If Germany’s judges and institutions are allowed to quibble over the ECB’s actions, then surely all euro area states will be able to do the same.
The German Constitutional Court has issued a dangerous verdict on the European Central Bank’s original quantitative easing program. The ECB won’t find it particularly hard to comply with the court’s demand to show that it acted proportionately in launching its bond-buying scheme. However, the judgment poses deep institutional questions about the independence of the euro zone’s central bank and the relationship between domestic and European Union law.
The near-unanimous ruling from the eight red-robed judges is doubly ironic. Since the ECB’s creation, the dominant view in Germany has been that it should be shielded from political influence, in the same way as the Bundesbank. The country also hoped that the ECB would interpret its mandate narrowly, prioritizing its objective to keep inflation “below but close to 2%” over any wider concerns. Yet the court in Karlsruhe has essentially ruled that German institutions should be doing more to monitor the central bank’s actions, calling into question its independence, and demanded that the Frankfurt institution shows that it took broader economic and fiscal considerations into account — not just inflation — when deciding to pursue QE.
The judges have asked that Germany’s government and parliament press the ECB to show that it acted proportionately in launching its original asset-purchase program, including taking into account those non-inflation concerns. Were the central bank to fail to provide this assessment within three months, Germany’s Bundesbank would have to withdraw from the bond-buying scheme.
