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The 75th anniversary of the defeat of Nazi Germany was May 8. The 70th anniversary of Schuman’s declaration, which launched post-war European integration, was May 9. Just days before both, the German constitutional court launched a legal missile in the heart of the EU. His judgment is extraordinary. It is an attack on the basic economy, the integrity of the central bank, its independence and the legal order of the EU.
The court ruled against the ECB’s public sector procurement program, launched in 2015. It did not argue that the ECB had been unduly involved in monetary financing, but had not applied a “proportionality” analysis in evaluating the impact of its policies. , in a litany of conservative concerns: “public debt, personal savings, pension and retirement plans, real estate prices and the afloat maintenance of economically unviable companies.”
Monetary policies are necessarily economic policies. But the ECB’s policies, including asset purchases, are justified by the fact that it was, and is, not achieving its mandatory “primary objective”, which is “price stability” defined as inflation “below, but close of, 2 percent in the medium term. ” The EU treaty says other considerations are secondary.
ECB sliced and diced
The court also ruled that “German constitutional and administrative bodies”, including the Bundesbank, cannot participate in ultra vires acts (those outside one’s legal authority). Therefore, the Bundesbank cannot continue to participate in the ECB’s asset purchase programs until the ECB has carried out a “proportionality assessment” satisfactory to the court.
However, the EU treaty states that “neither the ECB nor a national central bank … will seek or receive instructions … from any government of a member state or from any other body.” The court’s instructions put the Bundesbank in conflict of laws.
Courts in other member countries may find it convenient to rule that their national central banks cannot participate in policies they do not like. Very soon, the ECB will have been sliced and cubed to zero.
The court is also attacking the ECB’s right to make its policy decisions independently. Germany fought hard to install central bank independence within the monetary union. Now, its constitutional court has ruled that, unless the ECB satisfies judges that it has considered a highly political list of the side effects of monetary policies, asset purchases are inadmissible. Courts in other member countries may find it convenient to rule that their national central banks cannot participate in policies they do not like. Very soon, the ECB will have been sliced and cubed to zero.
Secession
Above all, the German court ruled that it can ignore a previous ruling of the Court of Justice of the European Communities in favor of the ECB, because the former “exceeds its judicial mandate … where an interpretation of the Treaties is not understandable and should be so considered arbitrary from an objective perspective. ” This is an act of judicial secession.
The EU is an integrated legal system, or it is nothing. It is based on the acceptance by all Member States of its authority in areas of its competence. In a press release after the Constitutional Court ruling, the ECJ rightly replied that “only the Court of Justice … has jurisdiction to decide that an act of an EU institution is contrary to EU law.” Divergences between the courts of the Member States regarding the validity of such acts could jeopardize the unity of the EU legal order and undermine the value of legal certainty. “Imagine if the courts of each member state could decide that the ECJ judgments were “arbitrary from an objective perspective”.
Transcendence
What are the implications? If the German court is finally satisfied that the ECB properly assessed the economic impact of its purchases, the PSPP could continue. But the court has reduced the ECB’s future flexibility by limiting its debt holdings of any member country to 33 percent of the outstanding total and insisting that asset purchases be allocated according to the actions of member states in the ECB .
Ultimately, a crisis could occur, with devastating effects; perhaps even a breakdown of the euro zone.
In the absence of other euro zone support programs, the likelihood of default has increased. In fact, spreads on Italian government bonds have increased somewhat since the court’s announcement. Ultimately, a crisis could occur, with devastating effects; perhaps even a breakdown of the euro zone.
Others may follow Germany in rejecting the jurisdiction of the ECJ and the EU. Hungary and Poland are obvious candidates. Future historians may mark this as the decisive turning point in the history of Europe, towards disintegration.
What to do
What can be done? The ECB cannot be responsible in a national court. But the Bundesbank could provide the court with the proportionality analysis. Perhaps that would be enough, although it is also a bad precedent. Or, the decision could be ignored. If a German court can ignore the ECJ, perhaps the Bundesbank can ignore that court. Alternatively, the ECB could abandon efforts to rescue the euro zone and accept any results that arise.
The EU could initiate infringement proceedings against Germany. But its direct target would be the German government, which is caught between the EU bodies on the one hand and the court on the other. Could not change the fault.
More radically, the EU could act to create the necessary degree of fiscal solidarity. But the obstacles to this are great. A new treaty is out of the question in the current environment of intense mutual distrust. Finally, Germany could boldly separate from the eurozone. However, before making such a decision, one hopes that he will also be required to do a full analysis of whether that would be “proportionate”.
One point is clear: the constitutional court has ruled that Germany can also regain control. As a result, it has created a possibly insoluble crisis. – Copyright The Financial Times Limited 2020
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