The decision of the German constitutional court in relation to the European Central Bank’s bond-buying programme is not a welcome one in Dublin. The ECB’s pandemic bond-buying programme will continue – indeed the decision referred directly to the earlier quantitative easing programme – but the ruling does raise questions about the limits to the ECB’s powers.
At a wider level, it also represents a national court challenging the authority of the European Court of Justice (ECJ) as the final arbiter – with potentially far-reaching implications.
The crux of the decision in relation to the ECB's bond-buying programme was first to reject an ECJ ruling in December 2018 that this did not breach EU law. The German court criticised the basis of the ECJ ruling and said that the ECB has not provided a sufficient wider economic justification for its move. It effectively gave the ECB three months to provide this – if not the Bundesbank must not participate in further bond buying. It is not clear whether the ECB will attempt to comply, or if it does, then when – or if – the German court might rule again on the issue.
It's also not clear where this goes next and different interpretations have come from recently departed senior ECB figures. Portugal's Vitor Constancio said legal cases directly objecting to the pandemic programme were now likely in Germany on the basis that it represents monetary financing, in other words printing money to support national exchequers.
The short-term concerns in Dublin will be more prosaic – will the ruling stay the ECB’s hand in any way in its response to the pandemic? An initial statement from Frankfurt that the ECB would continue to do whatever is necessary was welcome and should calm markets.
However questions will continue to rattle around about this and in particular about whether it might constrain the ECB in going outside the usual guidelines it adheres to in its bond-buying programme, if this is needed during the crisis. Can it really do what it takes? It is vital for Ireland that investors believe the ECB can do what is necessary, so we can continue to borrow money cheaply. For this reason the next steps in this powerplay involving the ECB, ECJ and the German court will be closely watched.