As Germany’s constitutional court ruled that the European Central Bank could have exceeded its powers with a massive quantitative easing (QE) effort, the EU was quick to note that European law trumps that of member states.
In Tuesday’s ruling, the Federal Constitutional Court said that the German government failed to challenge the QE programme, launched in 2015 and reactivated last year. The judges in Karlsruhe also ruled that the stimulus scheme, known as the Public Sector Purchase Program (PSPP), did not respect the “principle of proportionality,” signaling that the eurozone’s central bank went too far with its mandate.
“The ECB fails to conduct the necessary balancing of the monetary policy objective against the economic policy effects arising from the programme,” the ruling reads. “By unconditionally pursuing the PSPP’s monetary policy objective….while ignoring its economic policy effects, the ECB manifestly disregards the principle of proportionality.”
Spokesman for the European Commission Eric Mamer was quick to respond to the decision, saying that despite the assessment of the German court the bloc reaffirms “the primacy of EU law.”
The ruling also challenges the decision of the highest EU court, with the judges saying that the review of the latter was “not comprehensible.” In 2018, the Court of Justice of the European Union (ECJ) ruled that the ECB’s plan was valid and within the body’s mandate.
Asked for comment by Reuters, the EU’s top court also pointed at precedence of the bloc’s law over member states’ national ones, but did not elaborate on the specific case.
The German court ordered the country’s central bank, the Bundesbank, to stop participating in the ECB’s stimulus scheme in three months unless the ECB proves that the bond purchases are necessary.
The ECB launched the controversial plan to boost the economy and keep inflation levels close to two percent back in 2015. The program was halted in 2018 and relaunched around a year later. The plan’s total holdings were €2.7 trillion at the end of March, according to Bloomberg.
On top of that the central bank has launched an additional program to battle the fallout of the coronavirus pandemic, planning to buy €750 billion of bonds this year to offset the economic consequences of the virus-related crisis. This aid was explicitly excluded from the court ruling, while some said that the decision may still create hurdles for mitigation of the crisis.
The euro dropped 0.7 percent against the US as news of the German court’s decision emerged. The ruling has also sent key indices in the European markets lower.