The German constitutional court’s courageous ruling was necessary

Germany’s Federal Constitutional Court made history in May 2020. The justices found that the European Central Bank acted outside its remit by purchasing government debt. Accordingly, the court suspended the Bundesbank from participating in the ECB program.

A picture of Andreas Vosskuhle, a German legal scholar and president of the BVerfG
May 5, 2020, Karlsruhe: Andreas Vosskuhle, Chairman of the Second Senate of the Federal Constitutional Court, speaks during the announcement of the ruling on the European Central Bank’s purchases of government bonds. © dpa

The Bundesverfassungsgericht, the Federal Constitutional Court of Germany (BVerfG), sent shockwaves throughout Europe last week. On May 5, it ruled that Germany had violated its constitution by failing to monitor the European Central Bank (ECB) and its Public Sector Purchase Program (PSPP).

The plaintiffs, who included entrepreneur Patrick Adenauer, a grandson of former German Chancellor Konrad Adenauer (1949-1963), claimed that the ECB had overstepped its mandate by bailing out financially troubled eurozone states and pursuing economic, rather than monetary, policy. Through the PSPP, between March 2015 and December 2018, the ECB purchased some 2.6 trillion euros worth of government bonds and other securities to stimulate economic activity in the eurozone. As of November 1, 2019, the European Union’s central bank resumed the controversial purchases, initially on a comparatively small scale of 20 billion euros per month.

Two courts, two verdicts

The PSPP does seem to contradict the ECB’s fundamental rules and spirit. It breaches the institution’s bailout restrictions and takes it into forbidden territory, namely, economic policy.

Earlier, in December 2018, the Court of Justice of the European Union ruled in favor of the ECB, finding that the PSPP fell within the central bank’s remit. 

The BVerfG thought otherwise. The justices wrote: “[T]he Federal Government and the German Bundestag violated the complainants’ rights under Article 38.1 sentence 1 in conjunction with Article 20.1 and Article 2 in conjunction with Article 79.3 of the Basic Law by failing to do so against the fact that the European Central Bank (ECB) has neither examined nor demonstrated in the decisions adopted to introduce and implement the PSPP that the measures taken are proportionate.”

The court has suspended the German central bank’s participation in the implementation of the ECB’s government debt-buying policy for a maximum of three months, until the bank’s Governing Council proves that the scheme is necessary and proportional to its economic and fiscal effects. Should the ECB fail to make its case, the Bundesbank will have to stop participating in the PSPP. This would entail selling more than half a trillion euros of German government debt to return to the proper Eurosystem framework, the eurozone’s monetary authority.

With the ruling, the BVerfG affirmed its independence from the world of politics.

Even though the verdict appears to be in full accordance with European and German law, its announcement triggered a political earthquake. With the ruling, the BVerfG affirmed its independence from the world of politics, which cannot be said of the EU’s highest court. In a strange move, European Commission President Ursula von der Leyen announced the EU’s intention to initiate “infringement proceedings” against Germany. 

The commission believes that the BVerfG, as a national court, cannot deviate from the European Court of Justice’s position since the eurozone’s monetary policy is an exclusive EU responsibility.

Supporters of limitless deficit spending and socialist monetary policies have rallied against the BVerfG’s ruling. The fact remains, however, that the ECB’s determination to do “whatever it takes” to protect the eurozone’s status quo undermines the value of the common currency, incentivizing governments to overspend and accumulate debt. Worst of all, it destroys private savings and retirement funds. 

The outcry over the German judgment could have a silver lining. It may lead to an important discussion on whether a member state’s constitutional court can reach a verdict that contradicts the European Court of Justice if there are discrepancies in their interpretation of fundamental legal issues. Another debate is needed to clarify the perspectives for the EU – should it be a union of sovereign states, or a unitary state with some degree of decentralization?

The BVerfG’s courageous decision to suspend the Bundesbank from the program of the ECB will launch a necessary legal and political process. Berlin will not be able to ignore this historic ruling.

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