By Soeren Kern
The European Central Bank has purchased government debt worth €2.7 trillion ($3.2 trillion) since March 2015, when, in an effort to stabilize the eurozone during the European sovereign debt crisis, it launched its flagship stimulus program, the so-called Public Sector Purchase Program.
The European Central Bank argues that large-scale purchases of government bonds are a monetary stimulus needed to reinvigorate the eurozone economy. Critics counter that the bond purchases have flooded markets with cheap money and encouraged over-spending by governments, especially in debt-ridden Southern Europe.
In a 110-page ruling, the German court said that the European Central Bank had not only failed to justify the massive bond purchases, but also that those purchases did not meet the “principle of proportionality,” as required by Article 5 of the Treaty on European Union.
The proportionality principle, which stipulates that an EU action must be limited to what is necessary to achieve an objective, regulates the exercise of the powers conferred by the member states to the EU.
In its ruling, the German court ordered the German Central Bank to stop participating in the bond-purchasing program unless the European Central Bank proves, within three months, the “proportionality” of its actions. Without German participation, the program could be terminated.
The German court also accused the Court of Justice of the European Union of “exceeding its judicial mandate.” In December 2018, the European court ruled in favor of the European Central Bank’s bond-purchasing program. The German court said that the European court’s ruling was ultra vires (beyond its authority) and therefore not binding. The German court’s ruling poses an unprecedented challenge to Court of Justice, the top EU court in matters of European Union law.
The German court’s ruling marks a new phase in the debate over the balance between national and supranational sovereignty. Considering what is at stake, EU officials have pushed back hard. The President of the European Commission, Ursula von der Leyen, said that Germany has no legal right to challenge the EU and threatened a lawsuit: