Germany’s central bank may have to abandon its part in a key plank of the European Central Bank’s (ECB) efforts to prop up the euro area economy, after a ruling by the country’s top court.
The Bundesbank must stop buying government bonds under the ECB’s main stimulus scheme within three months unless the ECB can prove those purchases are needed, Germany’s top court ruled on Tuesday.
The so called Public Sector Purchase Programme, which involves central banks creating money to buy billions of euro of government debt is credited with steadying financial markets and preventing economic catastrophe in the euro area. The ruling centres on whether the ECB could demonstrate that the programme was proportionate.
“The Bundesbank may thus no longer participate in the implementation and execution of the ECB decisions at issue, unless the ECB Governing Council adopts a new decision that demonstrates...the PSPP are not disproportionate to the economic and fiscal policy effects,” the judges said.
The German central bank is the most important in the euro area, but German courts have traditionally taken a conservative approach to actions that stretch the ECB’s legal mandate.
Judges at Germany’s top constitutional court in Karlsruhe said their decision did not apply to the ECB’s latest pandemic-fighting programme, a specific €750bn scheme approved last month to prop up the coronavirus-stricken euro area economy.
PSPP was launched in 2015 and currently accounts for less than a quarter of the ECB’s monthly asset purchases.
The judges said Germany’s central bank must also sell €533.9bn of bonds already bought, though it does not have to rush the sale.