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According to the German constitutional court, purchases of securities by the ECB violate the mandate of the ECB. Lack of proportionality. The judges also accuse the Federal Government and the Bundestag of neglecting their responsibility to integrate. A previous ruling by the ECJ was also not understandable.
The German Federal Constitutional Court is reprimanding the European Central Bank for its government bond purchase program.
Can the judiciary use monetary policy? If so, how? In Karlsruhe, judges in red robes have had to deal with this question over and over in recent years. On Tuesday morning, constitutional judges cast seven to one votes in a landmark decision equivalent to several constitutional complaints against the European Central Bank (ECB) public sector purchase program since 2015. So the process has a long history. According to the Second Senate of the highest German court under the President of the Court, Andreas Vosskuhle, the so-called Public Sector Purchase Program (PSPP), which was launched many years before the current crown crisis, is no longer within of the powers of the ECB derived from the EU treaties. Judges justify this mainly because the ECB does not weigh the proportionality of bond purchases.
Bundesbank can no longer participate in the purchase of bonds
According to constitutional judges, the ruling prohibits the Deutsche Bundesbank from participating in the implementation and execution of purchases of government bonds by the ECB. It can only continue if the ECB and the national central banks (together they form the so-called euro system) clearly demonstrate within a maximum period of three months that the monetary policy objectives for the purchase of government bonds compared to the harmful economic effects associated – and the impacts of fiscal policy are proportional.
The ECB’s constitutional judges have opened a door for large-scale purchases of debt securities of euro area member states to continue in the future with the participation of the Bundesbank. However, the judges point out that the Bundesbank is obliged to guarantee, within the framework of the euro system, that the holdings of government bonds accumulated in the ECB are also returned. Such a return so far has not been a problem in central bank communications. By contrast, purchases of € 20 billion a month, which have been running again since November 2019, have a time limit, so they don’t even have an end date, and the ECB makes no public consideration for someday reduce the government bond portfolio.
Ruffle for the federal government and the Bundestag
Karlsruhe also obliges the German federal government and the Bundestag to fulfill their current responsibility for integration within European unification. The two institutions would have to work to achieve a proportionality check of purchases of government bonds by the ECB. This also applies to the reinvestment of expired securities funds decided by the central bank in early January 2019 and the resumption of bond purchases from November 2019.
The trial of German constitutional judges is also historic in the sense that they encounter an ultra-viral act for the first time in the history of European integration. Such an act occurs when the EU authorities take things with which they were not commissioned (by the German Bundestag). The constitutional court had consulted the Court of Justice of the European Union (CJEU) on various issues of Union law during the trial. However, the ECJ concluded that the PSPP did not go beyond the ECB’s mandate and also did not violate the ban on monetary financing. The Constitutional Court now views the latter in this way, but acknowledges a violation of the mandate.
The judgment of the ECJ is no longer understandable
In the eyes of the Karlsruhe judges, the CJEU judgment of December 2018 was simply no longer understandable and was therefore issued in the language of the ultra vires lawyers (German: Beyond Powers). The opinion of the Luxembourg judges that the decisions of the Governing Council regarding the PSPP were still within its competence clearly overlooks the importance and scope of the principle of proportionality to be observed. Due to the fact that the real effects of the program on economic policy have been completely excluded, the ECJ’s judgment is no longer methodologically justifiable. Hiding the implications of economic policy also contradicts the Court of Justice’s methodological approach in almost all other areas of the EU legal order. The ECJ would not do its interface function justice.
At the main hearing in late July 2019, the Karlsruhe judges had placed great value on the question of the proportionality of the ECB’s measures and asked what criteria should be used to assess the ECB’s policies, how to quantify success and in where in the EU Banned monetary government financing contracts now begin. Since 2015, the ECB has maintained a total of about 2.7 trillion securities in different amounts each month. € acquired, including around 2.2 billion. € in government bonds of the euro countries. This corresponds to almost a third of the sovereign debt outstanding in the euro zone. According to central bank calculations, purchases have increased gross domestic product and inflation in the euro area by a total of about 1.9 percentage points over the years. At the same time, however, the high cost of government bonds has led to a sharp drop in refinancing costs for member countries, which is undoubtedly a positive side effect of the ECB’s monetary policy for many government ministers. finance.
Lack of movement of goods by the ECB
Constitutional judges are particularly critical of the fact that ECB decisions are limited to stating that the desired inflation target is not being achieved and that there are no less invasive measures than massive purchases of government bonds. The judges lacked a diversion of assets because the central bank’s purchasing program also has considerable risks and side effects, for example, for overall financial stability and the condition of the banking system. The consequences of the PSPP would also include economic and social effects on almost all citizens, who are indirectly affected as shareholders, tenants, owners, savers and policyholders.
Duel of the highest courts
Ra. Frankfurt · Lawsuits against the ECB’s policies have led to a duel between the courts. The Court of Justice of the European Communities, based in Luxembourg, is the highest court in the European Union (EU). It oversees the uniform interpretation and application of EU law in the Member States. The German Federal Constitutional Court (BVerfG) in Karlsruhe, in turn, is the highest court of the most economically important and populous member of the EU and the Eurozone, and oversees compliance with the Basic Law. In the context of requests for a preliminary ruling, the courts of the Member States may refer questions to the Court of Justice of the EU regarding the interpretation of Union law or the validity of a Union action. In general, Union law takes precedence over national law. However, Karlsruhe reserves the right to intervene in two cases: first, if the innermost core of the Basic Law is at stake, and second, if the EU authorities take measures with which the elected Bundestag has not ordered them . For the second time, German constitutional judges have submitted a sensitive case to the ECJ for a preliminary decision. Your response is considered largely binding. However, the Constitutional Court can annul a judgment of the CJEU if it is no longer understandable in its opinion.
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