Risk of Germany’s constitutional court banning QE is averted
GERMANY’S Bundesbank said it will continue to take part in European Central Bank (ECB) asset purchases after a legal standoff with the country’s constitutional court was resolved.
In May, Germany’s constitutional court ruled that a key element of the ECB’s quantitative easing programme could be illegal. The ruling dealt specifically with bonds purchased under the ECB’s Public Sector Purchase Programme (PSPP), but if it had stood it would have implications for other action – including efforts to contain the fallout from Covid.
The German court has no authority over the ECB and the scheme had previously been sanctioned by the Court of Justice of the European Union (CJEU), the superior court as far as EU law goes.
Even so, the German ruling put participation by the country’s central bank in the programme in doubt.
The court said the Bundesbank could no longer be part of the scheme “unless the ECB governing council adopts a new decision that demonstrates the PSPP [transactions] are not disproportionate to the economic and fiscal policy effects,” the judges said.
The court gave German federal authorities three months to provide evidence an assessment had been done to show the scheme was proportionate to the anticipated outcome and that policy makers had considered any potential adverse side effects.
Following deliberations in the ECB’s Governing Council after the supply of documents to German lawmakers and the federal government, the Bundesbank takes the view that the court’s demands have been met, a spokesperson said.
“The German Bundesbank will therefore continue to take part in purchases under the framework of the PSPP,” said an emailed statement.
The ECB was not directly involved in the case, but to help lawmakers settle the dispute, the ECB Governing Council authorised disclosure of several documents in late June.
Officials also concluded at their June policy meeting that asset purchases are an adequate tool, with chief economist Philip Lane arguing that all of the ECB’s buying schemes are “proportionate measures” for pursuing price stability.
Germany’s Bundestag backed the older PSPP program last month.