İrem GÖL -TDO- A very significant German court ruling raises doubts on the capacity of the European Central Bank in fighting the current and future crisis. Germany’s Constitutional Court ruled that the European Central Bank (ECB) overstepped its powers in gobbling up 2 trillion euros of government debt in the past five years, and gave the central bank three months to prove that the purchase scheme was necessary and proportional. Judges warned that the European Central Bank’s plans to flood the financial system with cheap credit could breach Germany law.
According to the court decision, in case of the ECB failure, the Bundesbank should quit the scheme and sell its 533.9 billion euros worth of German government debt, setting the stage for potential mayhem in the bond market. The judges said: “The Bundesbank may thus no longer participate in the implementation and execution of the ECB decisions at issue unless the ECB governing council adopts a new decision that demonstrates the Pandemic Emergency Purchase Programme are not disproportionate to the economic and fiscal effects.”
After the ruling of the court, the ECB is expected to struggle in expanding stimulus any further and a fresh legal challenge to its recently launched Pandemic Emergency Purchase Programme, an essential tool to overcome the bloc’s economic recession due to the pandemic, may also come very soon. Carsten Brzeski warned the ruling could undermine the authority of the ECB and its ability to protect the Eurozone’s financial system during a crisis.