Editorials

Irish Times view on the Karlsruhe test: A welcome ruling

Finding against ECB on central policy issue could have precipitated a major crisis for the euro

The chairman of the German constitutional court Andreas Vosskuhle takes off his hat on Tuesday at the Constitutional court in Karlsruhe, after giving out the court’s ruling that the European Central Bank must clarify a key bond-buying scheme to support the eurozone economy is “proportionate” or else Germany’s Bundesbank central bank may no longer participate. Photograph: Sebastian Gollnow / Pool / AFP via Getty Images
The chairman of the German constitutional court Andreas Vosskuhle takes off his hat on Tuesday at the Constitutional court in Karlsruhe, after giving out the court’s ruling that the European Central Bank must clarify a key bond-buying scheme to support the eurozone economy is “proportionate” or else Germany’s Bundesbank central bank may no longer participate. Photograph: Sebastian Gollnow / Pool / AFP via Getty Images
Wed May 06 2020 - 01:00

The welcome ruling on Tuesday by the German federal constitutional court that the European Central Bank’s (ECB) massive 2014 quantitative easing (QE) programme was not in breach of its EU treaty obligations will prompt a massive sigh of relief among euro-zone finance ministers.

A finding against the ECB on such a central policy issue could have precipitated a major crisis for the euro.

The treaty prohibits the direct financing of government spending by ECB cash, but, in buying up €2 trillion in government and other debt to stimulate the euro economy and to try to halt a slide in inflation, the bank did not exceed its mandate, the court found.

It imposed a new potentially onerous test on the ECB, however, by instructing the Bundesbank to require future purchases to be justified in terms of "proportionality" to ensure that their "economic and fiscal policy effects" did not outweigh its monetary policy objectives.

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The German court has never shied away from insisting, as it did over the Lisbon Treaty in 2009, on its own competence as a national court

This year the ECB also vastly expanded its purchases to stop the pandemic spiralling into a wider debt crisis in March by announcing a €750 billion emergency purchase programme to buy various assets including sovereign bonds. That programme is not affected by the ruling.

The QE programme has always been controversial in Germany, where critics argue the ECB has been illegally financing governments and exposing taxpayers to potential losses. They have also attempted repeatedly over the years to use the powerful court in Karlsruhe to stymie economic and monetary union. The latter, while sympathising with such claims has not ruled with them, but circumscribed the bank's actions.

The German court has never shied away from insisting, as it did over the Lisbon Treaty in 2009, on its own competence as a national court in reviewing “whether legal instruments of the European institutions and bodies keep within the boundaries of the sovereign powers accorded to them by way of conferred power”. Ultimately, despite the notional supremacy of EU law over national law, the court insists that the EU remains not a superstate, but an association of states.