OMFIF’s David Marsh is on top form as he looks at the current jurisdictional, political, and financial collision between German law, prudence, and self-interest on the one side, and EU law and whatever it is that the European Central Bank (ECB) is up to on the other:
Underlining the surreality of the political and financial tussle, Weidmann will support a central bank policy he has never advocated to protect the ECB from the depredations of a court it does not recognise.
As background, Weidemann is both president of the German central bank, the Bundesbank, and (ex officio) a member of the ECB’s Governing Council.
The Karlsruhe court [the BVG — Germany’s constitutional court] last month threatened to ban the Bundesbank from participation in the five-year-old public sector purchase programme unless the ECB provides a ‘proportionality assessment’ on costs and benefits of its €2.2tn of bond purchases.
The exact conditions for fulfilling the court’s strictures are still in doubt. Legal experts are squabbling over the meaning of Karlsruhe’s demand that the Bundestag and German government should take steps to procure an ECB council ‘decision’ showing it considers all effects of its policies.
Financial market uncertainty will remain over the validity and durability of the PSPP and its sister programme, the €1.35tn pandemic emergency purchase programme, unveiled in March and reinforced on 4 June to combat the coronavirus-fuelled recession.
I wrote about that judgment here.
The dispute between the BVG and the European Court of Justice on whether, in Germany, the ECJ or the BVG has the last word on, to use a broad term, EU law, has been rumbling away for half a century. In theory, the BVG’s stance represents a massive threat to the EU’s legal order. In practice, however, the BVG has found a way to make its point without truly forcing the issue.
As I noted:
The conflicts between the BVG’s view and that of the ECJ are, in the BVG’s opinion, an inevitable consequence of the way the EU was designed. Where such conflicts arise, the BVG writes, “they must be resolved in a cooperative manner, in keeping with the spirit of European integration, and mitigated through mutual respect and understanding.”
Up to now, that is what has happened. Ever since the BVG’s judgment in Solange I (1970), the ECJ and the BVG have engaged in an intricate legal dance in which the two courts have maintained incompatible positions without matters ever being allowed to come to a head. The German court is a pillar of the establishment, not a euro-skeptic bunker. It is no coincidence that its theoretical reservations over the supremacy of EU law have never made much obvious practical difference, if any.
Once again, it seems as if a compromise (which avoids the necessity of a showdown between two logically incompatible legal theories) is in the offing.
‘We will bring about a compromise that saves everyone’s face, upholds the ECB’s independence and shows there has been enough consideration of the [PSPP] effects,’ according to a leading EU committee member. ‘In future the ECB will have to document more openly the effects of its actions. Extra transparency is good for democracy.’
In many ways, this resembles the approach taken by Brussels after the case (now generally known as Solange I) in which the BVG had made clear that its position as the guardian of last resort of the German constitution was unchanged by Germany’s membership of what is now the EU. In that instance, the BVG’s argument revolved around the protection of fundamental human rights. In a second case, known as Solange II, the BVG ruled that there had been enough changes in the way that such rights were protected under EU law for the BVG to relax its scrutiny so long as (solange in German) those protections endured.
Something similar seems to be under way now.
And so Marsh writes:
In contrast to general irritated truculence after the 5 May verdict, all sides are now working on a speedy compromise to avoid major upsets when Europe is crafting its response to the Covid-19 upheavals.
Best guess: That is what we will see.