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May 05, 2020 Since 2015, the ECB has relied on quantitative easing to support the economy, accumulating around € 3 trillion in bonds. With much of the eurozone facing the recession, it is planning further liquidity injections to keep financing costs low for businesses and governments. But a group of academics in Germany have long fought Mario Draghi's policy by arguing that the ECB is exceeding its mandate and that these purchases constitute direct financing of governments - a violation of the European Treaty.

The Constitutional Court must decide on the lawfulness of the Bundesbank's participation in bond purchases. It is very unlikely that the Court will decide in this regard, the European Court of Justice has already approved this mechanism for buying bonds, which means that the German court should find a justification for rejecting the higher court's ruling. In a similar case four years ago, the German court had supported the emergency bond purchase program, never used by the ECB, known as 'Outright monetary transactions' after the go-ahead from the European court.

The court is likely to accept the European ruling, but by placing some restrictions on the Bundesbank's participation. The court could place a limit on the amount of debt of each country that the Bundesbank can buy, on the amount of risk that can be shared across borders or that purchases should be proportional to the size of each nation's economy.

This is the central point, because it would prevent the long-awaited turn of the ECB's monetary policy announced in February by Christine Lagarde. In particular, the overcoming of the so-called 'capital key' purchase, a rule that obliges the ECB to purchase securities in proportion to the capital held by the central bank of each nation (once proportional to GDP). This means preventing the ECB from concentrating its purchases on the securities of countries in greatest difficulty, undermining any attempt at European solidarity. If the German court were to decide on this, the pandemic emergency purchase program of the ECB worth € 750 billion, the PEPP, would also be called into question.