Taking the German Constitutional Court Seriously
Given the many flaws in the controversial ruling by Germany's Federal Constitutional Court against the European Central Bank, it is tempting to dismiss the decision as yet another instance of German obstructionism. But either through persuasion or reform, Germany's longstanding complaints will have to be addressed.
BERLIN – The German Federal Constitutional Court’s (GCC) ruling against the European Central Bank’s pre-pandemic asset-purchase program has stunned policymakers and other observers outside of Germany. Many will be tempted either to ignore the ruling altogether, or to escalate the legal battle with the GCC. But both approaches would be counterproductive. The situation calls for an earnest debate about the ECB’s mandate and existing European treaties.
Specifically, the GCC has accused the ECB of breaching the Treaty on the Functioning of the European Union by not conducting a proper “proportionality assessment” for its Public Sector Purchase Program. The court regards the PSPP as more than a monetary-policy tool. It is a broader economic policy that has imposed undue costs on small savers, taxpayers, and individual sectors. As such, the GCC believes that the ECB has approached or already crossed the line of extending prohibited monetary financing to member-state governments.
While this is not the first time that the GCC has gone after the ECB, the latest ruling certainly constitutes an intensification of the conflict. In the absence of a proportionality assessment from the ECB, the Bundesbank will be prohibited from participating in the PSPP, with potentially far-reaching implications for Europe’s Economic and Monetary Union (EMU).