GERMAN CONSTITUTIONAL COURT AGAIN REVIEWS EUROPEAN CENTRAL BANK ACTIONS


30/06/2020




Robert HARNEIS -TDO- (FRANCE)- The latest action by the European Central Bank (ECB) to prop up the economy of the EU by buying up even more member states’ securities, is again under attack in the German Constitutional Court.

The Alternative for Germany (Adf), the Eurosceptic right wing, anti-immigrant opposition party has launched a legal case against the Pandemic Emergency Purchase Programme (PEPP). The programme was originally launched for €750 billion in March and since extended to €1350 billion early June.

The main aim of PEPP is to hold down interest rates for Italian government stock. A strong rise in interest rates could force Italy to leave the Euro.

The allegation is that the new programme crosses the boundaries of what is legal because it means that the ECB will hold more than 33% of the securities of one member state – in effect Italy.

PEPP also means that the securities the ECB holds will no longer reflect the shareholdings of the member states of the Euro zone, in that there will be a bigger percentage of Italian securities than the Italian government has shares in the ECB.

The Constitutional Court has already ruled in an earlier judgement on 5 May against a previous plan, the PSPP, that “In particular, the purchase limit of 33% and the sharing of purchases according to shareholdings blocks selective measures in the PSPP scheme individual member states and prevents the Euro system from becoming the majority of government stock in any one member state.”

The court concluded that these breaches of the rules, are in turn in breach of article 79.3 of the German Fundamental constitutional law with “consequences difficult to calculate.” What they are saying is that the German parliament must be consulted for the scheme to be lawful in Germany because it affects the economic welfare of the German people.

The allegation of the Afd is that PEPP inevitably will be in breach of the German constitution, which does not permit Germany to finance other states within the Eurozone because it would adversely affect the prosperity of the German people. Already the artificially low interest rates are adversely affecting savings and pensions.

The Karlsruhe court has already ruled that unless the ECB demonstrates the legality of the earlier PSPP by 5 August, it will order the German Central Bank to cease to take part in the scheme.  It is therefore difficult to see how they can do otherwise than rule against the legality of PEPP, much as they might wish to avoid it.

As usual, the Constitutional Court will not rush to make a decision and it will likely be two years before they issue a judgement. However a ruling against PEPP would mean that the Eurozone’s richest member would be legally obliged to withdraw from the scheme with all the adverse consequences for the Euro that would ensue.

In the meantime the ECB and the European Commission know that the Euro is living on borrowed time. They will therefore try and create a situation where Germany is so committed to funding other member states, that it will simply be too difficult for it to change course.

Angela Merkel, a convinced European, will go along with this as she comes to the end of her time as Chancellor. She will be encouraged by the surge of her party the CDU and its ally the CSU in the polls since the beginning of the pandemic, which has been relatively well managed in Germany.

However, it remains unlikely that prudent German electors will translate that approval into support for the rocky finances of the Italian and other Mediterranean governments. This is particularly so as many members of the CSU and CDU are themselves opposed.

The EU authorities are also worried because the German court has made it clear that it does not consider the European Court of Justice (ECJ) as a superior jurisdiction where the German constitution is concerned. Where Germany leads today other less powerful countries such as Poland or Hungary may follow. Without a ‘supreme court’ the United States of Europe that the pro-Europeans dream of, is an impossibility.


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