EU vs Germany: German court verdict may be ‘catastrophic’ for bloc, expert warns

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Marcel Fratzscher, a former senior manager at the ECB who is now president of the German Institute for Economic Research – commonly known as – DIW Berlin – said Brussels ignored the decision at its peril, warning it was indicative of a rising tide of resentment against EU rules and regulations within Germany. The court, in Karlsruhe, last week ruled the German government had failed adequately to scrutinise the objectives and mechanisms of the ECB’s scheme Public Sector Purchase Programme (PSPP), the mechanism by which it is attempting to mitigate the impact of the coronavirus pandemic by purchasing private and public sector securities to the tune of £657billion (750 billion euros).

European institutions must take the GCC’s challenge seriously, or catastrophic consequences could follow

Marcel Fratzscher

Mr Fratzscher, writing for the Project Syndicate website, said: “There is much to criticise about the ruling, not least its failure to understand the economics of monetary policy.

“It is not surprising that many economists and legal scholars have described the GCC’s (German Constitutional Court) arguments as utter nonsense.”

However, he added: “European institutions must take the GCC’s challenge seriously, or catastrophic consequences could follow.”

The GCC had long been on a collision course with the ECB, Mr Fratzscher said, warning Brussels there was no reason to believe it would stop with the latest victory.

He added: “More important, one cannot ignore the fact that the court’s arguments resonate with many German economists, politicians, and voters.

“Across the German mainstream, there is a deep conviction that the ECB does not act in Germany’s best interest.

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“This intensifying public sentiment has steadily eroded the ECB’s credibility in Germany.

“That is not a problem that can be brushed aside.”

Without trust and credibility, the ECB would be unable to fulfil its mandate, Mr Fratzscher said.

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He explained: “The EU and other member-state governments therefore can no longer ignore the GCC and the constituency it speaks for.

“In the best-case scenario, the EU will take the GCC’s ruling as a wake-up call to work toward a viable fiscal and capital-market union, and to clarify the ECB’s role therein.

“That will require a maddeningly difficult EU treaty change. But the alternative would be far worse.”

Explaining the verdict in an interview in German newspaper Die Zeit, chief justice Andreas Vosskuhle, who stepped down as President of the Federal Constitutional Court on May 6, days after the ruling, said it spoke for the “normal people” of Germany, and as a counterweight to what he terms the liberal elite.

Fellow judge Peter Huber, who drafted the ruling, told the Sueddeutsche Zeitung: “The message to the ECB is actually homeopathic,” Huber, 61, said Tuesday in Sueddeutsche Zeitung.

“It shouldn’t see itself as the ‘Master of the Universe.’

“An institution like the ECB, which is only thinly legitimised democratically, is only acceptable if it strictly adheres to the responsibilities assigned to it.”

In a strongly worded statement issued in response to the verdict, European Commission President Ursula von der Leyen said: “The final word on EU law is always spoken in Luxembourg. Nowhere else.

“The European Commission’s task is to safeguard the proper functioning of the Euro system and the Union’s legal system.

“We are now analysing the ruling of the German Constitutional Court in detail. And we will look into possible next steps, which may include the option of infringement proceedings.”

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