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German Supreme Court demands clarification of bond purchase scheme from European Central Bank

5 May 2020 02:14 PM

The Constitutional Court of Germany ruled today that the European Central Bank must make clear that the plan to buy major bonds to support the eurozone economy is “proportional,” otherwise the German central bank may not participate in it.

The German central bank will be prevented from participating in the "quantitative easing" asset-purchase program within three months unless the European Central Bank’s board adopts a new resolution that clearly and proves in an understandable and proven manner that its monetary policy goals are proportionate.

The euro, government bonds, and European shares each saw losses today, Tuesday, after a decision of the Supreme Court in Germany that the German central bank should stop buying government bonds if it cannot prove the need for them.

The court ruled that the German Central Bank should end purchases under the long-term stimulus plan of the European Central Bank within the next three months unless the European Central Bank can prove its need for it.

But the judges said their decision did not apply to the latest European Central Bank coronavirus pandemic control program, a 750 billion euro ($ 812 billion) program known as the Pandemic Emergency Purchase Program (PEPP) approved last month. To support the eurozone economy.

However, the ruling brought new uncertainty to the markets, which have calmed down through strong asset purchases to the European Central Bank to prevent the coronavirus that caused the economic meltdown.

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