German ECB Ruling Is Thin Ice To Walk On For The Euro

The German constitutional court recently criticized the European Union’s top court regarding the ruling on the European Central Bank (ECB). The EU Court of Justice quickly delivered a counterattack, stating that it serves the purpose of making sure that the EU law is properly applied in all member states.

The ruling of the German constitutional court took aim at the ECB’s controversial bond-purchasing program. The German judges said that the EU tribunal overstepped their powers by backing the ECB’s policy.

In the statement, the EU’s highest court cautioned that “divergences between courts of the member states” would be “liable to place in jeopardy the unity of the EU legal order and to detract from legal certainty.”

The national vs EU jurisprudence

Many are saying that the legal standoff is only a small part of the growing tensions within the EU that had been boiling for the past few years. Numerous top experts and policymakers have responded to the quarrel between the two courts.

Germany’s former finance minister Wolfgang Schaeuble has also sounded off on the issue, saying that the two rulings will pose a serious threat to the common currency.

“It’s very possible that the existence of the euro is now put into question in other European Union member states, because every national constitutional court can decide for itself,” Schaeuble told Redaktionsnetzwerk Deutschland. “This situation makes nobody happy.”

Indeed, the decision by the German court and the subsequent hit back from the EU’s top court will surely put a strain on Euro. It could even kick the currency down as being one of the most-traded on the foreign exchange market. Due to Euro’s decades-long strength, the FX market is one of the largest within the supranational entity. If the legitimacy of the Euro is put under question, it will forever change ways of trading Forex live, as well as other strategies that have been utilized for decades. The ongoing tension between the courts will also devastate the most commonly traded pair, the EUR/USD, as the greenback itself is facing serious difficulties in the face of the ongoing global financial crisis caused by the COVID-19 pandemic.

The previous European Commission president and a life-long promoter of EU unity Jean-Claude Juncker also spoke out about the issue, criticizing the German court for diverging from the EU court’s decision.

“For the first time in the EU’s jurisprudence history, a national jurisdiction openly attacks the European jurisdiction,” he said in an interview on Friday, he warned that the unprecedented decision could possibly lead to the other member-states ignoring the rulings of the Luxembourg-based court as well. “We will realize in the coming years what a grave mistake it was unless it’s corrected.”

Germany’s constitutional court ruled that the ECB’s 2.7 trillion-euro ($2.9 trillion) asset-purchase program that kicked off in 2015 and is still running, might be unconstitutional, furthermore, the court gave the central bank three months to prove the proportionality of the policy to its impact on the economy.

In a rare response from the EU’s top court, they reiterated that their jurisprudence should be applied by all member states equally.

“In order to ensure that EU law is applied uniformly, the Court of Justice alone — which was created for that purpose by the member states — has jurisdiction to rule that an act of an EU institution is contrary to EU law,” read the statement.

Schaeuble also acknowledged that as a finance minister, he also disagreed with some of the ECB’s decisions, going as far as saying that the independent institutions without democratic legitimacy should strictly stick to their mandates. However, he said it’s also “difficult” if the German constitutional court can’t accept a decision by the EU Court of Justice.

Few days after the German ruling, the European Central Bank President Christine Lagarde said that there is no choice but to go beyond conventional policies in order to combat the coronavirus crisis.

“We have to take all possible measures and policies to weather the shock, we have the most unprecedented economic crisis in peacetime,” she said.

When asked about the ruling, however, she did not give any clear views on the matter, noting that her central bank is "undeterred" in its goal of reviving inflation in the euro area and, by extension, the economy, in accordance with its mandate.

“We are a European institution with competence in the euro area,” she added, noting that the ECB was accountable to the European Parliament and existed under the jurisdiction of the European Court of Justice.

It remains to be seen how the differences between the two courts will play out and eventually affect the value of the Euro, as well as the effects it will have on the already-struggling economy.