Germany’s parliament put to bed Thursday fears that the country’s powerful central bank could soon be barred from participating in a crucial eurozone-wide bond-buying scheme.
In a stunning decision in May, Germany’s Federal Constitutional Court (FCC) had threatened to block the Bundesbank, the central bank, from taking part in the stimulus plan unless the European Central Bank (ECB) could show within three months that its government debt purchases are not “disproportionate”.
While the court made clear its ruling did not affect newer ECB programmes to shore up the economy during the coronavirus pandemic, it raised uncertainty over an important stimulus tool as Europe faces the worst economic storm since World War II.
Based on an early June decision by the ECB governing council and documents forwarded to Berlin, the Bundestag passed a resolution by show of hands Thursday to say it is satisfied the bank did not overstep the mark.
“The Bundestag concludes based on the decision of the ECB Council and the documents received that the requirements contained in the FCC’s 5 May judgement for carrying out a proportionality check… are fulfilled,” the text reads.
“Germany has an paramount interest in the future of the (euro) common currency,” it added.
Four mainstream parties — Chancellor Angela Merkel’s centre-right CDU and her coalition allies the social democrats (SPD), as well as the ecologist Greens and liberal FDP — backed the non-binding resolution.
But the reprieve may be only temporary, as opponents of so-called “quantitative easing” have warned they could bring a new court case.
German conservatives have bristled at the ECB’s purchases of government debt on the secondary market since 2015, designed to drive cash out of safe-haven bonds and into riskier investments more favourable to growth.
Critics argue that bond-buying risks “monetary financing”, effectively printing cash to plug government deficits and favouring overspending.
But its defenders point to other major central banks around the world resorting to the same tool since the financial crisis, aiming to stoke growth and fend off activity-sapping deflation.
The FCC ordered the German state to confirm whether the ECB’s 2.7-trillion-euro ($3 trillion) Asset Purchase Programme (APP) was “proportionate” to its mandated goal of maintaining price stability in the eurozone.
Judges found the Frankfurt institution might not have adequately considered the interests of groups like banks and savers.
The ruling triggered an awkward clash of jurisdictions as the ECB initially declared it was subject only to the Court of Justice of the European Union (CJEU) and German authorities would have to deal with the FCC.
Central bank independence from governments in setting their monetary policy is highly prized.
But ECB governors found what they believe is a face-saving solution, discussing the programme in their early June meeting and forwarding in-depth documentation to Berlin.
“This public evidence demonstrates that we take the potential risks and side effects of our decisions very seriously,” central bank board member Yves Mersch said in a speech Thursday.
“The ECB council… has convincingly demonstrated its deliberations about proportionality,” German Finance Minister Olaf Scholz wrote to parliament president Wolfgang Schaeuble last week.
Politicians hope that passing the resolution will put an end to the matter — at least for now.
“The Bundesbank (central bank) is bound by our decision, but must decide on its own authority whether the ECB’s justifications meet our criteria,” FCC judge Peter Huber told the Frankfurter Allgemeine Zeitung daily this week.
“The Federal Constitutional Court is no longer involved.”
But Peter Gauweiler, the former chief of Bavaria’s arch-conservative CSU party and a plaintiff in the original case against the ECB, warned that he could launch a new legal action.
If unsatisfied by the ECB’s documents “I will apply for implementation” of the judgement barring the German central bank from buying bonds, he told the Sueddeutsche Zeitung daily.