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German Court Questions Legality of ECB Bond Buying Program
May 6, 2020 - (Gold Market Wire) - GMW – A landmark ruling by Germany's Constitutional Court has questioned the legality of the ECB's (European Central Bank) monetary policy and challenged the legal framework in which it buys EU member-state Bonds. At the core of the ruling is the threat by the court to prevent the Bundesbank from carrying out the ECB's bond and asset purchase policy unless the ECB carries out an assessment of its Bond purchasing program and substantiates that the policy does not constitute moving beyond its legal remit of monetary policy into the realm of fiscal and economic policy.
The German court decision is a direct challenge to ECB policy whereby it essentially buys the majority of EU member government bonds. Interestingly, the German court has declared as invalid, the European Court of Justice (ECJ) ruling that such bond purchases by the ECB were both legal and within the ECB's mandate. This marks the first time a (EU) national court of law has declared an ECJ ruling as invalid.
Over the past decade, the ECB has purchased some 2.7 trillion Euros of government debt since 2015, in an attempt to “stimulate” the EU economy – which it has largely failed to do. In doing so, it has driven interest rates to 0% which has left EU member state pension systems at the brink of insolvency. Equally, any attempt to raise rates in future would cause EU-member budgets to explode, causing a sovereign debt crisis that could bankrupt weaker nations like Spain, Portugal and Greece and severely weaken an already weak currency, the Euro.
The Court's ruling, in some aspects, also appears to be an attempt to demand accountability of the ECB's plan to drastically expand it's 750 billion Euro Pandemic Emergency Purchase Program, which some analysts see as an attempt by the ECB to inject itself into the fiscal realm of EU member states. That is not party of the Treaty structure that the EU is supposed to operate under.
Once again, the fact that the EU is not a federal state, but has policy organs which attempt to act like it is, has brought Brussels and a member state into conflict. This time, however, the challenge by the German court is fundamental.
Politically, the challenge by the German court to the ECJ gives encouragement to member states like Poland, the Czech Republic and Hungary who have resisted attempts by Brussels to dictate the terms of their national policies over immigration. The ECJ recently ruled that these countries broke the law by refusing to accept refugees from outside the bloc.