German Constitutional Court versus ECB: I'm no lawyer, but... I wrote a few things about tomorrow's ruling.
A thread including a few side notes. (1/n)
A thread including a few side notes. (1/n)
I've read a lot from experts, and lawyers are worse than economists! They can't agree on anything. To be sure, this case is a complex one, touching upon the supremacy of EU law versus national courts. Whatever the outcome, we'll see more legal disputes in the future. (2/n)
This thread by @RafaelMentges is one of the most helpful I've seen, linking to legal texts as well as excellent threads by @lucasguttenberg and @GrundSebastian. (3/n)
So the consensus seems to be for the BVerfG to ‘accept’ the ECJ Dec-18 decision. Because, you know, they ruled that ECB PSPP was legal, and their decision should be binding for all member states. (4/n)
On substance, little has changed. PSPP risks are limited. No burden sharing. Moreover, the "economic circumstances" are much more challenging today. Not that it matters anyway because THE ECJ RULING IS BINDING. (5/n)
Worst case, the BVerfG imposes stricter conditions on the Bundesbank, if not forces it to stop its PSPP purchases immediately. Ironically, this would solve the problems with issuer limits in Germany! (6/n)
More realistically, a practical interim solution could see purchases of German debt securities delegated to another National Central Bank, as suggested by @MartinSelmayr, under Art. 9.2 of the ECB Statute. (7/n)
But, a decision to prevent the Bundesbank from participating in ECB QE would be a bombshell calling into question the singleness of monetary policy and the viability of the euro. It would call for a political response, and for Merkel to back the ECB like she did in 2012. (8/n)
The biggest risk for markets would be to extrapolate a negative ruling to PEPP, constraining the programme implementation while opening the door to new complaints since PEPP issuer limits are accounted for separately from PSPP. (9/n)
No final decision would be made before the end of 2021… when PEPP is expected to be terminated, hopefully. But, even retroactively, this coud be a problem if total holdings (PSPP+PEPP) need to be reduced below 33%. What about the ECB’s credibility in future programmes? (10/n)
In the end, an unfavourable BVerfG ruling on PSPP could force the ECB to clarify its intention to “revisit some self-imposed limits”. A side-effect could be that the ECB is forced to increase PEPP purchases significantly until we get some legal/political clarity. /END
PS: I forgot an important side-note. The more I read about such legal decisions, the more convinced I am that the ECB could not implement an explicit form of Yield (or Spread) Curve Control. They can't give member states certainty over future borrowing costs.
