ZEW Economist Friedrich Heinemann on the Ruling of the Federal Constitutional Court on ECB Bond Purchases

Today the Federal Constitutional Court announced its eagerly awaited ruling on the “Public Sector Purchase Programme” (PSPP) of the European Central Bank (ECB). The Karlsruhe court considers that, with the ECB’s decision to establish a PSPP, the central bank exceeded its monetary policy mandate insofar as the ECB has unsatisfactorily proven the programme’s proportionality. If the Governing Council does not provide a justification of the proportionality of the measure within three months, the Bundesbank is prohibited from further participation in the PSPP. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at ZEW Mannheim, comments on this matter.

“The Federal Constitutional Court has correctly identified the core problem of the PSPP purchase programme. The ECB and the European Court of Justice took the decision too lightly. Negative repercussions such as the growing dependence on national policies of highly indebted Member States and the emergence of zombie companies were simply brushed aside. The ruling now backs the critics in the Governing Council. The Bundesbank was even given the task of working towards a long-term reduction in government bond holdings. This does not refer to the ECB’s short-term coronavirus crisis policy, but instead the ruling was made already with a view to the post-crisis period: sending the clear message that no euro state can rely on the central bank to help solve excessive government debt will be of great importance for the eurozone in the coming years.”