The Second Senate of the Federal Constitutional Court in Germany ruled Tuesday that the European Central Bank’s (ECB) 2015 bond-buying program partially violates the German constitution. The court granted the ECB a three-month “transitional period” to prove the proportionality of its program before the Deutsche Bundesbank (central bank of Germany) may cease its participation.
The program is called the Public Sector Purchase Programme (PSPP), part of the Expanded Asset Purchase Programme (EAPP), which allows the “Eurosystem central banks … [to] purchase government bonds or other marketable debt securities issued by central governments of euro area Member States, by ‘[recognized] agencies’ and international [organizations] or by multilateral development banks.”
The complainants argued that the PSPP violates Article 123 of the Treaty on the Functioning of the European Union (TFEU) and Article 5(1) of the Treaty on European Union (TEU) in conjunction with Articles 119 and 127 of the TFEU.
Though the court decided that the ECB’s program “went beyond its mandate” with the PSPP, it also critisized the European Court of Justice (ECJ/CJEU) for its 2018 decision, in which it determined that the ECB program was constitutional under EU law. According to the German court:
[T]he CJEU held that the Decision of the ECB Governing Council on the PSPP and its subsequent amendments were still within the ambit of the ECB’s competences. This view manifestly fails to give consideration to the importance and scope of the principle of proportionality … which applies to the division of competences between the European Union and the Member States. … The CJEU’s approach to disregard the actual effects of the PSPP in its assessment of the programme’s proportionality, and to refrain from conducting an overall assessment and appraisal in this regard, does not satisfy the requirements of a comprehensible review as to whether the European System of Central Banks (ESCB) and the ECB observe the limits of their monetary policy mandate.
Experts are concerned that this decision will lead to other countries in the union, like Hungary and Poland, pushing against EU rule of law.