The End of "Whatever it takes"?

In particular, the German judges take issue with the fact that the CJEU had simply relied on the ECB’s allegations regarding the monetary goal of the measure, its appropriateness and necessity. In view of the judges in Karlsruhe, the ECB would therefore get a "de facto (limited) Kompetenz-Kompetenz", or a power to rule on its own mandate. The German judges also bemoan that the CJEU did not consider the factual effects of the measures, which would be at odds with the court’s own practice in virtually every other area of the law. The CJEU’s decision would mean that the ECB could practically choose the means it considers appropriate, even when they cause minimal advantage but high collateral damage.

The German Constitutional Court thinks that by its decision, the CJEU would have exceeded the mandate under Art 19(1) Treaty on European Union (TEU). It would have deprived itself of the possibility to stop the "gradual erosion" of Member State competences and further weakened the democratic legitimacy of public power exercised through the Eurosystem.

As a result of its findings, the German Constitutional Court admonishes the German Parliament and government to "work towards the proportionality analysis by the ECB". How they should achieve this goal is not clear from the decision. Until then, however, the German Central Bank (Bundesbank) is prohibited from further participating in PSPP. This is the strongest interference yet with the functioning of the Eurosystem. The German Constitutional Court has shown its teeth.

But don’t stop to worry too soon. A merely formal justification in a new ECB decision will not suffice to satisfy the German judges. They have made it clear that they are not prepared to simply follow the allegations made by the Central Bank. Instead, they will also verify their soundness.

The ECB will thus be subject to a much higher degree of judicial scrutiny than the CJEU wanted to impose. In particular, the proportionality analysis will serve as a powerful weapon in the hands of the German judges. It has been argued in the past that only a very permissive type of proportionality analysis should be applied to monetary policy measures. The present case shows why: If handled rigidly, the proportionality analysis can be a tool to substitute the central bank’s assessment with the judges’ opinion regarding the appropriateness of monetary policy measures. More than ever, there is now a clear danger that the final say over "what it takes" to solve the Euro’s problems will lie with constitutional judges (which by the way are as unelected as central bankers) and not with the Directorate of the ECB. The question is: whose economic reasoning do we trust more?

Copyright: Odd ANDERSEN / AFP