The 75th anniversary of the defeat of Nazi Germany was May 8. The 70th anniversary of the Schuman declaration, which launched postwar European integration, was May 9. Just days before both, the German constitutional court launched a legal missile into the heart of the EU. Its judgment is extraordinary. It is an attack on basic economics, the central bank’s integrity, its independence and the legal order of the EU.
The court ruled against the ECB’s public sector purchase programme, launched in 2015. It did not argue that the ECB had improperly engaged in monetary financing, but rather that it had failed to apply a “proportionality” analysis, when assessing the impact of its policies, on a litany of conservative concerns: “public debt, personal savings, pension and retirement schemes, real estate prices and the keeping afloat of economically unviable companies”.
Monetary policies are necessarily economic policies. But the ECB’s policies, including asset purchases, are justified by the fact that it was — and is — failing to achieve its treaty-mandated “primary objective”, which is “price stability” defined as inflation “below, but close to, 2 per cent over the medium-term”. The EU treaty says other considerations are secondary.