An Assessment of the Judgment of the Federal Constitutional Court of Germany On the Public Sector Asset Purchase Programme of the European Central Bank

The Federal Constitutional Court (FCC) of Germany has invented a new and impossible test of proportionality to declare as ultra vires the judgment of the Court of Justice of the European Union in Weiss. Instead of understanding proportionality as the least interventionist means of achieving a certain policy objective, it defines it as the balancing between conflicting policy objectives which in this case are monetary and economic policy. This is not the concept used by the Court of Justice. This definition of proportionality is intended as a substitute for the principle of conferral and whether the European Central Bank (ECB) encroached on economic policy. However, if monetary policy is to be effective, it must impact economic policy. Had the ECB attempted to balance monetary and economic policy effects, it would have infringed Article 127(1) TFEU that requires that the support of economic policy by the ECB is without prejudice to price stability which is the objective of monetary policy. The Federal Constitutional Court did not appreciate the significance of the fact that the ECB buys public bonds from private investors and that the interjection of private investors deprives Member States from the ability to sell unlimited amounts of bonds at prices that would enable them to run indefinite budget deficits.