The Eurogroup will discuss on Friday (8 May) the German Constitutional Court’s controversial ruling on the European Central Bank’s critical bond-buying programme but will not take a position, according to EU sources.
Earlier this week, the Karlsruhe-based court questioned the proportionally of ECB’s monetary stimulus urging Bundesbank to suspend its implementation and claimed wrong-doing of the European Court of Justice that ruled in 2018 that the lender acted within its competences with regards to the comprehensive Public Sector Purchase Programme (PSPP).
Although finance ministers will discuss the matter, the Eurogroup “will not take a position”, a senior EU source said. “The ECB has reacted, the Commission has responded…” he explained, “this is primarily for bodies other than the Eurogroup.”
The decision of the German court not only questioned the ECB’s policy but went as far as to contest the EU court authority, causing a political earthquake.
The ECB reacted by taking note of the decision but also restating that it “remains fully committed to doing everything necessary within its mandate” and recalling that the ECJ backed its actions.
The economic impact of the decision is considered as “modest” in Brussels and countries do not fear it would have an impact on the margin of manoeuvre of the institutions at the moment. However, it could pose problems to the EU’s justice in the long run.
After the presentation of the European Commission’s spring economic forecast showed “the EU has entered the deepest economic recession in its history”, Economy Commissioner Paolo Gentiloni addressed the issue.
“We have two very clear points. First, we reaffirm the primacy of EU law. The rulings of the ECJ are binding on all national courts. And second, we have always respected and fully support the independence of the ECB,” Gentiloni told reporters.
Former ECB vice-president Vitor Constâncio did not hide his anger at the German court decisions. “The Court insists on the ridiculous distinction between monetary policy and economic policy and wants proportionality in its effects. Can a German economist explain what this means?” he wrote on Twitter.
Former colleague Benoît Cœuré, who served at the ECB’s executive board until last year, also joined in the criticism.
“Beyond monetary policy, this is a discussion on whether the EU is a group of sovereign nations deferring competences to common institutions or a partial federation. Germany’s Constitutional Court takes the former view. The ECJ and most member states take the latter,” he said.
Balance-sheet size as a monetary policy tool is forbidden by the German Court, based on which law? Or putting it differently: which laws have to be changed to put an end to these lawyers monetary/economic nonsensical views?
— Vitor Constâncio (@VMRConstancio) May 5, 2020
COVID-19 economic response
Finance ministers were tasked by the EU leaders to finalise the details of the half-trillion economic response package they stamped during the last European Council.
The Eurogroup will discuss on Friday the particulars of the so-called Pandemic Crisis Support instrument, a €240 billion worth credit line within the European Stability Mechanism (ESM).
Finance minister agreed earlier in April that there would be no conditionality attached to the loans but cash should be expended in COVID-19 related costs.
A senior EU official said one of the documents the Eurogroup is expected to discuss is a template response plan that countries making use of the instrument will need to fill in and that will then be monitored by the Commission.
The scope of the credit line, how long it will be available or the maturity of the loans remain questions to be addressed by the ministers.
Although the COVID-19 recovery instrument is not on the Eurogroup’s agenda, the senior EU official said he would not exclude the possibility of countries raising the issue given the Commission economic forecast.
Commissioner Gentiloni admitted while “all EU countries are expected to suffer severe economic recession this year,” the coronavirus outbreak economic fallout has affected countries differently. “Both the recession and the recovery will be uneven,” he warned.
A common EU response to the crisis, he added, is key. “By acting together with a strong, well-finance and coordinated recovery plan, we can mitigate some of the risks I have mentioned and strengthen the rebound,” Gentiloni stressed.
[Edited by Zoran Radosavljevic]