EU Threatens To Sue After Germany Questions Legality Of ECB Bond Buying Program

Germany and the EU are in the midst of an escalating legal struggle that could wreak havoc for the Eurozone. 

The struggle came to a head on Sunday when the EU threatened to sue Germany after the country’s top court questioned the ECB’s bond buying program. The program was approved by a 15 judge EU panel in December 2018. 

The question is one of which court holds the power: under EU treaties, the EU Court of Justice should rank higher. That was the court that cleared the central bank’s bond purchases, which have totaled $2.9 trillion since 2015. But German judges said the country could “deviate because the bloc’s top judges overstepped their powers when they backed the ECB’s policy in a previous ruling,” according to Bloomberg. 

Naturally, this drew criticism from European Commission President Ursula von der Leyen, who commented on Sunday: “The final word on EU law is always spoken by the European court. Nowhere else.”

In a case where a member country doesn’t follow its rules, the EU issues a warning and then moves to file a court case. But having such a powerful nation defy the EU leaves the commission in a tough spot. 

Miguel Maduro, a former advocate general at the EU Court of Justice, said: “The commission cannot simply ignore this challenge to EU law. Otherwise, such national challenges might be replicated by other states. What would the commission do if the Hungarian constitutional court or the Polish constitutional court, or others, do something like this.”

It would almost be like they were actual countries again…

“Making this statement that they’re considering opening an infringement procedure without actually opening it is a smart, prudent approach,” Maduro said.

In the event that the EU does sue, it would be heard by the EU’s top court – the same ones that Germany is currently having a dispute with. 

Meanwhile, ECB President Christine Lagarde has said that the central bank doesn’t plan on taking action and argued that the ECB is not under the purview of the EU Court of Justice, but rather is accountable to European Parliament. 

Germany’s hand remains to be seen. The country’s court, which is held in high favor by its citizens, has championed civil liberties and has high approval rates. Bloomberg even speculated that Chancellor Angela Merkel may want to lose the case on purpose, so Germany’s leaders could still say it protected Germany’s constitution, while ultimately caving to the EU. 

Germany has repeatedly challenged the ECB’s bond buying program and Eurozone bailouts. 

Soon, we predict, other countries could follow suit. The jig for the EU appears to be close to up. Central Banks could be next…