Brussels is taking legal action against Germany for defying it over a massive European Central Bank stimulus programme in a challenge to the supremacy of EU law.
In an unprecedented move, the European Commission retaliated on Wednesday by starting infringement proceedings against its most powerful member state.
Unless the dispute is resolved, the legal action could ultimately lead to huge, daily fines levied by the European Court of Justice (ECJ) in Luxembourg.
It comes after the German constitutional court ruled that the ECJ had overstepped its powers by backing the European Central Bank’s quantitative easing and bond-buying last May to curtail the economic impact of the coronavirus pandemic.
This set “a serious precedent” that other EU member states could use to challenge the supremacy of the ECJ over national courts, the commission said.
A commission spokesman said: “The German courts thereby deprived the judgment of the European Court of Justice of its legal effect in Germany, breaching the principle of the primacy of EU law."
The spokesman said that the decision by the federal constitutional court was a “violation of fundamental principles of EU law”, despite the fact that the ruling was resolved without stopping the ECB’s efforts to stimulate the eurozone economy.
He added: “This could threaten the integrity of Union law, and could open the way to Europe a la carte."
Brussels is anxious that its ongoing battles with Hungary and Poland over the rule of law could have been undermined if the German decision were left unanswered.
The commission launched separate legal action in Budapest over media freedom after the government took an independent radio station off air in February.
The German court, based in Karlsruhe, regards itself as the final decision maker on the legality of EU decisions in Germany.
Its December 2018 decision that the ECJ ruling on quantitative easing was "arbitrary" under EU law was viewed in Brussels and Luxembourg as a direct challenge.
The commission spokesman said: “The European Union essence remains a community based on law, and the last word on new law is always spoken in Luxembourg.”
Brussels demanded that Berlin, which has two months to respond to the first step in a lengthy process, changes German case law to recognise the primacy of the ECJ.
If Germany's response does not satisfy the commission, the case could progress to EU judges in Luxembourg.
The ECJ could also make a judgment setting out its pre-eminent status as the final arbiter of EU law.
A spokesman for Angela Merkel said: “We will take a very close look at the commission’s objections.”
Sven Giegold, a German member of the Green party in the European Parliament, told Bloomberg: “The ruling from Karlsruhe at the time was a dangerous gift to right-wing populist governments.
“If a supposedly bad justification by the ECB is already considered an ultra vires case, then Hungary and Poland get a powerful instrument against EU law.”
The UK insisted on ending the supremacy of the ECJ over British courts in the Brexit negotiations.
London is resisting EU demands that it aligns with EU food safety and animal health rules to remove the need for checks on the Irish Sea border on the grounds, among others, that it would mean accepting the ECJ's jurisdiction in those industries.