The ruling by Karlsruhe Constitutional Court warning the European Central Bank to justify its decisions couldn’t come at a worst time. It risks adding to the unprecedented economic crisis generated by the corona virus outbreak and to the latent trade war between China and the U.S. the third risk of a financial crisis in Europe. Neither Europe nor the world needed such an initiative. Atop of the worries it is arousing, the fact that this highest Court is fighting in the same time against the ECB, the European Court of Justice and the European Union itself leads to question Germany real motivations.
The Court starts by summoning the ECB to bring the proof, under a three months limit, that the policy inspired by Mario Draghi, consisting in buying on the markets bonds issued by State members to make easier the financing of budget deficits and to keep interest rates at a very low level is keeping with its mandate and is appropriate. Inside the ECB Board, in the past, Bundesbank President has always expressed reservations and even hostility to that policy. But Mario Draghi, comforted by the support of the other members has maintained its action. He is considered as the euro savior since the start of the 2012 crisis. It could be possible to think that the Karlsruhe statement is a kind of Bundesbank revenge which itself would have suggested because it is issued that the Frankfurt institution would be forbidden in the future to participate to the buying program. That hypothesis cannot be completely turned down since its current President Jens Weidmann has always shown he was highly critical about ECB policy, even if he has not publicly made comments about the Karlsruhe Court ruling.
Moreover, this statement constitutes a characterized violation of the ECB independence. A court, basing its position on the economic analysis of the plaintiffs who have referred the matter to it, has allowed itself to ask it for an explanation. The ECB has been created, following an independency model copied from the Bundesbank one. When the euro was launched, Berlin wanted, at any price, to avoid any interference from the other States in the monetary policy running. At that time, inflation worry haunted German leaders and the mandate given to the ECB was to maintain price stability. It is difficult to assert that this mandate has not been respected because we are today in Europe with such a low inflation rate that the objective now is to obtain a price increase near but below 2%, target which is far from being reached. In asking the ECB to justify its action when the mandate has been more than fulfilled, the Court decision constitutes a major blow to its independence. The ECB president, Christine Lagarde has just replied that the institution will continue its action under its mandate without being undeterred.
The Karlsruhe Court then ignores a European Court of Justice which itself had requested. The European institution had validated in 2018 ECB policy and declared legal and conform to its mandate the bond buying program. Through a ruling imposing the ECB to justify the appropriate character of its action the ECJ had previously validated, the Karlsruhe Court violates a foundation of the European Union, i.e. the primacy of the Community jurisdictions on the law and on the national jurisdictions in the domains defined by the treaties. So the ECB functioning model is inscribed in a Treaty. It reports to the European Parliament and any contestation must be put before European institutions, and notably the ECJ. In its decision, the German court violates both the ECB independence and the principle of supremacy of Community institution, the ECJ, on a national court, in this case, on itself.
But this decision, through an attack against the spirit of the Union, offers a support to the adversaries, in Germany, of the European construction. It was referred, in this case, by the representatives of the far-right anti-European party, the AFD as soon as 2015. At that time their purpose was to block the saving of the euro zone through a monetary support to the countries which were facing difficulties, with Greece at the top of them but also Ireland and Spain. But this political force, which has not stopped to progress in Germany until the corona virus outbreak, is much less isolated that it is generally thought, especially on European issues. The former Finance Minister, Wolfgang Schäubble has not stopped rising obstacles to any softening of the Maastricht criteria and to any rebound policy at the European level during his mandate. His reaction to the Karlsruhe Court decision is ambiguous. He is today the Bundestag President and he cannot approve the violation of the European law but, regarding its content, he approves it in saying that its points are difficult to rebut and he is supported in this way by many CDU-CSU members of the Parliament.
The trial intended to the ECB is about two issues. Through keeping interest rates in Europe, and so in Germany, at such a low level, savers are harmed, especially retired people who have subscribed to pension funds. Their return is declining and weighting on the level of the pensions benefits. Through the subscription of bonds issued by the States-members of the euro zone without making any difference, the ECB is indirectly sharing public debts, to the profit of the States which are spending too much and to the detriment of the virtuous ones, among them and in the first place is Germany. It is the eternal debate between the cicadas from the South and the ants from the North.
Every policy carries its inconvenients and it is advisable to evaluate them regarding the advantages they offer. In this case, who can pretend that the burning-out of the euro zone would have benefited to Germany, to its banks and to its enterprises? And today, who could affirm that it is not necessary to do whatever it takes to lessen the consequences of the unprecedented recession which threats Europe and the world? The States, including France and Germany, have chosen to directly and massively intervene through the cancellation of taxes and social charges to allow enterprises to go through that ordeal and to household to continue to satisfy their essential needs. That is going to generate huge public deficits. The only way to make these new debts sustainable is to continue to weight on interest rates. Who can challenge this obvious point, especially when we know that this policy is put in place in all the countries affected by the outbreak ?
For the same reasons, the freezing imposed by Germany and Holland to the project of a European rebound policy, proposed by France and supported by several States, and financed by Eurobonds is incomprehensible. It would allow repairing the huge damages caused by the outbreak and giving a good example of solidarity, especially when we know that Germany enjoys a trade surplus with its partners which profits to its enterprises and to the employment in the country.
The most worrying is that the unprecedented crisis Europe and the world are facing has not incited to put between parenthesis these selfish and to be true anti-European considerations and make Germany aware of the fact that it was going to cut the branch on which has been built its prosperity.