Could the German constitutional court’s ruling on the policies of the European Central Bank prove the death knell for European integration?by Paul Wallace / May 15, 2020 / Leave a comment
Germany’s constitutional court is a power in the land. The court may be tucked away in the sleepy city of Karlsruhe close to the Black Forest in south-western Germany, but politicians in Berlin respect and fear the scarlet-robed judges who hand down constitutional rulings. The court derives its authority from Germany’s baleful history, since it acts as a guardian against any threats to the principles of democracy and human rights set out in the Basic Law of 1949.
But, in another response to its disastrous history in the first half of the 20th century, Germany is deeply enmeshed in European integration, especially through its membership of the monetary union. That makes for a potential turf war with the European Court of Justice (ECJ) based in Luxembourg, when German citizens bring cases challenging the legitimacy of Germany’s participation in European projects. Until this month the Karlsruhe court acknowledged (through gritted teeth) the ECJ’s primacy in interpreting European law, including in a notably fractious case about the policy of the European Central Bank (ECB) giving substance to Mario Draghi’s “whatever it takes” pledge to save the euro.
All that changed on 5th May, when the judges issued an extraordinary ruling on Germany’s participation in another controversial monetary policy initiative, the quantitative easing through buying financial assets that the ECB has undertaken since March 2015. Despite expressing misgivings, the court did not accept the claim that the main purchase programme, buying public sector bonds, was “monetary financing,” in which central banks create money to fund government borrowing. But the judges (with one dissenter out of eight) found fault with the ECB on grounds of “proportionality” since it had failed to take account of the wider effects of the purchases, illegitimately widening its role to economic as well as monetary policy.
The Karlsruhe judgment packed a punch. The court called upon the German government and Bundestag to take steps to ensure that the ECB conduct a “proportionality assessment” of the public sector purchase programme. It set a deadline of three months for the ECB to demonstrate that its monetary policy objectives were “not disproportionate” to its economic and fiscal policy effects. Failing that, the Bundesbank should cease to participate in the programme, which was restarted late last year.
The ruling came…