2020欧洲杯网站

Germany’s top court clashes with European Central Bank in revolutionary ruling

2020欧洲杯网站 The German court decision threatens to undermine confidence in the euro and kills off any hope of eurobonds or joint debt issuance

Germany’s top court has fired a cannon shot across the bows of the European Central Bank and accused the European Court of breaching EU treaty law, marking an epic clash of rival judicial supremacy.

In an explosive judgement, the German constitutional court ruled that the ECB had exceeded its legal mandate and “manifestly” breached the principle of proportionality with mass bond purchases, now topping €2.2 trillion and set to rise dramatically. The bank had strayed from the monetary realm into broad economic policy-making. 

The court said the German Bundesbank may continue to buy bonds during a three-month transition but must then desist from any further role in the “implementation and execution” of the offending measures, until the ECB can justify its actions and meet the court’s objections. It also said the Bundesbank must clarify how it is going to sell the bonds it already owns. 

2020欧洲杯网站“For the first time in history, the constitutional court has found that the actions and decisions of European bodies overstep their legitimate competence, and therefore have no validity in Germany,” said the court’s president, Andreas Vosskuhle. 

2020欧洲杯网站No country has dared to do this before since the creation of the Community in 1957. It is a revolutionary moment for the European project. 

Olaf Scholz, the German finance minister, said the court had set “very clear boundaries” and that Europe would henceforth have to find other ways to keep monetary union on the road. 

The venerable institution in Karlsruhe – the Verfassungsgericht – read the riot act to the European Court of Justice, concluding that the ECJ’s dismissive attitude to questions of proportionally was “incomprehensible” and inconsistent with its approach in “virtually all other areas of EU law”. It said the European judges were acting ultra vires and beyond treaty authority.

2020欧洲杯网站In a thunderous passage it reminded the Euro-judges that the member states are the “Masters of the Treaties” and not the other way round, and that if national courts were to rubber stamp decisions by EU institutions it would be a slippery slope and a threat to the “principle of democracy”.

The Verfassungsgericht has never accepted the ECJ’s assertion of supremacy and has always reserved the right to strike down EU law if it breaches the German Grundgesetz, but has never has never acted on this threat until today. It pointedly stated that the Lisbon Treaty did not establish such supremacy and that the EU is not a federal state. 

It ruled point blank that the German court is “not bound” by the ECJ’s earlier ruling on bond purchases. In other words, Germany has reasserted her sovereignty. This is heady stuff. 

“It lets a lot of big ugly genies out of the bottle. The whole constitutional basis of Germany’s role in European integration has to be reviewed in light of this,” said David Marsh, president of the Official Monetary and Financial Institutions Forum and author of a Bundesbank history.

“People have been poo-pooing these court cases for years saying they are being brought by populists and don’t matter, and now they discover that the court agrees with these litigants,” he said.

Andrew Duff, a Brussels veteran and president of the Spinelli Group, said German ruling was outrageous. “For Karlsruhe to say the court in Luxembourg is acting ultra vires and in breach of the Treaties is pot calling kettle black. It is not their competence to rule on EU law. This is also a bloody nuisance,” he said.   

2020欧洲杯网站Lucas Gutenberg from the Jacques Delors Centre said the court had “gone nuclear” and marked down the limits of central bank intervention. “We cannot build our entire crisis management on the ECB doing the heavy lifting. This is the moment for politicians to step up,” he said.

While the judgement refers to an earlier bond programme (PSPP) it raises implicit questions about the latest €750bn blast of “pandemic QE” launched in March to stave off economic depression. These fresh purchases are covering the ballooning budget deficits of Italy and other states that risk being shut out of the capital markets. 

2020欧洲杯网站The pandemic scheme expires in December. It is widely deemed to be too small to hold monetary union together in the face of such a massive economic shock. Markets took comfort last week after ECB president Christine Lagarde vowed to expand the purchases “by as much as necessary, and for as long as needed”, but rhetoric is empty without full German backing.

While other central banks in the ECB system can temporarily cover for the Bundesbank in extremis – a notion floated by the French – global confidence in the euro project would collapse overnight if the eurozone’s dominant economic power and chief creditor refused to take part. 

It is also unclear whether the Bundesbank could continue to extend “credits” indefinitely to fellow central banks through the ECB’s internal Target2 2020欧洲杯网站nexus. German credits are about to breach €1 trillion. This support is taking on the character of a fiscal rescue by the back door. Any move by the Bundesbank to suspend Target2 would precipitate a systemic liquidity crisis. 

The ECB has been courting trouble. Its chief economist, Philip Lane, stated openly in a blog last week that pandemic QE is being used to lower risk spreads in “individual sovereign markets”, particularly those at risk due to the “prospective scale of public debt issuance”.  

2020欧洲杯网站This was almost an admission that the ECB is bailing out Italy. Goldman Sachs says 35pc to 45pc of the latest purchases have been to prop up the Italian debt markets. 

The Verfassungsgericht said the ECB had crossed into fiscal policy, but crucially it also stated that the bond purchases do not in themselves violate Treaty Article 123, which forbids deficit financing. It rejected the core gripe of the litigants, a melange of industrialists, academics and eurosceptic politicians. 

2020欧洲杯网站“The ruling is better than I thought: the court basically agreed with our complaint but it lacks the courage to see this through and enforce the law. We Germans just don’t have it in us any more,” said Prof Gunnar Beck, an MEP for the anti-euro AfD party and a lawyer for the litigants. “I think the next stage is going to be a push for EU Treaty change to legitimise all these illegal actions.” 

The European Central Bank headquarters in Frankfurt

The question of whether bond purchases are proportional is critical. The more QE morphs into a fiscal rescue worth trillions, the more it usurps the tax-and-spend prerogatives of the German parliament, the lifeblood of democracy. The court has ruled repeatedly that the Bundestag may not alienate these fiscal powers to any supra-national body. To do so violates the German Basic Law.

The Verfassungsgericht2020欧洲杯网站 hinted that bond purchases will be deemed unacceptable if the ECB exceeds its 33pc rule for each bond series, diverges from the “capital key” (reflecting GDP), or buys low-grade debt. “This limits the scope for buying Italian government bonds,” said Clemens Fuest, head of the IFO Institute.

The ruling kills off any residual hope of eurobonds or joint debt issuance. That would require a change in the EU treaties and the Grundgesetz. Fiscal support for Club Med states may have to come mostly in the form of formal loans from the EU bailout fund (ESM), and subject to the hairshirt of the Fiscal Compact once the crisis is over. 

It is an open question whether any Italian leader could activate this fund and survive in office. The mechanism is seen as a Trojan horse for a troika2020欧洲杯网站 takeover by EU officials.

The markets have greeted the earthquake ruling with a yawn. Italian risk spreads have hardly moved. European bourses have rallied hard on post-lockdown optimism.

Investors are betting that the EU will come up with a fudge that allows the ECB to keep buying unlimited volumes of Italian debt. They may have misunderstood the enormity of the judgment.