"Illegal State Financing": Constitutional complaint against ECB purchases

Thursday March 11th 2021

"Illegal State Financing"
Constitutional complaint against ECB purchases

When the ECB promised a massive expansion of its bond purchases, the stock exchanges reacted calmly. Others do not like the casual hustle and bustle. A group of professors files a constitutional complaint. Reason: The Eurobankers are exceeding their competence.

A constitutional complaint against the emergency bond purchase program of the European Central Bank (ECB) has been received at the Federal Constitutional Court in Karlsruhe. The plaintiffs considered the PEPP for monetary state financing, said the procurator, the Berlin lawyer and financial scientist Markus Kerber. The court confirmed receipt of the lawsuit. (Az. BvR 420/21)

Due to the expected economic consequences of the corona pandemic, the Governing Council decided on PEPP at the end of March 2020 and extended it in December to at least the end of March 2022. As part of the program, the central bank will buy additional government and corporate bonds worth up to EUR 1.85 trillion. In the afternoon, she decided to significantly accelerate her bond purchases in the second quarter, but not to change the scope or duration of the program.

Group of professors

The constitutional complaint was lodged by a group of entrepreneurs and professors around the retired law professor Johann Heinrich von Stein. PEPP serves economic policy purposes, said Kerber. "The ECB has no mandate for that."

The decision on PEPP was made before the judgment of the Federal Constitutional Court on the PSPP bond purchase program, which was launched in May 2020. On May 5, 2020, the Karlsruhe judges ruled that PSPP was partially unconstitutional. The court did not find a violation of the ban on monetary state financing at the time, but also made it clear that it had not decided on the PEPP corona emergency program.

"If there is a risk of inflation, buying would have to stop"

However, Kerber sees the current bond purchase program as a violation of the ban. For example, the maximum purchase limit of a third of the outstanding government bonds has been tipped. In addition, he said, the program had been increased because of the fear of deflation – but now that inflation is rising instead, asset purchases should be stopped.

It is not yet known when the Federal Constitutional Court will deal with the constitutional complaint. In Karlsruhe, there has also been a lawsuit by the AfD parliamentary group in connection with PEPP since August 2020. The AfD thinks that the federal government should have stopped the program. The Bundestag should have obliged them to do so.

The Federal Audit Office had previously published a special report and warned against the EU's multi-billion euro reconstruction fund against the corona economic crisis. The package that the Bundestag is currently discussing poses high risks for the federal budget, the control authority warned. "In fact, it is a question of mutualisation of debts and liability – a turning point," said Court of Auditors Kay Scheller.