Berlin and ECB signal end to legal impasse over bond-buying

Germany’s finance minister has said the stand-off between the country’s highest court and the European Central Bank is about to be resolved “without drama”, adding to signs that a solution could be found as soon as this week.

The ECB is planning to try to defuse the legal impasse with Germany’s constitutional court on Thursday by publishing the official account of its last monetary policy meeting at which it discussed whether its bond-buying had an excessive impact on economic and fiscal policy — the subject of a contentious constitutional ruling last month.

The Karlsruhe-based court shocked Europe when it said that Berlin officials and the EU’s top judges had failed to properly scrutinise the ECB’s €2.2tn sovereign bond-buying programme, in a move that threw the bank’s flagship policy into doubt. 

The court ordered the German government and parliament to ensure that the ECB provided a “proportionality assessment” of its bond-buying to ascertain whether the “economic and fiscal policy effects” did not outweigh other policy objectives. 

It also said that if the ECB failed to comply within three months, the Bundesbank must stop buying bonds and plan to sell the more than €500bn it holds. 

The growing signs that the ECB and German government are working on a solution to the legal confrontation with the constitutional court have eased fears that the central bank’s bond-buying could be disrupted. Eurozone government bonds rallied on Monday.

“This is not a drama without resolution,” said Olaf Scholz, the German finance minister, speaking via video-link to the Frankfurt finance summit on Monday. “We will soon see there will be a resolution without drama.”

His comments came as Luis de Guindos, vice-president of the ECB, said it was “ready to co-operate, but always with full respect of our independence”.

The yield on Italy’s 10-year bonds fell 4 basis points to 1.38 per cent on Monday, narrowing the closely watched spread with Germany’s 10-year bonds to 181 basis points, close to three-month lows. Bond yields fall when their prices rise.

As well as publishing its official account of the bond-buying discussion at the ECB’s last monetary policy meeting, the central bank plans to provide some unpublished documents to the Bundesbank so it can pass them to the German government and parliament.

The unpublished documents are likely to include the full minutes of the central bank’s governing council monetary policy meetings, which provide more detail than the official published accounts of the meetings, according to two people briefed on the matter.

German finance minister Olaf Scholz German finance minister Olaf Scholz © Kay Nietfeld/dpa

They could include the minutes of meetings at which the ECB discussed buying sovereign bonds before it started the policy in March 2015 and before its started publishing official accounts of its monetary policy meetings earlier that year.

“Our monetary policy decisions have always been proportionate and appropriate,” said Mr de Guindos in an interview with Der Spiegel on Monday. “We stand ready to co-operate with the Bundesbank and to provide information to facilitate the response that the German institutions have to give to the constitutional court.”

Jens Weidmann, president of the Bundesbank, said in an interview with the Frankfurter Allgemeine Zeitung at the weekend that “with regard to the judgment, I am confident that we will find a way to make the considerations of proportionality clearer”.

A further optimistic note was sounded over the weekend by Astrid Wallrabenstein, a judge recently appointed to the German constitutional court, who said in an interview with FAZ that she hoped “things will ultimately develop in the right direction and that in the end everyone will get over certain injuries”.