by N. Peter Kramer
Germany’s Constitutional Court in Germany has ruled that the European Central Bank’s mass bond buying to stabilise the eurozone partly violates the German constitution. The ruling relates to government debt worth €2.1 trillion bought by the ECB since 2015 but not to purchases in the current Coronavirus crisis. The court, based in Karlsruhe, says there is not enough German political oversight in the purchases. Germany’s central bank, the Bundesbank, carries the most weight in the ECB decisions. In three months’ time the Bundesbank could pull out of the ECB’s bond purchases. That is the deadline the judges have set for the ECB to give a valid explanation.
The court ruled that the German government and parliament had failed to ensure that he ECB’s purchases were ‘proportionate’. But it did not find that the ECB’s actions had violated the EU ban on direct budgetary support. This is in line with the European Court of Justice, which ruled in December 2018 that PSPP (Public Sector Purchase Programme) purchases did not go beyond the ECB’s mandate.
The court decision was being closely watched by the markets. After the announcements, the euro fell to $1.0889 and eurozone debt ratings fell too, Reuters reported. Market analysts, quoted by Reuters, said the ruling raises fresh doubts about the ECB’s massive bond-buying programme, also know as ‘quantitative easing’. It may also put pressure on the ECB’s current €750 billion bond-buying scheme aimed at helping the eurozone through the china virus crisis. Although the Constitutional Court also said that its ruling ‘does not concern the current EU or ECB financial aid provided in the coronavirus crisis’.
