The Karlsruhe-based court ruled the ECB’s bond-buying efforts to stabilise the Eurozone legal, however expressed concerns that plans partly violate the German constitution. The court argued there is not enough political oversight in the purchases being made by the Frankfurt-based central bank. The German government and parliament have now been ordered to carry out assessments to ensure the asset purchases’ “economic and fiscal policy effects” do not outweigh the monetary policy objectives.
In a decision published online, the court said it “not find a violation of the prohibition of monetary financing of member state budgets”.
It added: “The decision published today does not concern any financial assistance measures taken by the European Union or the ECB in the context of the current coronavirus crisis.”
Ahead of the judgement, there were fears a ruling against the ECB could have triggered a serious Eurozone crisis.
The ECB has bought more than £1.9 trillion (€2.2 trillion) of public sector debt since launching its quantitive easing programme in 2014.
Its bosses have vastly expanded their purchasing efforts to stop the coronavirus pandemic from sparking a new debt crisis.
Italy is among the countries most reliant on ECB bond purchases because of the economic impact of its lockdown to halt the spread of the outbreak.
The Bundesbank, Germany’s central bank, will be blocked from future participation in ECB debt purchases unless the policy is shown to be proportionate within a three-month transitional period.
The court said: “On the same condition, the Bundesbank must ensure that the bonds already purchased and held in its portfolio are sold based on a — possibly long-term — strategy co-ordinated with the Eurosystem.”
Former head of the German CBI Hans-Olaf Henkel said the ruling is a “declaration of war” against the ECB.
He said: “This is significant, it is a declaration of war against the ECB and against the ECJ!
“However, the court gave the ECB a way out: to justify the reasonability of the programme within three months.
“They will have to scramble together every argument within 90 days or the Bundesbank has to withdraw from the program against its own wishes.”
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Mr Henkel was amongst the wide-ranging group of plaintiffs, which also included Bernd Lucke, the former leader of the Alternative for Germany party.
German MEP Sven Giegold said: “The judgment shows that the failures of the euro countries have put the ECB in a very difficult position.
“The judgment must be a wake-up call for the German government. The shifting of responsibility from governments to the ECB must now come to an end. The ECB’s actions are the consequence of the euro countries’ inability to adopt a common economic and financial policy.
“The German Government should now present a proposal for a common democratic fiscal policy for the euro countries. The lesson to be learnt from the judgment must be that the governments of the eurozone can no longer leave the ECB alone.”
Uwe Burkert, an economist with the LBBW bank, said the “verdict is a very explosive thing”.
He added: “The Bundesbank will – after a transitional period of three months – be barred from taking part in the ECB’s PSPP programme.”
But Jorg Kramer, chief economist at Commerzbank, said the ECB’s bond-buying scheme will continue.
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He said: “The ECB will have to prove now that the programme is really proportionate so as to win approval by the German government and lawmakers – given the large group of experts at the ECB, that shouldn’t be much of a problem.”
Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, sai: “These are fighting words from the German court, and it ends with an ultimatum and a threat to the ECB, not to mention German politicians.”
After the decision was made public, the euro dropped 0.7 percent against the US dollar as markets reacted to the court’s announcement.
Italian and Germany government bonds also came under selling pressure.
Financial services firm Nomura said the ruling “causes uncertainty and with it we’ll likely see this move in the euro continue”.
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