In a ruling published on May 5, the Constitutional Court of Karlsruhe called on the ECB to justify within 3 months whether its debt purchases were in line with its mandate, a decision that could undermine the current policy of supporting European states in the midst of a health crisis.
A decision of rare virulence
The Karlsruhe Constitutional Court has ruled on the validity of the sovereign debt repurchases implemented since 2015 by the ECB to support the eurozone, an unexpected ultimatum in the midst of a pandemic. Specifically, the German court is urging the institution to demonstrate the positive effects of its public debt buyback program by August. As a reminder, the ECB injected €2,600 billion into the markets between March 2015 and December 2018, of which €2,200 billion was used to buy back government bonds.
If the ECB fails to provide an explanation within the allotted timeframe, the German central bank, the Bundesbank, will be barred from participating in public debt purchases. This is a decision of rare virulence, according to several observers who are opposed to the independent monetary institute providing an answer to the German judge.
The German court explained that it had been unable to establish any violation by the ECB of its ban on direct financing of European states. Nevertheless, it considers its ability to massively repurchase public debt as part of "quantitative easing", reactivated in November 2019, to be "doubtful".
European Commission considers sanctions against Germany
Following this ruling by the German Supreme Court, the European Commission raised the possibility of infringement proceedings against Germany. The stakes are high for Brussels, which must safeguard monetary policy while upholding the independence of the ECB and defending the primacy of European law over national law. The German ruling has not gone unnoticed in some countries, notably Poland. The head of the Polish government hailed the Constitutional Court's decision as "one of the most important judgments in the history of the EU", in an article published in a German daily on May 10.
In a press release, the CJEU reiterated that it alone is competent to determine whether or not an act of a European institution is contrary to European law. The Luxembourg court added that divergences between the courts of the Member States as to the validity of this type of act could "compromise the unity of the legal order of the Union" and "undermine legal certainty". It remains to be seen whether the European Commission will follow through on its threats by sanctioning Germany in the coming weeks.