ECB to resist German court order to justify bond purchases

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The European Central Bank should resist pressure from the German Constitutional Court to justify its massive purchases of government bonds, according to several members of its board of governors.

On Wednesday, four ECB council members told the Financial Times that they were determined not to answer directly to the German court, arguing that such a decision would infringe on the independence of the central bank and expose it to pressure from other national courts. The majority of ECB council members oppose a response, they said.

The Karlsruhe constitutional court on Tuesday ordered the German government to ensure that the ECB performs a “proportionality assessment” of its purchases of government bonds to ensure that their “economic and fiscal policy effects” do not prevail over other political objectives. He threatened to prevent the Bundesbank, the German central bank, from making further asset purchases if the ECB failed to comply within three months.

The German court stunned lawyers and jurists by partially rejecting a 2018 European Court of Justice ruling that the purchase of ECB bonds was legal. According to lawyers, it was the first time that a national court declared invalid a judgment of the Court of Justice and could undermine the uniform application of EU law, one of the most important achievements of the bloc.

“The court’s arguments are ridiculous and we could easily answer them in five minutes, but we absolutely must not do so,” said a member of the ECB’s council, who added that this view was shared by the 24 other members of the bank’s highest decision. – decision-making body that held a conference call Tuesday evening to discuss the judgment.

“What is the risk if we respond?” Asked the board member. “When the time comes to raise interest rates, another court in another country will challenge us – so what?” “

“In my opinion, we should not prepare a special response for the German court,” said a second member of the ECB council.

A third member of the ECB’s board said the German court decision appeared to ignore the extensive analyzes the central bank had done on the impact of its bond purchases, adding that during Tuesday night’s appeal, the The idea had been put forward to highlight the relevant documents on its website.

“If I understand correctly, the respondents in this case, and those to whom the court has addressed its decision, are the German government and parliament,” said a member of the ECB council. “We will continue to do what we do. You will not get an official response from the ECB. “

The ECB has yet to formally decide whether or not to respond to the German court, and a spokesperson declined to comment.

Several members of the ECB council suggested that the Bundesbank could instead provide a proportionality assessment for its own government or national parliament, according to several of those who attended the meeting.

“The Bundesbank can respond to this through the Berlin finance ministry,” said the first council member.

This would place Jens Weidmann, president of the Bundesbank and member of the ECB’s governing council, in the delicate position of having to justify the purchases of public sector bonds by the ECB for 2.2 billion euros over the past five years. years, although it was one of the most important political opponents of the council. The Bundesbank declined to comment.

The second member of the council said that Mr. Weidmann was “in a very difficult situation as he is caught between the constitutional court of his own country and the board of governors of the ECB of which he is a member”.

“I wouldn’t be surprised if [German chancellor Angela] Merkel is not stepping in at any point to resolve it, “said the board member.

Several senior European politicians have spoken out in defense of the independence of the ECB and have declared that it reports only to the ECJ, not to national judges.

“It is not for any constitutional court to decide what the ECB can and cannot do,” Guiseppe Conte, the Italian prime minister, told Il Fatto Quotidiano on Wednesday.

French Finance Minister Bruno Le Maire said that the ECB “takes its decisions independently and decides on the conditions for the exercise of its mandate under the exclusive control of the ECJ”.

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