The COVID-19 pandemic, an unprecedented global health crisis, has left an indelible mark on nations and organizations worldwide. The European Union, renowned for its unique system of shared competences with its Member States, faced the formidable challenge of navigating the pandemic’s complexities. This transformative process extended far beyond the realm of healthcare, delving into the intricate world of EU law and governance. The article explores the EU’s legal and governance adaptations, including the inventive use of its existing legal framework and competences to address the crisis. It examines the roles of various mechanisms such as the European Central Bank’s Public Sector Purchase Programme, highlighting its impact on crisis management and the balance of powers between Member States and the EU. Through this lens, the article provides an in-depth analysis of the EU’s resilience and innovative responses during the pandemic.

“In the last six months, our health systems and workers have produced miracles. Every country has worked to do its best for its citizens. And Europe has done more together than ever before. When Member States closed borders, we created green lanes for goods. When more than 600.000 European citizens were stranded all over the world, the EU brought them home. When some countries introduced export bans for critical medical goods, we stopped that and ensured that critical medical supply could go where it was needed. We worked with European industry to increase the production of masks, gloves, tests and ventilators. Our Civil Protection Mechanism ensured that doctors from Romania could treat patients in Italy or that Latvia could send masks to its Baltic neighbours. And we achieved this without having full competences.”—said Ursula von der Leyen, the President of the European Commission. She eloquently captured this transformation in her landmark speech during the 2020 State of the Union address in the European Parliament. In her address, she acknowledged the EU’s inventive adaptation of its existing legal framework and competences to address the crisis.

While von der Leyen’s speech highlights the EU’s remarkable coordination and swift actions during the pandemic, it also raises critical questions about the balance of powers between the EU and its Member States. The measures taken, though effective, exposed the limitations of the EU’s competences and the necessity for greater clarity and flexibility in crisis situations. Moreover, the emphasis on solidarity and cooperation sometimes masked underlying tensions and challenges in harmonizing national responses, suggesting that the EU’s crisis management, though commendable, was not without significant obstacles and areas needing improvement.

Among the mentioned mechanisms were the Union Civil Protection Mechanism, the Decision on serious cross-border threats, and the activation of economic and financial policies, such as the Stability and Growth Pact. Notably, it also encompassed the unconventional actions taken by the European Central Bank, exemplified by its Public Sector Purchase Programme (PSPP), which was initially implemented during the economic and financial crisis. The PSPP, designed to mitigate risks to the monetary policy transmission mechanism posed by the COVID-19 outbreak, raised new questions surrounding the allocation of powers between Member States and the EU, thus amplifying the complexity of crisis management in the evolving landscape.

This transformation extended to other aspects of the EU’s response. With “soft” powers and a multitude of instruments at its disposal, the EU not only provided vital coordination in healthcare efforts but also nurtured cooperation among its institutions and Member States. The voluntary harmonization of response mechanisms, including the establishment of the rescEU capabilities, created a more integrated platform for managing the pandemic. Moreover, a joint procurement initiative allowed Member States to collectively purchase vital medical supplies, reinforcing the idea of shared responsibility.

Throughout this metamorphic process, the EU demonstrated its resilience in crisis management and its ability to creatively navigate within the boundaries of its legal competences. The global battle against COVID-19 underscores the importance of adaptable governance and cooperative approaches, making the EU’s response a compelling case study in crisis management and legal innovation. This narrative offers an in-depth exploration of the EU’s response to the COVID-19 pandemic, delving into the legal intricacies, the role of its institutions, and the overarching principles that guided this extraordinary transformation, including the implications raised by the PSPP, casting a spotlight on new challenges that emerged amid the complex interplay between Member States and the EU.

The decision of the European Central Bank (ECB) in 2015/774 stirred considerable debate in Germany. Some observers identified potential infringements on competences, particularly in the context of the PSPP. At the center of the decision was the purchase of public sector assets on the secondary market, which raised the question of whether this could be classified under monetary policy or economic policy, as the two categories fall under different competences.

The fundamental issue here was that, according to Article 3(1)(c) of the Treaty on European Union (TEU), Germany falls under the EU’s competence in the field of monetary policy, while economic policy remains a matter for the Member States. Overlapping competences are observable in both areas, which can lead to conflicts between Member States and the EU. The challenge lies in distinguishing between provisions in the two separate competence categories because elements of economic policy have substantial implications for monetary policy.

The difficulty of delineation prompted the case to be brought before the Court of Justice of the European Union for a preliminary ruling. In Case C-493/17, Germany alleged violations of Article 123(1) of the Treaty on the Functioning of the European Union (TFEU), the democratic principle enshrined in the German Basic Law, and raised concerns about the proportionality of EU law concerning economic policy. The complainants sought a determination that the ECB’s decision breached the principle of competence division laid down in Article 119 of the TFEU since the competences set out in Article 127 of the TFEU for the European System of Central Banks (ESCB) do not cover the EU’s exercised competences. According to Germany, the EU would have had no right to enact this act because it falls within the realm of national competences. However, Article 3(1)(c) of the TFEU stipulates that, in Member States whose currency is the euro, the EU has exclusive competence over monetary policy. Monetary policies are executed according to Article 282(1) of the TFEU by the ECB and the central banks of the euro area Member States. Therefore, the crucial issue is whether the action in question can be classified under monetary policy, as anything else would signify a matter within the Member States’ competence.

A complication in this case arises from the lack of a precise definition in the TFEU for “monetary policy.” The treaty specifies its objectives, focusing on maintaining price stability. Therefore, the question to answer is whether the action contributes reasonably to achieving this goal. A similar issue was at the core of the Pringle case, which questioned when a measure can be considered a part of monetary policy.

