German supreme judges declare war on the euro

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The European Central Bank on Wednesday unveiled a historic emergency plan to support states facing the coronavirus. DANIEL ROLAND / AFP

By: Dominique Baillard Follow

In the midst of the coronavirus crisis, a new judgment of the German Constitutional Court calls into question the independence of the European Central Bank. With what consequences for the euro zone?

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The emergency plan of 750 billion euros decided a month ago by the ECB to support the finances of the European states exhausted by the fight against the pandemic of Covid-19 is not concerned specify the German judges in their pages of conclusion. And yet the gap between Italian and German rates widened yesterday. A renewed tension which shows how much this judgment risks compromising all ECB intervention. Because the German judges put the ECB on notice to justify its past decisions, without which, the Bundesbank, one of the biggest partners of the European Central Bank, will have to withdraw from the vast bond buyback program launched in 2015. When the eurozone is threatened by the sovereign debt crisis, Mario Draghi, president at the time of the Frankfurt Institute de facto supports the finances of member states, especially those in the south, by buying sovereign debt in abundance. The judges are categorical: it is to put in danger the savers since this action contributed to reduce the rent of the money. Didn't the ECB cross the red line by making " economic policy  ”while its only mandate concerns inflation which it is supposed to maintain at a bearable level.

Questions which join the accusations made by the opponents of the euro

The same people who have lodged a complaint before the highest court in their country; Among the thousand plaintiffs, generally nostalgic for the mark, we find one of the founders of AFD, the German anti-European far-right party. It is therefore a very political trial to which the Constitutional Court lends itself. And it is not the first. A previous complaint already filed before this body concerned the support program set up in 2012 by the ECB. For the fierce supporters of the euro, this judgment is a declaration of war against the European Central Bank. The latter, like the Commission, believes that its action has been validated by the Court of Justice of the European Union. But the German judges contest the judgment of this supranational authority. In the name of German law, the Karlsruhe court is in the process of pounding the entire edifice of the euro zone.

Is the ECB's action more risky than that of the other major central banks ?

The ECB does like all the other big western central banks. Massive redemption of debts to support the States. It is true that this contributes to fueling the financial bubbles, but it is also what prevents the rout to the States. The Bank of Japan, the Bank of England, and the United States Federal Reserve all have similar programs initiated mostly after 2008. But unlike the ECB, their room for maneuver is clearly defined in their statute. In Europe, the ECB innovated urgently to resolve the debt crisis, but its mandate remained unchanged, and the member states of the euro zone were careful not to get their noses in this politically explosive dossier. Leaving a space where German opponents of the euro rush into. At the risk of breaking the main tool capable of saving the euro zone from sinking.

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