Opinion

The message in the ruling

The German Constitutional Court's ruling on the ECB's asset purchase programme is open to much criticism but it can hardly be blamed for raising an important question.

By: Date: May 12, 2020 Topic: European Macroeconomics & Governance

From its pretence to establish itself as a custodian of the custodians to the narrowness of its perspective on central bank policy and the parochial assessment of the distributional consequences of monetary decisions, there is much to criticize in the ruling by the German Constitutional Court on the asset purchase programme initiated by the ECB in 2015. But it can hardly be blamed for raising an important question.

Europe’s central bank was born with the precisely defined mandate of preserving price stability. Over the years, however, the ECB was given new missions, as for banking supervision, or it took on new roles, as when Mario Draghi famously said that it would do “whatever it takes” to prevent a break-up of the euro. Until the 5th of May everything suggested that the coronavirus crisis would end up having been a further reason for expanding its mission.

For European leaders unable to agree to create a budget or a meaningful solidarity fund for the euro area, it was expedient to let the ECB contain interest rate spreads and mutualise risk through its balance sheet. Having relaxed quantitative benchmarks, the central bank was able to expand its government bonds portfolio and change its composition. It thereby created fiscal space for Italy at a time when Rome desperately needed it to fight off the health crisis and its economic consequences. Until the bombshell came.

It has been a longstanding view of German constitutional judges that whilst monetary policy decisions are delegated to an independent institution, actions that have a fiscal character must remain the exclusive prerogative of elected parliaments.

The distinction is a subtle but an important one when assessing bond purchases by the ECB: when it uses them to lower interest rates across the board, it fulfills its monetary policy mission; same also when it prevents nervous markets from triggering self-fulfilling debt crises; but things would be different if it were to pile up bonds issued by specific governments to contain the rise in bond spreads triggered by heightened solvency fears.

This is an old controversy. It erupted already in 2010 when the ECB started buying Greek debt. It was given a temporary solution with the launch of the (never activated) OMT programme in 2012. And it came back after Christine Lagarde said on 12 March that the ECB was “not here to close spreads” – before retracting precipitously in the following hours.

There are very good arguments to support the relaxation of ECB self-imposed limits to asset purchases decided on 18 March. These limits were largely arbitrary. But the Karlsruhe ruling has made the ECB lose some of its magic. What the German judges are telling European leaders in their lopsided way is that decisions for which they ought to take ownership should not be delegated to an unelected body.

This is an uncomfortable truth. But time has come for EU and its member states to face it.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article More on this topic More by this author
 

Opinion

More Europe or less Europe?

Europe is often a ship with multiple captains. The boat moves forward in calm seas, but when the slightest wind puts it off course, it is not easy to steer that boat. It is not so much a question of more Europe rather than less, but of achieving ‘one Europe’. A ‘more-or-less Europe’ is an invitation to go nowhere.

By: Maria Demertzis Topic: European Macroeconomics & Governance Date: April 14, 2021
Read about event More on this topic
 

Past Event

Past Event

An alpine divide? Comparing economic cultures in Germany and Italy

A discussion of Italian and German macro-economic cultures and performances.

Speakers: Thomas Mayer, Patricia Mosser, Marianne Nessén, Hiroshi Nakaso, Francesco Papadia, André Sapir and Jean-Claude Trichet Topic: European Macroeconomics & Governance Date: April 13, 2021
Read article More on this topic
 

Blog Post

How has COVID-19 affected inflation measurement in the euro area?

COVID-19 has complicated inflation measurement. Policymakers need to take this into account and should look at alternative measures of inflation to understand what is actually happening in the economy.

By: Grégory Claeys and Lionel Guetta-Jeanrenaud Topic: European Macroeconomics & Governance Date: March 24, 2021
Read article More on this topic More by this author
 

Opinion

Central banks don’t have to pick winners and losers to fight climate change

Disclosures and financial regulation don’t get enough respect as tools to reduce emissions.

By: Rebecca Christie Topic: Finance & Financial Regulation Date: March 11, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Macroeconomic outlook: are we back on track?

Summary of the macro outlook based on Commission forecasts and analysis of the global picture.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: March 5, 2021
Read article More on this topic More by this author
 

Opinion

A K-shaped recovery and the role of fiscal policy

The spine of the letter represents the fall in activity at the start of the pandemic. Then there is a split, which leads to the two ‘arms’ that capture the different directions taken by economic activity in different sectors.

By: Maria Demertzis Topic: European Macroeconomics & Governance Date: March 2, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Can central banks save the planet?

“We are not going to lead our society to a low-carbon economy by continuing to finance the status quo. “

By: The Sound of Economics Topic: Energy & Climate Date: February 24, 2021
Read article More on this topic More by this author
 

Blog Post

A brown or a green European Central Bank?

The European Central Bank portfolio is skewed towards the brown economy, reflecting a bias in the market. Can and should the bank deviate from the market allocation?

By: Dirk Schoenmaker Topic: Energy & Climate Date: February 24, 2021
Read article Download PDF More on this topic
 

Working Paper

COVID-19 credit-support programmes in Europe’s five largest economies

This paper assesses COVID-19 credit-support programmes in five of the largest European economies, and examines how countries have dealt with trade-offs raised by the programmes.

By: Julia Anderson, Francesco Papadia and Nicolas Véron Topic: European Macroeconomics & Governance Date: February 24, 2021
Read article More on this topic More by this author
 

Opinion

Central banking’s brave new world

Ever since the 2008 financial crisis, central bankers have been busy developing new policy instruments to fight fires and ward off emerging threats. Nonetheless, many secretly dreamed of returning to the good old days of cautious conservatism (with financial stability taken seriously).

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: February 24, 2021
Read article More on this topic More by this author
 

Opinion

La dette : une obsession prématurée

Ce qui est malsain, avec la proposition d’annuler la dette, c’est le déni de réalité consistant à affirmer que l’Etat peut effacer une partie de ses engagements sans que cela ne coûte à personne.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: February 22, 2021
Read article More on this topic More by this author
 

Blog Post

US separates climate concerns from financial oversight in contrast to EU activism

Different EU and US supervisory approaches to climate risk may hamper efforts to work together and risk fragmenting global markets.

By: Rebecca Christie Topic: Finance & Financial Regulation Date: February 18, 2021
Load more posts