Germany’s constitutional court has ruled the European Central Bank’s vast purchases of public sector debt were legal, but called for it to review if they were “proportionate” in pursuit of its monetary policy objective.
Germany’s constitutional court has threatened to block fresh purchases of German bonds through the European Central Bank’s flagship stimulus programme, potentially weakening the bloc’s monetary policy response to the coronavirus crisis.
The court on Tuesday ordered the German government and parliament to ensure the ECB carried out a “proportionality assessment” of its vast purchases of government debt to ensure their “economic and fiscal policy effects” did not outweigh its policy objectives, and threatened to block new bond-buying unless the ECB did so within three months.
In recent weeks the central bank has vastly expanded its quantitative easing programme of bond-buying to mitigate the economic consequences of coronavirus. It has bought more than €2.2tn of public sector debt since launching quantitative easing in 2014 in an attempt to halt a slide in inflation. The bond-buying programme has long been controversial in Germany, where critics argue the central bank has exceeded its mandate by illegally financing governments and exposing taxpayers to potential losses.
Ruling in a long-running case about the legality of the bond-buying, the court in Karlsruhe said the German government and parliament had “a duty to take active steps against” QE “in its current form”.
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