ECB moves to defuse German court challenge on pandemic stimulus
ECB justifies bond purchasing scheme and releases documents after Germany's Constitutional Court ruling
Frankfurt am Main — The European Central Bank (ECB) has sought to take the sting out of a German court ruling, justifying its bond purchasing scheme and releasing confidential documents to fend off the threat, minutes from its last meeting showed Thursday.
In a stunning decision in May, Germany's Constitutional Court threatened to block the Bundesbank, the central bank, from participating in the stimulus plan unless the ECB could show within three months that its government debt purchases are not “disproportionate”.
While the court made clear that its ruling did not affect the ECB's programmes on shoring up the economy in the coronavirus pandemic, it has raised uncertainty over a key crisis-fighting tool at a time when Europe is facing the worst economic storm since World War 2.
The Asset Purchase Programme (APP) is a “proportionate” measure helping to deliver the ECB's price stability target, the bank's governing council said during its previous monetary policy setting meeting on June 4, according to the minutes.
There are “sufficient safeguards having been built into the design of these programmes to limit potential adverse side effects”, it said, describing the €2-trillion scheme in place since 2015 as an “effective tool”.
The ECB also underlined the fragile economic situation — with millions of jobs at risks, inflation at anaemic levels and deep recessions forecast for the eurozone, while stressing the measure's efficiency in helping to stimulate growth.
Critics however have long argued that the bond purchases exceed the ECB's mandate and act as subsidies for fiscally irresponsible governments, while savers are penalised as they lose out on interest income.
For ING analyst Carsten Brzeski the minutes “are clearly an attempt to address the concerns of the German Constitutional Court without explicitly saying so”.
“It looks as if the ECB found an elegant way to come to a smooth end. Next week, when the German parliament discusses the ruling and the possible next steps, chances are high that some kind of face-saving workaround will be found.
“The minutes send two messages: the ECB stands ready to do more if needed and it is also trying to put the conflict with the German Constitutional Court to bed.”
Capital Economics chief Europe economist Andrew Kenningham agreed that the move, “helped by the Bundesbank, this should be enough to smooth things over for now”.
'Master of the universe'
The night before the minutes of the June 4 talks were published, central bankers of the single currency zone held talks to discuss the court ruling, sources close to the ECB said.
They decided to hand over previously confidential documents to the German government as well as parliament to prove that the bond buying was not excessive, the sources said.
Germany's Bundesbank will be charged with passing on the documents to the relevant parties, as part of the ECB's response to the high court's judges at Karlsruhe.
The bombshell court ruling not only targeted the ECB.
It also slammed the Luxembourg-based European Court of Justice for rubber-stamping the asset purchases in an earlier ruling, and said Germany was not bound by the ECJ decision.
The ruling drew a furious reaction from the EU, which insisted that European law trumps that of member states.
European Commission chief Ursula von der Leyen has raised the spectre of legal action against Germany.
In the bitter spat that ensued, the leading judge in the case, Peter Huber, said the ECB “should not consider itself the 'master of the universe'".
“All we ask of the ECB is that it accepts its responsibility in the eyes of the public and also justifies it — including towards people who are disadvantaged by its measures,” he told the Sueddeutsche Zeitung daily.