by Lea Schiller
When Germany’s constitutional court ruled that the European Central Bank (ECB) had violated the German constitution, the effects were immediate – the value of the Euro as well as the debt ratings of the eurozone countries fell. Next to being unprecedented, the decision also came at a time at which it puts pressure on the coronavirus relief package of the ECB – and the response among policymakers and legal experts was accordingly urgent.
Though the court issued its decision on the 5th of May, the case had been going on for much longer. It goes back to 2015, when the ECB established its public sector purchase programme (PSPP), which was supposed to stabilise the eurozone after the financial crisis by buying government debt.
In the years that followed, the German constitutional court asked the European Court of Justice (ECJ) for a judgement on the bond-buying program of the ECB twice, and twice did the ECJ issue its permission to the ECB. Now, on the grounds that the ECB was overstepping its mandate and failed to incorporate political oversight into the purchases of the bonds, the German constitutional court has ruled the ECB has violated the German constitution.
EU law still remains superior to national law, and the ECB is not a subject of German national law. The German central bank (Bundesbank) however, is bound by the decision of the German constitutional court. The ECB now has three months to explain why their bond purchases are proportionate to their mandate – otherwise, the Bundesbank, which is the biggest shareholder of the ECB, would have to pull out of the PSPP. And this is the crux of the issue: although the German constitutional court recognises the EU’s exclusive competence in monetary policy, it has still put forward a judgement on whether or not the ECB and the ECJ are operating within their mandate. It could set, as many have argued in the following weeks, a dangerous precedent.
The reactions to this ruling were widespread and mixed – in Poland for instance, prime minister Mateusz Morawiecki called the decision one of the most important rulings in the history of the EU, as it reaffirms the agency of member states. President of the European Commission Ursula von der Leyen meanwhile is considering starting a treaty violation proceeding against Germany. Monetary policy is an exclusive EU competence, she reasoned, and the ruling therefore posed questions that touched the heart of the EU’s sovereignty. Members of the European Parliament called for all EU institutions to support the decisions of the ECJ, to avoid putting the integrity of the EU’s court and the eurozone in jeopardy. In the end, not even legal experts share a consensus on what this decision means for the future of the ECB and, by extension, the EU. While some theorise it could lead to the break-up of the eurozone, others see the decision itself as a threat to the ECB’s independence. This is especially interesting since – though formally, the ruling has no effect on this – the ECB’s coronavirus relief package is a €750bn bond-buying program, which could now also be called into question.
EZB-Anleihekaufprogramm teilweise verfassungswidrig. (2020, May 5). Tagesschau. Retrieved from https://www.tagesschau.de/wirtschaft/urteil-ezb-anleihen-101.html
Urteil zu Anleihekäufen: EU prüft Verfahren gegen Deutschland. (2020, May 10). Tagesschau. Retrieved from: https://www.tagesschau.de/ausland/eu-kommission-vertragsverletzungsverfahren-101.html
German court criticises European Central Bank crisis bond-buying. (2020, May 5). BBC. Retrieved from https://www.bbc.com/news/world-europe-52542993
Münchau, W. (2020, May 10). The European Central Bank is deluding itself over German court ruling. The Financial Times. Retrieved from https://www.ft.com/content/fc487cac-9105-11ea-9207-ace009a12028
Taylor, C. (2020, May 8). German court ruling on ECB purchases is ‘laughable,’ Societe Generale chair says. CNBC. Retrieved from: https://www.cnbc.com/2020/05/08/german-court-ruling-on-ecb-purchases-is-laughable-socgen-chair.html