ECB Says Bundesbank in Contact With Berlin Amid Court Crisis

(Bloomberg) -- The Bundesbank is talking to German authorities amid a stand-off over a controversial court ruling that questions the European Central Bank’s bond-buying program, ECB Executive Board member Fabio Panetta said.

In an interview with Austrian newspaper Der Standard published Thursday, Panetta reiterated that the ECB is under the jurisdiction of the European Court of Justice, which already ruled in 2018 that the central bank acted within its mandate by launching asset purchases.

“The German Federal Constitutional Court’s ruling is addressed to the German Federal Government and the Bundestag,” Panetta told the newspaper. “And the Deutsche Bundesbank is in close contact with them.”

A Bundesbank spokesman declined to comment.

The comments are the strongest signal yet that the ECB doesn’t intend to engage directly with the German court’s request to explain why quantitative easing has been proportionate to the euro area’s economic challenges -- instead relying on German institutions to take the lead.

If the issue isn’t resolved in the next three months, the court will bar the Bundesbank from participating in the program.

The controversy has the potential to hobble the ECB’s efforts to rein in the impact of the coronavirus pandemic that has pushed Europe into its biggest postwar economic crisis. While the ruling only covers an older asset purchase program, the plaintiffs have already zoomed in on the central bank’s new 750 billion-euro ($810 billion) crisis-fighting scheme.

French Finance Minister Bruno Le Maire used the row over the ruling on Thursday to renew his proposal for shared European Union fiscal spending in the form of a recovery fund.

The decision of German judges “basically suggests there are limits to monetary policy,” he told journalists. “So if there are limits to monetary policy, we need to use fiscal policy more.”

Meanwhile, French Governing Council member Francois Villeroy de Galhau told students at Italy’s Bocconi University that the ECB is “definitely dedicated to and determined to deliver” on its price-stability mandate.

He also warned against attempts to question the independence of the ECB as that could “undermine its strength and agility, the very things that protect an economy in a crisis.”

The German judges continued to defend their decision this week, saying national courts do have a limited oversight role over the bloc’s highest tribunal. Chancellor Angela Merkel said she will respond to the ruling and vowed to defuse the conflict.

Panetta said ECB policies, which have often been vilified in Germany and Austria for hurting savers, were advantageous to their citizens.

“Many of the jobs that were created in the euro area over the past few years were in these countries,” he told the newspaper.

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