ECB Responds to German High Court Ruling Declaring Bank Bailouts Illegal

May 6, 2020 (EIRNS)—The ruling by the German Federal Court challenging the legality of the European Central Bank’s bailout of banks, is drawing some hysterical responses.

The ECB, itself, issued the briefest of statements essentially saying it will do what it takes to save the banks, whether legal or not. Simply: “The Governing Council remains fully committed to doing everything necessary within its mandate to ensure that inflation rises to levels consistent with its medium-term aim and that the monetary policy action taken in pursuit of the objective of maintaining price stability is transmitted to all parts of the economy and to all jurisdictions of the euro area” (referring technically to the 19 countries that share the single currency).

“The Court of Justice of the European Union ruled in December 2018 that the ECB is acting within its price stability mandate,” the statement concludes.

Italian Prime Minister Giuseppe Conte denounced the German ruling, reported Reuters today, in an interview with Il Fatto Quotidiano, which quoted him as saying:

“It is not up to any Constitutional Court to decide what the ECB can or cannot do. Its independence is the fulcrum of the European treaties, which are recognized by Germany too. … I find it out of place for a national court, although a constitutional one, to ask the ECB to justify its purchases. It cannot interfere in these initiatives.”

Belgian ultra-federalist former Prime Minister and now MEP Guy Verhofstadt tweeted:

“I am puzzled by the decision of the German Constitutional Court for three reasons: (1) The court states that the ECB is ... too independent! (2) If every constitutional court of every member state starts giving its own interpretation of what Europe can and cannot do, it’s the beginning of the end. The EU’s constitutional watchdog is the European Court of Justice and that’s the way it should remain! (3) Clearly, now that the German Constitutional Court tries to cut the wings of the ECB, the European Commission has to take its political responsibility and come forward with a bold trillion sized Recovery and Reconstruction plan.”

As for the economists, George Calhoun wrote in Forbes today: “Yesterday, the German Constitutional Court ... essentially struck down the ECB’s entire quantitative easing program.

“The ruling is harsh and unequivocal, even shocking.

“First of all, the Court declared QE ‘illegal’ in principle … because it strays into ‘economic and fiscal policy.’ This left observers gasping (as reported in the Financial Times): ‘This is the first case where a German court says the judgment of the European court has no jurisdiction. The Karlsruhe court raised serious questions about even the application of EU law across the bloc.’ ”

And Clemens Fuest, president of IFO Institute in Munich, Germany’s top economic think-tank, wrote in a release yesterday: “In principle, only the Bundesbank is bound by these requirements, not the ECB. In practice, however, it is hardly conceivable that bond purchases will in future take place without the participation of the Bundesbank.... This limits the scope in particular for the purchase of Italian government bonds,” said Fuest.