As pandemic takes focus, ECB’s QE programme faces German ruling

Berlin — As Europe tries to deal with a new crisis, German’s top court is about to rule on a key programme that helped it get out of the last one.

The judges will decide on Tuesday whether Germany can continue to participate in the European Central Bank’s (ECB’s) public sector purchase programme. Under the programme, dubbed quantitative easing (QE), the central bank buys bonds of eurozone governments.

The case, pending for almost half a decade, relates to a programme that was designed to spur liquidity in the banking sector amid a slumping euro area economy and interest rates close to zero. The outbreak of the coronavirus in early 2020 gives the case more drama since the ECB set up a much bigger programme to head off the latest crisis.

The case, filed by a group of conservative businessmen and academics who have challenged a series of EU and ECB programmes, goes to the heart of German uneasiness with European integration in general, the euro and the ECB.

They argue that the ECB is overstepping its authority with the QE programme and removing the incentive for EU countries to pursue sound fiscal policy by creating an ever-expanding safety net.

This sort of argument has been used in countless challenges against European integration, including the Maastricht treaty, the euro, the Greek bailout, the debt-crisis instruments and finally the ECB’s outright monetary transactions programme, a debt-purchase plan that was never put in operation.

Palpable nervousness

All of these cases were rejected even as the German judges often expressed concerns in long judgments and sometimes added additional conditions, like needing parliamentary approval for certain measures.

While there is some palpable nervousness, most people, including the plaintiffs, do not expect it will be much different this time.

The worry is a negative ruling will cloud the ECB’s €750bn pandemic emergency purchase programme (PEPP). The rescue fund was created in March and removes many limits that constrained the previous plans.

Tuesday’s ruling will not formally cover PEPP, but the court’s reasoning could hold implications for it. Under the combined programmes, the ECB will buy more than €1-trillion of debt through the end of this year.

“There’s a lot at stake, not only for the running bond purchase programme and for the PEPP but above all for the authority of German constitutional justice,” said Markus Kerber, a lawyer for some of the plaintiffs.

QE itself has created a quandary for the German top court since the case was filed in 2015, right after the asset-purchase programme started.

Two years later, the judges asked the European Court of Justice for an interim ruling aimed at limiting the ECB’s authority. But the EU tribunal rejected the restrictive reading of the law suggested by their German counterparts.

The case returned to the German judges for a hearing in July. Court president Andreas Vosskuhle said the tribunal still sympathised with the plaintiffs’ view that the ECB overstepped its powers, but there were high hurdles for the judges to intervene.

Under the German constitution, the court can only disregard an EU ruling if it is arbitrary and gravely unreasonable, and not simply because it seems wrong.

Kerber said that if the German court accepts the findings of their EU colleagues, “it will be difficult for it to further claim to be the guardian of the constitution”.

Coronavirus

The final ruling will come as the coronavirus ravages Europe and the rest of the globe. The decision was initially scheduled to be released in March, but was delayed until this week when most of the continent went into lockdown.

The pandemic, however, probably came too late to have much of an effect on the court’s decision. The judges only schedule rulings in hotly debated cases after they have finalised the written judgment — typically following months of closed-door deliberations and fights over the exact wording of sentences.

In the QE case, the court announced on January 23 that it would deliver its ruling on March 24. The two months in between were most likely used to work on the English translation of the judgment, which will have at least 100 pages.

Only on March 16, the first day the country closed down, did the judges change reschedule the ruling to May 6.

QE originally ran from early 2015 until the end of 2018, and was controversially resumed in late 2019. Total holdings were €2.7-trillion at the end of March, with at least another €300bn scheduled for 2020 to help fight the recession sparked by the coronavirus.

Bloomberg