Report from Germany: The Constitutional Court and the Berlin Decision

and Martin Wilke

The Constitutional Court

The Federal Constitutional Court (“FCC”) of the Federal Republic of Germany was created in 1951 and soon became a leading voice in a global judicial dialogue. The FCC decides only questions of constitutional law; that is, it does not function as a final instance and review court. Examples of questions the FCC adjudicates include: forfeiture of basic rights; review of election results; impeachment of the federal president; disputes between high state organs; federal-state conflicts; removal of judges; applicability of federal law and constitutional complaints and, in so far very rare cases, constitutionality of political parties.

Constitutional complaints constitute the bulk of the some 6000 files the Court deals with on annual basis. The two senates of the FCC, staffed by eight Judges each, are aided in their work by between 3 and 4 clerks per Judge, informally referred to as the “third senate.” The members of this ‘third senate’ are mostly judges from civil and administrative courts, or ministry staff seconded to the FCC for a two-year term. A smaller number of FCC clerks is recruited from among the post-doctoral researchers at German Law Schools. The FCC occasionally also accepts applications from articling students to clerk with a Judge on the Court during their elective stage of their two-year articling term.

Justices of the FCC are appointed for a single 12-year term, with an absolute age limit of 68 and a minimum age requirement of 40 years. Justices in office may not be members of the federal parliament, the state council, the federal government, or of any of the corresponding bodies of a state. Except for teaching at a law school, they are not allowed to exercise an additional occupation.

Half of the judges are elected by the federal parliament (Bundestag) and the other half by the state council (Bundesrat). The federal parliament elects an electoral committee, and the committee elects the judges with a majority of two thirds of the votes. The same majority is needed in the state council where judges are elected by all members of the council. As a consequence of this election system, the leading political parties have to reach a consensus over the candidates to be elected. There are no public hearings, and the outcome of an election is mostly a result of “package deals” and negotiations behind closed doors.

Consequently, each Justice has entered the court on a “party ticket.” However, this does not mean that the elected candidate is actually a party member, or even an affiliate of one of the major political parties. In fact, even if Justices were clearly sympathetic to one or the other political party before they were elected, many of them have turned out to be rather independent from party lines, and in some cases party politicians deeply regretted their choice afterwards.

The FCC has become a central player in German politics and democratic debate. Its carefully crafted and often very comprehensive judgments can be read as a constitutional history of post-War Germany. Accordingly, its judgments receive a lot of attention in the general German societal debate. At the same time, the FCC has become one of the world’s most highly reputed and listened-to voices in a border-crossing constitutional dialogue. Its decisions are available in English only selectively, but there has been an increasingly active and inspired coverage of its case-law for the English speaking world by legal scholars and various other institutional sources.

The Berlin Decision

On 19 October 2006, the FCC released a much-awaited judgment concerning supplementary grants, i.e. financial aid to the State of Berlin. Since the mid-1990’s, the State of Berlin had been going through a severe budget crisis. Although the German Grundgesetz (Basic Law – Loi Fondamentale) guarantees every state a certain part of the inland tax-revenue, the State of Berlin was not able to maintain a balanced budget. This was mainly due to the bad macroeconomic situation in Germany, brought about, as argued widely, by the economic burdens resulting from Reunification in 1990, and from concurrent events such as the bankruptcy of the Berlin Banking Corporation (Berliner Bankgesellschaft) and overall financial and political mismanagement.

On top of the regular funding the Grundgesetz provides all states with, the constitutional rules governing public finance state that a federal law may provide for grants to be made by the Federation to financially weak states from its own funds to assist them in meeting their general financial needs (supplementary grant) – Art.107 (2) 3 of the Grundgesetz. In 1999 the federal parliament passed a federal law that, among other things, contained supplementary grants to two states (Bremen and Saarland). The senate of Berlin held the opinion that Berlin ought to be regarded as a “financially weak” state, as required in Art.107 (2) 3 Grundgesetz, and should therefore also be provided with such grants respectively be included in the law.

