The German court questions the actions of the European Central Bank over the past 10 years

Last Tuesday the German Constitutional Court in Karlsruhe shook one of the foundations of the European Union, the European Central Bank (ECB). Shortly after 10 a.m. a ruling was made public that the ECB's procurement programme is partly unconstitutional and calls for it to be amended. Contrary to the opinion of the Court of Justice of the European Union (CJEU), which in 2018 considered that the bond purchase programme fell within the remit of the entity led by Mario Draghi, the German judiciary requires the ECB to prove that its action was proportional and grants three months to justify it. Otherwise, it demands that the Bundesbank, with a 26% capital in the organisation, ceases to participate in the purchases.   

It all started five years ago, when 1,750 people went to court to denounce the illegality of Draghi's purchase programme. The CJEU ruled that the measures were legal, but now the German court partially agrees with them and is demanding proof from the ECB that it has acted proportionately, limiting itself to the management of monetary policy.   

However, a group of German businessmen, who claimed that the ECB was financing the states, has had its case dismissed by the German Constitutional Court on the grounds that the ban on financing the budgets of the Member States, as laid down in the ECB's statutes, has not been violated. 

The European Commission has reacted quickly. Commission spokesman Eric Mamer stressed that European law takes precedence over the law of other states and that the decisions of the ECJ are binding on all national courts, including the German Constitutional Court. The Governing Council of the ECB, following a meeting on Tuesday afternoon, said it had taken note of the ruling but recalled that the ECJ had endorsed its programme.  

"The law of the European Union is above that of the Member States. This is a clearly nationalistic ruling. These judges do not want to accept that the ECJ is above the Constitutional Court," recalled Diego López Garrido, vice-president of Fundación Alternativas and former Secretary of State for the EU, in Atalayar.  

The President of the Federal Constitutional Court, Andreas Voßkuhle, explained during the presentation of the sentence that German law had been violated because neither the Government nor the Parliament had reviewed the decisions of the ECB Council. "German society and politicians tend to be fiscally orthodox, they have memories of the hyperinflation of the 1920s and take fiscal responsibility very seriously," Jon Frías, professor of Economics at the European University of the Canaries, told Atalayar.  

The third largest economy in the world and the economic engine of the EU discredits the European institutions with this ruling. Although it is still early to see the scope of this decision, the programme that allowed the risk premiums of Spain and Italy during the last financial crisis to be controlled has been called into question. "The liquidity provided by the ECB during the last recession and which enabled the euro to be saved is now in doubt and this will have an effect on the Spanish economy," says Mr. Garrido.   

The ruling comes at a very difficult economic time for the EU. The macroeconomic forecasts presented on Wednesday by the European Commission indicate that GDP will fall by 7.4% in 2020. This is the biggest recession in its history. The Eurozone, made up of the countries that use the common currency, will also suffer a 7.7% fall. 

The German Constitutional Court has stated that the ruling does not affect the measures taken by the EU or the ECB in the current health crisis, in reference to the purchases worth 750 billion euros made last March by the institution presided over by Christine Lagarde. For this new fund, however, the rules of the previous programmes have been made more flexible, opening the way to new demands. "That is the big risk," Vítor Constâncio, former vice-president of the ECB, explained on Twitter.  

Although it is difficult for the ECB to abandon the purchase programmes now, in the context of the COVID-19 crisis, Lagarde's room for manoeuvre is narrowed under this warning from the EU's most powerful economy. "This is a very bad signal for the market, it was a low blow from Germany to the EU. Spain's risk premium has been rising for a few days and this is going to mean a higher cost when looking for financing in the markets," says Frías. In addition, Garrido believes there is a danger that Bundesbank members who participate in decisions made by the ECB will stop attending meetings or will be hostile to agreements made within the institution.    

"The EU has entered the deepest economic recession in its history," said European Economy Commissioner Paolo Gentiloni during the press conference to present the estimates. The figures for 2020 will be worse than those recorded during the recession of 2009, when the eurozone economy contracted by 4.5%. Brussels estimates that in 2021 there will again be growth of 6.3% in the single currency area and 6.1% in the EU.   

The EU executive has also warned that the blow to the Union's economy will be symmetrical because the pandemic has affected all the member states, although it has stressed that the strength of the recovery in 2021 will be different in each territory and will depend on the evolution of the pandemic in each country, the structure of its economy and the financial resources of each country.