The ‘Collateral Damage’ of ECB’s QE Worries Top German Judges
The ‘Collateral Damage’ of ECB’s QE Worries Top German Judges
(Bloomberg) -- Germany’s top judges again seem troubled by the European Central Bank’s 2.6 trillion-euro ($2.9 trillion) asset purchase program, openly saying the plan’s “collateral damage” harms regular people.
The Federal Constitutional Court judges in Karlsruhe asked highly critical questions about the program during two days of hearings this week. Several times the jurists mentioned how low interest rates caused by the ECB policy harms savers or raise real estate and rent prices.
“We’re wondering if the ECB shouldn’t take these effects into account when making its decision and to also communicate how it does that,” court President Andreas Vosskuhle said. “We’re not talking about a few euros. This is about people’s livelihood.”
But the ECB’s controversial asset-purchase program, dubbed quantitative easing, has been a long-standing concern for the top court since 2015, when the case was first filed. The judges in 2017 asked the European Court of Justice for an interim ruling aimed at limiting the ECB’s leeway, the European Union tribunal rejected the restrictive reading of the law suggested by their German counterparts.
While the euro-area central bank stopped net purchases at the end of last year, ECB President Mario Draghi has said that the current environment may make it necessary to renew and even expand the program. Germany’s participation is critical for the success of QE as the country’s own Bundesbank is biggest buyer of debt under the program.
The German judges got a chance to express their skepticism about QE in the case, which has returned for a final ruling to reflect the EU court’s decision. The lawsuit, filed by a group of academics and politicians who are frequent critics of the EU, argues that the ECB is improperly conducting economic policy, which would violate the German constitution, instead of simply setting monetary policy.
The court is well aware that there are limits to what it can do, and not just legal ones. Ruling against the ECB program would be a bold move, risking a fundamental crisis in a region already rocked by Brexit.
Vosskuhle on Tuesday said the tribunal still sympathizes with the plaintiffs’ view that the ECB overstepped its powers, but there are high hurdles for the court to intervene, he said.
Under the German constitution, the court can only disregard an EU ruling if it’s arbitrary and gravely unreasonable and not simply because it seems wrong, he said.
Representatives of the Bundesbank, Germany’s central bank which handles the purchases in the country, told the judges the period of low interest rates started long before the QE program was set up in the wake of the European sovereign debt crisis.
Lars Feld, a member of the German government’s council of economic experts, called as a witness, said that while he was critical of QE, the ECB’s analysis wasn’t arbitrary. While the bond buying was a valid instrument, the problem is the size of purchases, he said.
The ECB should stick to its mandate and that is why calls to take into account what effects its policies have on savers or on national pension schemes are problematic, Feld told the judges. The issue is complicated because the system of saving for old age varies widely in the various euro member states.
“If you’re asking for that, you’re asking the ECB to do economic or social policy instead of sticking to monetary policy,” Feld said. “That’s what we do not want, we want it to stick to its mandate.”
The cases are: BVerfG, 859/15 et al.
To contact the reporter on this story: Karin Matussek in Berlin at kmatussek@bloomberg.net
To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Craig Stirling
©2019 Bloomberg L.P.