ECB’s Covid Rescue Program Attacked in Suit at Top German Court

The European Central Bank’s emergency response to the coronavirus pandemic faces another challenge at Germany’s top court, this time from a group of 16 business people and academics.

The ECB’s Pandemic Emergency Purchase Program is a “blatant case of government financing,” said Markus Kerber, a Berlin finance professor, who is leading the group in the legal attack. The lawsuit targets the government and parliament over their alleged failure to oppose the program, known as PEPP.

The ECB unveiled its emergency purchase program nearly a year ago to help the euro-area economy weather the shock from the Covid-19 crisis, and has said it will continue net buying until at least March 2022. With a global bond rout pushing up yields more recently and threatening to derail the region’s recovery, most economists expect the ECB will use the flexibility of the 1.85 trillion-euro ($2.21 trillion) tool to put a cap on recent increases.

The suit was filed on March 8, a spokesman for the Federal Constitutional Court in Karlsruhe said by phone. The ECB and Bundesbank declined to comment on the suit, reported earlier in newspaper Die Welt.

Germany’s constitutional court last year ruled that the ECB is violating European law with its QE asset-purchase program. The judges at the time gave the ECB three months to justify the pros and cons of its policies.

Kerber and his fellow claimants argue that the ECB’s PEPP doesn’t meet the test the court set up in their QE ruling. In that judgment, the judges said any such program must adopt limits on purchases, have minimum credit ratings for bonds to be acquired, and observe a binding rule to allocate purchases according to the capital key.

The right-wing Alternative for Germany last year already sued to stop the country’s participation in the PEPP, which it considers to go beyond the ECB’s mandate.

Based on the QE case, which took five years, any ruling on PEPP would likely come only after the end of the coronavirus pandemic.

The case is BVerfG, BvR 420/21.

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