The Court of Justice of the European Union itself provided definitions regarding when the Union’s involvement could be taken into account. The Court emphasized the concepts of directness and indirectness, assessed through the objective of the action. First, it was necessary to compare the objective of the relevant Union provision with the objective of the specific treaty provision upon which the Union bases its competence. Subsequently, the Court needed to evaluate the connection between the two to determine to what extent the Union’s conduct contributes to the achievement of the goals set forth in the treaties. In this context, the Court took the position that if the connection is direct and seeks to achieve the same goal, the involvement and proceeding are justified. However, if the link is only indirect, according to the Court’s standpoint, one cannot refer to the Union’s involvement. This is because, if done so, it would lead to a situation where the Union would assert its involvement even in the most distant cases with indirect links. In my opinion, the application of this criteria system may arise in further analyses; however, it may require supplementation. In addition, the use of other factors not highlighted in the case may be justified, and the Court did not take into account the margin of discretion between the two endpoints when considering indirectness and directness. Therefore, in my opinion, it is not necessarily only the direct connection that signifies reasonableness but rather a degree of directness where the specific provision can contribute significantly to the specific treaty provision. Concerning unreasonableness, in this case, the distant indirectness justifies its existence. We can arrive at these conclusions through logical interpretation. Thus, an examination of logical connections and actual impacts is necessary for resolving the matter. Based on these considerations, several conclusions can be drawn.

One of the objectives of PSPP is to achieve inflation rates below 2%. Whether this goal can actually be achieved through the program is not a condition of the analysis; however, categorizing it under monetary policy is. The objective of PSPP is theoretically permissible, as a specific manifestation of its task to maintain price stability, as confirmed in Chapter IV, Article 18.1 of the Protocol on the Statute of the European System of Central Banks and of the European Central Bank. It states that the ECB “may conduct operations in the financial markets by buying and selling claims and marketable instruments, either outright or under repurchase agreements, as well as by lending or borrowing claims.” The Court referred to this in point 69 of Case C-493/17 when it cited point 54 of Case C-62/14, Peter Gauweiler and Others v Deutscher Bundestag. It is clear from this point that the ECB and the national central banks, in order to achieve the objectives of the ESCB and to perform their primary tasks arising from the Treaties, can generally intervene in the financial markets by buying and selling marketable instruments denominated in euros. Thus, the ECB’s competence seems to be justified.

On the other hand, determining whether an act qualifies as a monetary or economic policy measure cannot be limited to the evaluation of the stated objective and the instruments employed; it must also take into account the relevant effects stemming from the measure in question. Therefore, it is necessary to examine the actual areas impacted by PSPP. These areas include the banking sector, real estate, and stock markets, as well as the maintenance of struggling businesses through cheap loans. Indirectly, all citizens are affected, as they have interests in these matters. The economic policy effects should have been reasonably considered by the ECB when making the decision. Such a degree of economic policy involvement is disproportionate and unreasonable in comparison to the potential impact of the asset purchase program on monetary policy. This is because the primary task of the ESCB is solely the regulation of the Union’s general economic policies; it cannot establish its own program in this area. Based on all of this, the program’s economic policy involvement is significant.

However, if we were to follow the German perspective, accepting that the decision is inappropriate within the current framework, it raises a question: Can a regulation be crafted that all EU Member States would accept without any of them referring to a violation of their economic policies? Each country has distinct economic models, and legislation of this kind unavoidably impacts some nations positively while negatively affecting others. In such cases, negatively affected countries would inevitably refer to infringements on their competences, potentially disabling the EU’s right to decide in this competence area. The separation of the European Union’s competences in monetary and economic policy is distinct, but the issue lies in the uncertain demarcation between the two areas. The absence of a precise definition of monetary policy in the TFEU leaves room for interpretations that may favor the EU, as evident in this case. To prevent this kind of potential distortion, the TFEU should provide a clear definition of the concept of monetary policy, necessitating treaty amendments.

Taking into account the aforementioned observations, I conclude that the PSPP is an economic policy issue. In addition to the arguments previously defined, this assertion is also supported by the fact that if such an extensive exercise of economic competence were permitted by the ECB, it would render the concept of competence transfer meaningless since it could act on issues falling under the jurisdiction of the Member States without any conferred authority. Furthermore, analyzing the logical connection does not lead directly to the maintenance of price stability but requires a specific interpretation and an examination of various contractual provisions. Therefore, the requisite directness is questionable, further complicated by the numerous economic policy effects that would be unreasonable to exclude from the analysis.

In this case, the Court concluded that the asset purchase program is compatible with maintaining price stability, thus achieving the objective of monetary policy. Differing from my findings, the Court considered the matter as part of monetary policy and defined it as falling under the competence of the Union. The Court justified its decision by explaining that various aspects of monetary policy inherently impact economic policy. Based on my previous observations, the Court’s decision can be seen as realizing a form of creeping competence takeover. The European Commission also supported the Union’s decision. Ursula von der Leyen, the President of the Commission, even proposed initiating infringement proceedings against Germany.

In summary, the COVID-19 pandemic, as a crisis, has led to and raised new questions regarding the division of competence between Member States and the EU, creating further tensions. This tension, if more issues of this nature arise along the lines of several Court judgments, could lead to a crisis in the interaction between Member States and the EU. Thus, the COVID-19 pandemic was not just a crisis in itself but potentially initiated a wave of crises.

Dalma Medvegy is a recent law graduate of the University of Szeged, Hungary, Faculty of Law and Political Sciences, holding a talent scholarship from the Aurum Foundation. She is Director for Board Management at ELSA Szeged in the academic year of 2023/2024, Member of the International and EU Environmental Law Research Group at the University of Szeged, Faculty of Law and Political Sciences. Her research focuses on the revision of EU treaties, competence issues and the future of Europe.