German High Court Decision May Imperil Stability of Euro
EuropeChristian Watjen

BERLIN—On Friday, the EU’s top court, the Court of Justice of the European Union, said it alone has the power to decide whether EU bodies are breaching the bloc’s rules.

It’s a rebuke to a ruling by Germany’s constitutional court.

Earlier this week, Germany’s highest court shocked Europe. It declared a flagship program by the European Central Bank (ECB), potentially illegal under German law.

To keep the eurozone intact, the ECB has since 2015 purchased bonds from member states—to the tune of 2.2 trillion euros ($2.4 trillion). The German court’s ruling now threatens this massive stimulus scheme.

“[This ruling] could potentially have very dangerous consequences for the stability of the entire currency bloc. We are still a bit far from this moment, said Pawel Tokarski, a researcher with the German Institute for International and Security Affairs.

The German court gave the ECB three months to justify such large-scale asset purchases. It said they have to be proportionate or it would lose the German central bank as a participant.

Critics say such schemes have flooded markets with cheap money and encouraged some governments to overspend.

ECB President Christine Lagarde said in response the central bank will be “undeterred” in fulfilling its mandate.

And the European Commission stressed the independence of the ECB and said it is not beholden to national courts.

Because the time of unlimited support from the ECB could be running out, Tokarski said the economic crisis caused by the pandemic could be an opportune time for some countries, especially Italy, Spain, and France, to clean up their act.

“We should use this pandemic crisis as an opportunity to change, to reform some economic systems, economic models in Europe, which are currently unsustainable.”