FRANKFURT (Reuters) – The Bundesbank must stop buying government bonds under the European Central Bank’s long-running stimulus scheme within the next three months unless the ECB can prove those purchases are needed, Germany’s top court ruled on Tuesday.
But the judges in Karlsruhe said their decision did not apply to the ECB’s latest pandemic-fighting programme, a 750 billion euro scheme approved last month to prop up the economy.
Ruling in a case that dates back three years, Germany’s top court raised objections to the German Bundesbank’s participation in the scheme, known as Public Sector Purchase Programme.
“The Bundesbank may thus no longer participate in the implementation and execution of the ECB decisions at issue, unless the ECB Governing Council adopts a new decision that demonstrates…the PSPP are not disproportionate to the economic and fiscal policy effects,” the judges said.
They added the German central bank must also sell the bonds already bought, albeit based “on a – possibly long-term – strategy coordinated with” the rest of the euro zone.
Amassing nearly 3 trillion euros of bonds since 2015, the ECB has long relied on bond purchases to support the economy through crises and a threat of deflation.
With much of the euro zone now in lockdown to halt the spread of the virus, it plans to print another trillion euros to keep borrowing costs down for companies and governments.
But a group of academics in Germany has long argued that the ECB is overstepping its mandate, and that these buys constitute direct financing of governments — a contravention of the central bank’s obligations under the European Treaty.
The German ruling comes after the European Court of Justice has already cleared the scheme, arguing that it does not constitute illegal financing and considers the ECB’s measures proportional.
(Reporting by Balazs Koranyi and Francesco Canepa; Editing by Catherine Evans)
