Germany’s top court deserves our thanks

So orderly, so nit-picking, so German. This week, Germany’s constitutional court in Karlsruhe finally delivered its verdict on the European Central Bank’s (ECB) most prominent bond-buying program. Weighing in at 110 pages, this ruling was historic. For the first time, a national court in effect overruled the European Court of Justice in Luxembourg.
Well spaced out because of the new coronavirus rules, the red-robed judges didn’t exactly blow up the ECB policy in question, known as the public sector purchase program (or PSPP). But they sure gave the German government, parliament and central bank, as well as the ECB, a lot of work to do if they want to keep it. The court told the ECB that it has three months to prove that its bond purchases are “proportionate.” And it ordered Germany’s government and Bundestag to monitor the ECB’s efforts. Otherwise Germany’s Bundesbank, the ECB’s largest shareholder, may no longer participate in this particular form of quantitative easing, in effect neutering the program.
Across much of the European Union, above all in the southern member states, mouths were once again agape over such Germanic intransigence, stubbornness and legalism. Don’t they get that the ECB is just trying to rescue the euro area’s economy and preserve its cohesion? Maybe the bank does, here and there, blur the boundaries between monetary policy, which is its remit, and economic policy, which isn’t. But that’s only because Europe’s governments, above all Germany’s, have long shirked their duty to help out with fiscal policy.
And besides, many Europeans are wondering why, if there really are fundamental questions at stake in this case, only one member state, out of 19 in the euro area and 27 in the EU, is bothered about them. Other Europeans, including the judges of the EU’s top court, are trying to be pragmatic and magnanimous in interpreting the European treaties. Only the Germans, it seems, will forever be so rule-bound.
Some of the case’s plaintiffs, who include industrialists, conservative politicians and even a grandson of postwar Germany’s first chancellor, may indeed be sticklers. In general, they like very little about the ECB and probably yearn in secret for their old Deutsche Mark. But the judges in Karlsruhe didn’t exactly follow the plaintiffs’ logic. In particular, they exonerated the ECB from one central charge: that its bond purchases amounted to a covert way of printing money to finance government deficits.
Instead, the judges emphasized other concerns. One point was that issue of proportionality I already mentioned. But their more interesting line of reasoning was buried in the fine print. It’s the question of how democratic the EU still is. If the ECB, unelected and indeed independent (as Germany in the 1990s insisted it must be), decides to mop up vast quantities of iffy bonds, then the national central banks that own the ECB still have to execute the trades. So the Bundesbank, for example, keeps accumulating risky assets on its own balance sheet. If those lose value, the German government will have to cough up money from its national budget. But the Bundestag, which has the constitutional duty to approve that budget, was never part of the decision. And if it’s beyond parliament, it’s also beyond voters.
In the same way, ECB policy is eroding the budget sovereignty of all member states. It is thereby creeping beyond the functions envisioned in the European treaties.

—Bloomberg