The German Constitutional Court in Karlsruhe ruled, on Tuesday 5 May, that the German authorities had not acted sufficiently to ask the European Central Bank (ECB) to justify the proportionate nature of the massive Public Sector Purchase Programme (PSPP or quantitative easing) launched in 2015 to combat the risk of deflation facing the euro area.
In a verdict rendered by seven votes to one, the Karlsruhe Court asked the Bundesbank to stop buying sovereign securities of euro area countries unless the ECB Governing Council adopts, within “three months” at the latest, “a new decision” that “demonstrates in a comprehensible and substantiated manner that the monetary policy objectives pursued by the PSPP are not disproportionate to the economic and fiscal policy effects resulting from the programme”.
Since its launch, purchases of government securities by the European System of Central Banks, via the PSPP operation, have exceeded €2 trillion.
The German Constitutional Court is also of the opinion that the ruling of the Court of Justice of the European Union that quantitative easing is in accordance with EU law is “not comprehensible” and has been “rendered ultra vires”, i.e. exceeds its competence.
In this judgment, handed down in December 2018 on the basis of a preliminary question put by the German Constitutional Court, the Court of Justice of the European Union had ruled that the PSPP operation did not go beyond what was strictly necessary. It put forward a number of reasons, including the setting of strict purchase ceilings per issue and per issuer, the control of the total monthly volume of purchases of sovereign securities, and the allocation of purchases among the national central banks according to an allocation key linked to the subscription to the ECB's capital (see EUROPE 12157/28).
When questioned, the European Commission, through its spokesman Eric Mamer, reaffirmed “the primacy of EU law, and the fact that the rulings of the European Court of Justice are binding on all national courts”. The Commission requested more time to be able to provide a detailed legal analysis of the Karslruhe Court judgment.
It should also be noted that the German judges reject the complainants' argument that the PSPP violates the prohibition of monetary financing of Member States' budgets (Article 123 TFEU) as well as the German Basic Law. They also specify that the decision put forward on Tuesday does not concern the new PEPP operation for the massive repurchase of public debt securities, which involves an amount of €750 billion and was announced in mid-March by the ECB in the context of the current Covid-19 pandemic (see EUROPE 12450/6).
A questioning of the Bundesbank's participation in the PSPP operation could have negative consequences on the borrowing costs of euro area countries, such as Italy and Spain, which are currently benefiting from the ECB's very accommodating monetary policy. Moreover, in the event of further litigation, the question of its participation in the PEPP operation, where the ECB enjoys more flexibility than in the PSPP operation, would clearly be raised.
In front of his country's Senate, however, the Italian Minister of Economy, Roberto Gualtieri, downplayed the impact of the Karlsruhe court ruling. “I am convinced that clarification will be provided quickly and that this ruling will have no practical consequences”, he said, according to the daily La Repubblica.
See the ruling of the Karlsruhe Court: https://bit.ly/2KZI3zy (Original version in French by Mathieu Bion)