German Constitutional Court demands justification of ECB bond purchase program - Forex market news
The German Supreme Court has questioned some aspects of the ambitious bond purchase program launched by the European Central Bank five years ago. The court ruled that the Bundesbank must complete its participation in the program within three months if the ECB cannot prove that its actions are in line with its goals.
The court has questions about the instruments and tactics that the ECB is using to preserve the unity of the eurozone and ensure the growth of the region's economy. It may limit the ability of the central bank to resort to buying bonds to deal with the economic consequences of the coronavirus pandemic.
The yields on Italian government bonds rose by court order.
The ruling of the German Federal Constitutional Court, presented on Tuesday, criticized the German government for not thinking about the consequences of the bond buying program launched by the ECB in 2015, also known as quantitative easing.
The court said that the program does not violate the law prohibiting the central bank from financing regional governments, but that it has negative side effects by damaging savings and keeping unviable companies afloat.
The German government and parliament should have questioned whether the bond purchase program was in line with their goals.
"The longer this program is implemented and the more it grows, the higher the risk that the ECB will become dependent on the policies of the countries in the region, as it will not be able to simply complete this program without threatening the stability of the monetary union," the court ruling says.
This is the last of a number of lawsuits filed with the German Supreme Court. They show deep mistrust between the eurozone central bank and Germany, which is the largest economy in the region.
So far, the German court has sided with the ECB, sometimes directing a number of questions to the EU supreme court in Luxembourg.
On Tuesday, the German Constitutional Court criticized the ruling of the EU Court of 2018, which recognized the legality of bond purchases, noting that the ruling did not take into account the economic consequences of the program.