The European Central Bank and the German Constitutional Court: Police Patrols and Fire Alarms

Clément Fontan,David Howarth

doi:10.17645/pag.v9i2.3888

Clément Fontan, David Howarth

Open Access

https://doi.org/10.17645/pag.v9i2.3888

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Abstract

In May 2020, a ruling of the German Federal Constitutional Court (FCC) questioned the legality of the Bundesbank’s participation in the European Central Bank’s (ECB’s) Public Sector Purchase Programme. Applying elements of a principal-agent analysis, this article analyses how the FCC ruling presents us with a new understanding of the relationship between the ECB, other EU institutions and Eurozone member states. Existing principal-agent analyses of the ECB focus upon its relations with other EU-level institutions and point to the limited ex ante control mechanisms and efforts to reinforce ex post control mechanisms—notably European Parliament oversight. The FCC ruling and the ECB’s reaction demonstrate the relative importance of national level controls over the ECB agent. This article understands the role of private plaintiffs in Germany as a form of ‘fire alarm’ on ECB policymaking against the background of weak ex post controls at the EU-level.

Highlights

On 5 May 2020, the German Federal Constitutional Court (FCC) presented a ruling (Weiss and others, 2020) that put into question the legality of the Bundesbank’s par‐ ticipation in the European Central Bank’s (ECB’s) Public Sector Purchase Programme (PSPP)
In the midst of an unprecedented crisis created by the Covid‐19 pan‐ demic, the FCC’s ruling threatened to undermine, if not eliminate altogether, the most important macroe‐ conomic response to the crisis implemented by the ECB at the EU‐level—the Pandemic Emergency Purchase
We return to the research question posed in the intro‐ duction to this article: How should we best understand the relationship between the operationally independent ECB and the FCC? We answer this question by arguing that the FCC functions as a fire alarm and in effect a fil‐ ter for private plaintiffs with the potential to sanction sig‐ nificantly the ECB through rulings on Bundesbank action

Summary

Introduction

On 5 May 2020, the German Federal Constitutional Court (FCC) presented a ruling (Weiss and others, 2020) that put into question the legality of the Bundesbank’s par‐ ticipation in the European Central Bank’s (ECB’s) Public Sector Purchase Programme (PSPP). From a political science perspective, the relationship between two independent institutions operating at the national and supranational level is a good vantage point to analyse power struggles and legit‐ imacy concerns within Economic and Monetary Union (EMU) This conflict begs the question of who controls the ECB’s monetary policy, knowing that the ECB has been granted an unprecedented level of independence from other institutions in its polity (Howarth & Loedel, 2005; Quaglia, 2008). Studies of the relationship between national governments and parliaments and the ECB focus upon the ‘politicisation’ of monetary policy usually for domestic political ends (Dyson & Marcussen, 2009; Tesche, 2019) This national‐level politicisation has not yet been examined in terms of the focus of the principal‐agent analysis upon ex post controls on ECB monetary policy. The conclusion considers the likelihood of ongoing legal challenges at the national level

The Principal‐Agent Framework and the ECB

Weak Police Patrols and Fire Alarms at the EU‐level

Weak National Police Patrols

Asset Purchase Programmes and Ordo‐Liberalism

National Courts as Fire Alarms

Conclusion