facto changes of Art. 125 TFEU.

Pursuant to Art. 14(2) first sentence of the Agreement Amending the ESM Treaty, the conditionality associated with a PCCL requires continuous respect of the eligibility criteria provided for in Annex III, to which the ESM Member concerned shall commit itself in its request highlighting its main policy intentions under Art. 13(1) of the Agreement Amending the ESM Treaty. How this could be less mandatory than the conclusion of a “Memorandum of Understanding” provided for de lege lata or how the member state concerned would be less likely to adhere to sound budgetary policies under the new provision has not been made clear.

Nor does it constitute a weakening, addition or replacement of Art. 125(1) TFEU when the ESM provides financial assistance to an agency of the European Union by granting the backstop to the Single Resolution Board. Rather, Art. 136(3) TFEU is an exception to the so-called no-bailout clause, in that it permits voluntary financial assistance to other Member States. Such assistance, however, is not unrestricted and may only be granted in accordance with the provisions of Art. 136(3) TFEU (cf. BVerfGE 132, 195 <248 f. para. 129>). Furthermore, rather than constituting financial assistance to a contracting party, making the backstop facility available amounts to financial assistance to an agency of the European Union in order to bolster the resolution mechanisms and powers of the Single Resolution Board. This eases pressure on national public budgets in an indirect manner. The principle of national budget autonomy is not affected.

(d) The complainants likewise did not demonstrate a de facto change in Art. 126 TFEU. Art. 14(2) second sentence of the Agreement Amending the ESM Treaty requires – like Art. 13(3) subpara. 2 of the ESM Treaty does with respect to the “Memorandum[s] of Understanding” – that the policy intentions included in the Letter of Intent be fully consistent with the measures of economic policy coordination provided for in the TFEU, and in particular with any act of European Union law, including any opinion, warning, recommendation or decision addressed to the ESM Member concerned. Given that the excessive deficit procedure under Art. 126 TFEU also forms part of the coordination of economic policy ([...]), the economic policy conditions under the ESM or the obligation to comply with the pre-established criteria for the PCCL may not contradict the requirements arising from the excessive deficit procedure. In any case, according to Recital 5b and Art. 12(4) of the Agreement Amending the ESM Treaty, the financial assistance measures of the ESM must not be contrary to EU law as a whole, including Art. 126 TFEU (CJEU, Judgment of 20 September 2016, Ledra Advertising / Commission and ECB , C-8/15 P, EU:C:2016:701, para. 67; Judgment of 27 November 2012, Pringle , C-370/12, EU:C:2012:756, para. 163 f.).

(e) The complainants also did not demonstrate that the Agreement Amending the ESM Treaty leads to de facto changes in Art. 114 TFEU. By granting the backstop facility, the ESM provides support to the Single Resolution Board, which was established within the framework of the Single Resolution Mechanism on the basis of Art. 114 TFEU (cf. BVerfGE 151, 202 <346 ff. para. 247 ff.> – European Banking Union ). This does not result in a change in the structure or purpose of the Single Resolution Mechanism, and certainly does not result in any change in the concept of the internal market. The purpose of the Single Resolution Mechanism remains, as it was before, to avoid adverse effects on financial stability, in particular by preventing contagion and maintaining market discipline (Art. 14(2)b of the SRM Regulation).

(f) The fact that the Single Resolution Mechanism also involves the participation of states that are not part of the euro area does not change anything in this regard. While the European Union is based on international treaties that apply in principle to all Member States, there are nevertheless many areas of asymmetrical integration that are expressly recognised under primary law. These include the currency union, for which the treaties distinguish between provisions specific to Member States whose currency is the euro (Art. 136 ff. TFEU) and transitional provisions for the remaining Member States (Art. 139 ff. TFEU); the Schengen Borders Code (cf. Regulation (EU) No. 2016/399 of the European Parliament and the Council of 9 March 2016 on a Union Code on the rules governing the movement of persons across borders, OJ EU No. L 77 of 23 March 2016, p. 1 ff.; […]); or, generally, the concept of enhanced cooperation applied in a number of policy areas (Art. 20 TEU in conjunction with Art. 326 ff. TFEU; […]). For example, it was agreed to set up the Unified Patent Court without Spain (and, initially, Italy) and the “patent package” was adopted by way of enhanced cooperation (cf. Regulation (EU) No. 1257/2012 of the European Parliament and Council of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection, OJ EU No. L 361 of 31 December 2012, p. 1 ff., OJ EU No. L 307 of 28 October 2014, p. 83; Regulation (EU) No. 1260/2012 of the Council of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection with regard to the applicable translation arrangements, OJ EU No. L 361 of 31 December 2012, p. 89 ff.). The European Union is also characterised by the participation of third countries in parts of its integration agenda. The Schengen Borders Code, for example, extends to Iceland, Lichtenstein, Norway and Switzerland. The European Economic Area, in which members participate in the single market, and Switzerland’s inclusion therein through the so-called Bilateral Agreements I and II ([...]) can also be mentioned here.

It is therefore not ascertainable how or why the participation of states that are not members of the euro area, and therefore also not members of the ESM, would lead to de facto changes in Art. 114 TFEU.

(g) The backstop facility also does not affect the prohibition of monetary financing of Member State budgets under Art. 123 TFEU. Following the adoption of the Agreement Amending the ESM Treaty, the ESM will still fall within the category of institutions set out in Art. 123(1) TFEU as to which lending by the European Central Bank is prohibited (cf. BVerfGE 132, 195 <267 para. 173>).

b) Finally, the complainants have failed to sufficiently demonstrate and substantiate that the Agreement Amending the Intergovernmental Agreement leads to a transfer of sovereign powers or that it could result in de facto changes to EU primary law.