Bank of Estonia chief: German court's ECB decision remarkable

Bank of Estonia governor Madis Müller.
Bank of Estonia governor Madis Müller.

Head of the Bank of Estonia Madis Müller has called a German constitutional court decision Tuesday which declared the purchase of European Central Bank (ECB) bonds in part illegal a remarkable development, adding that the bank cannot be blamed. Müller also pointed out the political significance of the ruling, which goes against an earlier European Court of Justice (ECJ) judgment.

The ruling requires German participation in the bond-buying scheme ends in three months if the ECB does not amend its practices.

Plaintiffs in the case included the former leader of Alternative für Deutschland (AfD), the largest opposition party in the German parliament, which also has 11 European Parliament seats.

The Bundesbank, the German central bank, is the most influential central bank when it comes to ECB decisions, according to some reports.

Müller: ECB will be able to show it has been compliant with rules

Müller says the ECB cannot be blamed for anything substantive, and the central bank will be able to demonstrate compliance with the proportionality requirement. The judgement is also significant in that it addresses the German goverment and the Bundestag, rather than the Bundesbank or the ECB itself.

"This is indeed a very remarkable decision by the German Constitutional Court," Müller said, ERR's online news in Estonian reports.

"It seems to me that with this complaint concerning the ECB's compliance or non-compliance with the proportionality requirement here, I believe, we can certainly demonstrate that monetary policy decisions are being considered in every way, and it is not just about one asset purchase program," Müller said at a press conference on Wednesday.

More than €2 trillion in government debt purchased since 2015

The German Constitutional Court, Germany's top court and based in the city of Karlsruhe, ruled that the ECB's mass bond-buying to stabilize the eurozone in part violates the German constitution, the BBC reported Tuesday night.

The court said that there had not been enough German political oversight in the purchases, worth €2.1 trillion, of government debt, which had been taken on since 2015 (purchases during the coronavirus crisis are excepted).

If the ECB does not bring the bond-buying program in line with the rules within a three-month period, the Bundesbank will no longer be able to participate, it is reported.

Madis Müller noted that before the decisions of the ECB's governing council are taken, working groups will be held with the participation of all central banks, which consider the pros and cons of various alternatives. 

"I believe that it will certainly not be possible to blame a substantive shortcoming in this regard," he said.

"However, it is true that, from the ECB's point of view, this is a delicate situation, as it is not addressed to the ECB, nor even the German central bank, but rather to the German government and the Bundestag," Müller went on.

ECJ ruled differently

"Also in 2018, the European Court of Justice (ECJ) ruled on this same asset purchase program, saying then it does not infringe European law."

Müller said it is now necessary to discuss how best to provide reassurance to both the German court and the government and parliament of that country, and to explain all the considerations which have always existed when making monetary policy decisions.

According to Tueday's ruling, the Bundesbank should no longer participate in the ECB's Public Sector Purchase Program (PSPP) - the scheme that involved the bond-buying - until a new decision is taken by the ECB's Governing Council.

The court also ruled that the Bundesbank, the German central bank, must sell the bonds it had already bought, though on the basis of a long-term strategy and in coordination with other eurozone countries. 

In Germany, a total of €533.9 billion worth of bonds had been purchased under the PSPP at the end of April, ERR's online news in Estonian reports.

The plaintiffs in the case, who say the purchases violate the EU ban on one eurozone member subsidizing the debts of another are, according to the BBC, a group of German academics, including former Alternative for Germany (AfD) leader Bernd Lucke.

They argue that the purchases violate the EU ban on one eurozone member subsidizing the debts of another.

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Editor: Andrew Whyte

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