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The European Central Bank building in Frankfurt.
AP Photo / Michael Probst
The case has been pending for almost five years and may be about the program that started in 2015, but today it is taking another dimension as the ECB has promised an even bigger and more relaxed similar program, in the midst of the pandemic.
The Constitutional Court of Karlsruhe will announce today whether the ECB government bond purchase program, known as the Quantitative Easing Program (QE) adopted in March 1015, is legal under German law and therefore whether Germany should participate or not in this
Most analysts do not believe that judges rule that the program is illegal, but they can impose restrictions on what the ECB can and cannot do.
Another dimension
The case has been pending for almost five years and may be about the program launched by the European Central Bank in 2015 in the midst of the eurozone debt crisis, but today it is taking on another dimension as the ECB has promised a similar program even bigger and more relaxed. , in the middle of the pandemic.
The question has been raised by conservative German businessmen and academics, who have often questioned EU programs. and the ECB and it is at the heart of the problems that often arise in Germany regarding European integration in general, the euro and the role of the ECB.
The argument is that the ECB, with its quantitative easing program, exceeds the powers it has under its statute and essentially removes the incentive for fiscal discipline, creating an unlimited safety net.
So far, all objections have been rejected, although German judges have expressed concern and have sometimes set additional conditions, such as the need for the country’s parliament to pass relevant decisions. Many analysts believe that this will happen now, but this time the stakes, due to the pandemic, are even higher.
Bonds and the pandemic
The pandemic prompted the ECB to go one step further, announcing in March the PEPP program, under which it will buy euro zone government bonds worth 750 billion euros this year, in addition to bonds totaling 20 one billion euros every month you buy. Last November. The PEPP places even fewer restrictions on the bonds that the ECB can buy than the 2015 QE, and is therefore more “vulnerable” to court decisions.
For example, Greek bonds, which were unable to join the QE because they did not have an “investment grade”, have now joined the PEPP due to the relaxation of the terms. However, if the German court imposes restrictions on the old quantitative easing (QE) program, these restrictions may also apply to the new pandemic program (PEPP).
“We cannot rule out the possibility of the court imposing significant restrictions on the purchase of bonds by the ECB under the previous program. In this case, we will immediately see new objections this time to the new program, the PEPP, objections that will have to pass by the German and European courts, “said Holger Schmieding, chief economist at the German investment bank. Berenberg
In addition, the ECB’s pandemic program (PEPP) is based on the size of the 19 eurozone economies, but is designed so that the ECB can buy more Italian or Spanish debt than, for example, the Dutch, to keep prices down. borrowing costs of the most affected countries. And with this distribution of PEPP funds, the German court may have a problem.
“I am convinced that the judges will decide in favor of the ECB,” said Eric Nielsen, chief economist at UniCredit. “But if I am wrong, there will be unprecedented chaos in Europe and in the world.”
“A lot is at stake not only in the bond market and PEPP, but especially in the power of German constitutional justice,” said Marcus Kerber, a lawyer for the defendants. If the Court accepts the Europeans’ objections, he says, “it will be difficult to continue claiming that he is the custodian of the country’s Constitution.”
The case was returned to the German Constitutional Court
The case was opened in 2015, when the ECB’s Quantitative Easing (QE) program began. Two years later, the judges asked the European Court of Human Rights for a provisional opinion intended to limit the power of the ECB. The Court of Justice of the European Communities rejected the proposal and the case was returned to the German Constitutional Court in July.
President Andreas Vosskuhle said at the time that, although the Court had a positive opinion of the plaintiffs’ opinion that the ECB had exceeded its powers, it could not intervene, since according to the German Constitution, the country’s Supreme Court I couldn’t ignore a decision. of the Court of Justice of the European Communities only if it is “arbitrary and seriously irrational” and not simply because it considers it incorrect.
