Germany’s highest court ruled that the European Central Bank’s 2015 bond-buying program would be illegal under German law unless the ECB can prove the purchases are justified.
The court stopped short of ordering an end to Germany’s participation in the program via the Bundesbank, granting the ECB three months to provide an acceptable justification for the practice.
The decision by the Karlsruhe-based Federal Constitutional Court is the culmination of a yearslong challenge to the ECB purchases by a group of German economic professors and politicians. The plaintiffs argued that the ECB is effectively financing governments with the program, a strategy that they contend puts German taxpayers at a disadvantage and that will undermine the euro in the long term. The ECB has purchased more than €2 trillion worth of eurozone bonds since the program began in 2015.
The justices said the decision does not affect the ECB’s corona-related emergency measures such as the €750 billion asset purchase program it announced in March.
While the court said the ECB went beyond its mandate by introducing the 2015 program, known as public sector asset purchase program or PSPP, it put most of the blame on the Court of Justice of the EU, which approved the practice in a separate ruling.
In announcing the ruling, President Andreas Voßkuhle said the EU court had approved a practice that “was obviously not covered” by the ECB’s mandate.
In effect, the German court said it would not honor the EU court decision, an unprecedented step that legal experts say could have far-reaching consequences for Europe’s justice system.
“The ECB is analyzing the ruling and will comment in due course,” a spokesperson said by phone.
European Commission spokesman Eric Mamer said, “Notwithstanding the analysis of the detail of the German Constitutional Court’s decision today, we reaffirm the primacy of EU and the fact that the rulings of the European Court of Justice are binding on all national courts. The Commission has always respected the independence of the ECB in its implementation of monetary policy. We will now study this national judgment of the German Constitutional Court in more detail.”