The senate stated that its budgetary problems were comparable to those of Bremen and Saarland and consequently made use of its constitutional right, as it is declared in Art.93 (1) No.2 of the Grundgesetz, to bring about a decision of the FCC on this disagreement respecting the substantive compatibility of a federal law with the German Constitution. This procedure is called abstraktes Normenkontrollverfahren and it can only be initiated by the institutions mentioned in Art.93 Para.1 No.2 of the Grundgesetz. Its purpose is the abstract examination of the constitutional compatibility of a piece of legislation, which will be measured against the Grundgesetz.

In its judgment of 19 October 2006, the Federal Constitutional Court ruled that the State of Berlin does not have the right to claim supplementary grants as it does not suffer from a severe budget crisis. From the Court’s point of view, not every budget crisis can be considered so severe as to justify the granting of supplementary aid.

The court outlines the premises for a severe budget crisis as such: the budget of a state has to be regarded as critical in relative and absolute terms. First of all the budget has to be compared with that of the other states and secondly the budget has to be examined in relation to the tasks assigned to the state by the Grundgesetz. Only if the state has fully exploited its potentials, so that there is no other option than being provided with supplementary grants can the crisis be called severe. All in all, the crisis has to threaten the existence of the state itself. For this the burden of proof lies with the grant requesting state.

The Court held that this constricted point of view can be justified with the purpose of the constitutional rules governing public finance. The Grundgesetz wants supplementary grants to be the “ultima ratio.” It distributes the annual inland tax-revenue in four concerted steps. This procedure is called Finanzausgleich (which might be translated as revenue sharing or financial redistribution or, equalization). Art.106 of the Grundgesetz posits the vertical allocation of the tax-revenue between the Federation and the states. The thus established amount considered for the state-collective is then horizontally distributed among the states – Art.107 (1) of the Grundgesetz.

The third and most complex step contains the actual “equalization” among the states – Art.107 (2) 1 of the Grundgesetz. The purpose of the equalization-process is not financial parity, because it is understood— and accepted—that differences among the states remain. Its goal is only to correct the horizontal distribution and thereby to realize the notion of adequate solidarity among the states, which is an underlying concept of the Grundgesetz. The last step is to provide financially weak states with additional funds from the federal state. However, additional funds are not to continue or even substitute for the equalisation process. They are merely meant to complete it.

In their essence these rules aim at states that can fullfill their tasks independently and also self-reliantly. As this is their main purpose the Court considers supplementary grants to be out of place (or as an impurity within the constitutional rules governing public finance). It tries to resolve the conflict by only falling back on supplementary grants if all other means have already failed.

The main indicators for the evaluation of the budgets are the Kreditfinanzierungsquote (which is the ratio of the net borrowing of money to the income and spenditure of a budget), the Zins-Steuer-Quote (which is the part of the tax-revenue that is not available in the first place for financing the states task) and the Primärsaldenbetrachtung (which is the difference of one states most important expenditures to its revenues). In the case of the State of Berlin the indicators show a relatively consistent result. Only one indicator marks the budget of Berlin critical, so that the Court finally comes to the conclusion that Berlin is not suffering under a severe financial crisis.

But not only did the Court not recognize there to be a ‘severe’ budget crisis but it also noted that Berlin had failed to make sufficient efforts to cut its spendings in the past. The Court emphasized that Berlin’s budgetary problem did not result from the annual tax-revenue. The crisis resulted, instead, from its expenditures. It then pointed out several ways to cut down on the costs by comparing Berlin’s budget with that of another city-state, Hamburg. The Court’s conclusion on this is that Berlin has not proven the full exploitation of all its potentials and therefore Berlin is still able to master its financial problems on its own.

This view on Berlin might stand in considerable contrast with a whole host of views on this fascinating, magnetic city: Berlin.

[Sources:
– Nickel, Rainer. “The German Federal Constitutional Court: Present State, Future Challenges” in Andrew Le Sueur, ed. Building the UK’s New Supreme Court: National and Comparative Perspectives (New York: Oxford University Press, 2004), p.175.
– Rinken, Art. 93, in: Alternativkommentar zum Grundgesetz (Rudolf Wassermann, ed., 3rd ed., 2001) margin number 19
– BVerfG, 2 BvF 3/03 (19 October 2006)
– German Law Journal]