For weeks now, German MPs have been wondering what to do about the German constitutional court’s explosive ruling against the ECB’s bond-buying programme. The answer came on Thursday: nothing at all.
According to participants of a critical meeting with senior legislators, Wolfgang Schäuble, the venerable president of the Bundestag, told them that the best course of action was inaction.
“The majority opinion in Thursday’s meeting was that the Bundestag can’t do anything,” Peter Boehringer, the head of parliament’s budget committee, told the Financial Times, “and that we just have to wait till something comes from either the ECB or the Bundesbank.”
The constitutional court shocked Europe earlier this month when it ruled that the German authorities 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 grave doubt.
The court in Karlsruhe ordered the German government and parliament to ensure that the ECB provided a “proportionality assessment” of its bond-buying to ascertain whether its “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.
MPs are at a loss as to how to respond. They know that they cannot order the ECB to do anything: it has already made clear it answers only to the European Parliament and the European Court of Justice. But nor can they ask the Bundesbank to provide the proportionality assessment, because it is formally independent of both the Bundestag and the government.
“On the other hand, the constitutional court ruling does make clear that the Bundestag has a role to play — it must ensure that we get back to a situation consistent with the EU treaty,” said Mr Boehringer. “So it presents us with a dilemma.”
However, the image of German and EU institutions facing off against each other in stony silence is deceptive. Experts believe that officials are working frantically behind the scenes to resolve the impasse, using the informal channels that exist between the German government, Bundestag and ECB.
One such channel is the warm friendship between Mr Schäuble and Christine Lagarde, the ECB chief: the two were fellow finance ministers, and continued to work closely together after Ms Lagarde switched from the French cabinet to the IMF in 2011.
In an award ceremony for Mr Schäuble last November, Ms Lagarde gave an encomium describing their “long shared history as colleagues and friends” and praising him as a “formidable negotiator”, a “straight-talker”, whose “directness has always been married with loyalty and kindness”.
Most observers think Germany’s central bank — the Bundesbank — will play a critical role in resolving the deadlock. In an interview with the FT last week, ECB board member Isabel Schnabel said she was “sure there is going to be communication between the Bundesbank and the German parliament and the German government, and one will have to find a solution”.
Mr Boehringer, who is an MP for the rightwing Alternative for Germany, said he also believed that everything hinged on the Bundesbank. “I can imagine that [it] will have to write a letter explaining the PSPP [the ECB’s bond-buying programme] again,” he said. “It will then send this to the government, and the government will then send it to the Bundestag. In my view the Bundestag should then debate it and maybe vote on it.”
However, another avenue for potentially resolving the impasse has been set in motion by German MEP Sven Simon, who has written to Ms Lagarde asking for details of how the central bank assessed the proportionality of its bond-buying programme.
Mr Simon, who sits on the European Parliament’s economic and monetary affairs committee, told the FT he hoped to act as a go-between, taking the ECB’s proportionality assessment to the Bundestag, in the hope that it will be enough to defuse the stand-off.
“There is no direct link between the German constitutional court and the ECB and this is why I thought that the European Parliament, which is controlling the ECB in a democratic way, could play a role,” Mr Simon said.
Mr Simon’s letter, which was sent at the start of last week, asked: “Is the ECB willing to publish its deliberations and assessments on the macroeconomic impact of the PSPP and potential side-effects on the economic policies which lie in the competence of the Member States?”
“How did the ECB reach the conclusion that the PSPP was proportional to its monetary mandate?” it went on.
The ECB always responds to MEPs’ letters within six weeks. The central bank declined to comment, but a person briefed on the matter said that while it had not yet decided how to respond to the constitutional court ruling, its answer to Mr Simon could play a role.