On May 5, in a landmark ruling, the German Constitutional Court declared the European Central Bank’s (ECB) bond-buying program as illegal. This decision was in contravention of the European Court of Justice’s (ECJ) decision in 2018 that upheld the legality of the program. The German Court said that the ECJ approved a policy which was clearly not covered by the ECB’s mandate. Thus, the German Chief Justice, Andreas Vosskuhle, imposed a three-month deadline for the ECB to justify the program. Failure to do would mean that Bundesbank, Germany’s central bank, would no longer participate in the program.
In response to the allegations, the ECB assured that it “remains fully committed to its mandate” and reiterated the supremacy of the decision by the ECJ. The ECB, however, cannot entirely ignore the decision by the German Court as Germany is one of the biggest members of the bloc. In fact, the ECB requires German support to continue the bond-buying program.
Through this program, the ECB has purchased eurozone debt worth nearly € 3 trillion since 2015. The ECB previously justified this program by saying that it was necessary to keep the euro intact. The erstwhile President of the European Commission, Mario Draghi, supported this decision, highlighting the need to do “whatever it takes” to save the euro. However, critics referred to this practice as “monetary financing”, which refers to the funding of national budgets by the central bank, which is illegal under EU treaties. The German Court dismissed the argument that the bond-buying program was a means of monetary financing as the ECB was taking up debts that were already in the market as they were taking up debts from central banks and not member states. However, the court ruled the ECJ judgement to be “objectively arbitrary” as it failed to account for the wider implications of the program.
This decision comes at a time when the EU-Germany tensions are at their peak, with Germany hesitating to support the economies of the worst-affected countries of the COVID-19 outbreak through the mutualisation of debt, otherwise known as “corona bonds”. While the German Court specifically clarified that the decision does not apply to corona-related emergency measures, the decision reflects the overall public sentiment in Germany, which is one of frustration with the EU for excessively underwriting the debts of other countries.
The latest decision by the German Constitutional Court attacks the very foundation of the EU by challenging the independence of the ECB and the authority of the ECJ. Firstly, the ECB is an independent body and does not take orders from courts and governments of members states. Secondly, by refusing to accept the decision of the ECJ, the legitimacy of the court is brought into question. In reference to this issue, European Commission President, Ursula von der Leyen, said, “The final word on EU law is always spoken in Luxembourg. Nowhere else.”
Experts worry that this decision of the German Court will open the gates for other member states to disagree with decisions of the ECJ. Liberal MEP, Guy Verhofstadt, said, “If every constitutional court of every member state started giving its own interpretation of what Europe can and cannot do, it’s the beginning of the end.” For instance, the EU is at loggerheads with both Hungary and Poland over their respective state government’s failure to uphold the rule of law and other democratic principles. These countries could now plausibly use this latest decision by the German Constitutional Court as a justification to diverge from the laws and principles set by the EU.
Image Source: Financial Times
German Constitutional Court Clashes with ECJ over ECB’s Bond-Buying Program
May 12, 2020
