Germany’s ECB critics toast courtroom success

The eclectic mix of businessmen, academics and politicians who five years ago launched a legal challenge against the European Central Bank’s bond-buying programme were in jubilant mood this week after their partial victory in Germany’s constitutional court.

“I celebrated a little — I drank a Moscow Mule,” said Peter Gauweiler, a 70-year-old Eurosceptic lawyer and former politician, who has been waging a legal war against the EU and ECB for almost three decades. “I was surprised by how clear the ruling was.”

The fact that their campaign appeared finally to pay off stunned some among the almost 2,000 plaintiffs. “We thought our complaint would be rejected, but in a reasoned way,” said Bernd Lucke, the 57-year-old founder and former leader of the rightwing Alternative for Germany (AfD) party and currently an economics professor at Hamburg University. “But [the court] has now told the German government and the Bundestag that it’s their duty to deal with this.” 

Germany’s highest court on Tuesday sent shockwaves through Europe’s legal and political system when it ruled that the ECB’s public sector bond purchases may be ultra vires, or unconstitutional.

The judges in Karlsruhe, a prosperous town on the edge of the Black Forest in southern Germany, ordered the government and parliament in Berlin to ensure that the ECB carried out a “proportionality assessment” of bond-buying to ensure its “economic and fiscal policy effects” did not outweigh other policy objectives. 

The court told the Bundesbank, Germany’s central bank, to stop buying any more bonds if the ECB failed to comply within three months, a move that would seriously disrupt a central plank of eurozone monetary operations.

By dismissing an earlier ruling in the ECB’s favour by the European Court of Justice, the German court has also opened the door to potential legal challenges against the EU from other countries, such as Poland and Hungary, whose authoritarian governments are already at odds with Brussels.

To some, the plaintiffs behind this case against the ECB are firmly on the fringes of Germany’s political and economic debate. “They are mostly seen as people who may have a point about things not going very well in the eurozone but who have little to offer in terms of viable and constructive alternatives,” said Clemens Fuest, head of the Ifo Institute for Economic Research in Munich.

“I do not think they want to bring back the Deutsche Mark, but they insist on a strict interpretation of the rules for the eurozone.”

However, others believe they have struck a vital blow to reassert Germany’s rights. “With this ruling, Karlsruhe made a clear distinction between national and European jurisdiction,” said Hans Michelbach, an MP and budgetary spokesman for the ruling CDU/CSU coalition and outspoken critic of the ECB. “The judges made clear that the mission of the ECB and the jurisdiction of the ECJ have their limits, which are set by the constitution.”

Bernd Lucke, founder and former leader of the rightwing Alternative for Germany (AfD) party © Sebastian Gollnow/AFP/Getty

The ECB’s legal opponents condemn the side-effects of its ultra-loose monetary policy, including German savers earning nothing on their deposits, property prices soaring and “zombie” companies being kept alive that would otherwise have collapsed.

“If money costs nothing, it will lead to a mummification of the economy, and that throughout Europe,” said Patrick Adenauer, grandson of Germany’s first postwar chancellor. “Companies that should not be saved will be saved.” 

Mr Adenauer, 59, who runs a property company in Cologne with his brother, believes in free markets and is suspicious of public sector intervention, whether from Berlin or Brussels. “We are not Eurosceptics, we are convinced Europeans,” he said. “But we demand equal opportunities, not equal distribution.”

Yet other prominent figures in the court case talk about fighting to stop Germany’s political power being eroded by Brussels and its wealth sucked into bailing out profligate southern European countries. “The European institutions spend money without the German government and parliament having the ability to authorise them,” said Heinrich Weiss, owner of his family metals firm SMS Group. “From now on the ECB has to justify the volume of its measures and the German government has a duty to monitor its activities,” he said.

Like a number of people driving the case, Mr Weiss has links to AfD, having funded the party in its early years after it was created as a Eurosceptic “alternative” to Germany’s main parties by Mr Lucke. But that was before both men cut their ties to the party in 2015 when it was taken over by an anti-migrant faction. 

Mr Gauweiler, who once called the EU’s Maastricht treaty “a totalitarian dream” and dubbed the euro as “Esperanto money”, said the ECB could not stay above German law. “In Germany, for even the most basic building project you have to present the pros and cons,” he said. “But the ECB, where a lot more money is at stake, they don’t do that, just to underline their independence.”

Asked whether they plan to bring a fresh challenge against the ECB’s recently launched €750bn pandemic emergency purchase programme (PEPP), which has shed many of the central bank’s self-imposed limits to counter a sell-off in eurozone debt markets, many in the group sound keen to keep fighting. 

“My feeling is that the PEPP is also not in line with the guidelines set out by Karlsruhe,” said Mr Lucke. “So it could be that the ECB governing council will have to change the framework of the programme. If the PEPP is carried out as the ECB envisages, it could turn out to be ultra vires again.”

The PEPP is condemned as “an act of despair” from “a sovereign dictatorship” by Markus Kerber, a 64-year-old lawyer and public finance professor at the Technology University of Berlin, who co-authored a successful legal challenge against the EU’s Lisbon treaty in 2008.

“It is an all-out war that no longer has anything to do with the ECB’s mandate of price stability,” said Mr Kerber, adding that he is likely to consider a new challenge against the ECB’s latest actions once the outcome of the latest case is resolved.