Germany's highest court has given the European Central Bank three months to justify bond purchases under its flagship stimulus programme or lose the Bundesbank as a participant, raising questions about the scheme and the euro's future.
The verdict dealt a blow to the unprecedented €2trn purchase scheme that kept the eurozone in one piece after its debt crisis but which critics argue has flooded markets with cheap money and encouraged over-spending by some governments.
Excluding the Bundesbank, the ECB's biggest shareholder and bond buyer, would jeopardise the viability of the Public Sector Purchase Programme (PSPP) and put a question mark over Germany's role in the euro.
But in a sign they were unlikely to be swayed, ECB policymakers meeting late today reaffirmed their commitment "to doing everything necessary" to boost inflation in the eurozone and "reach all jurisdictions".
The court judges left leeway for the Bundesbank to continue in the scheme if the ECB could show that was necessary, despite "negative effects" such as risking taxpayer money and making governments reliant on central bank funding.
The ECB's separate pandemic-fighting purchase scheme - a €750bn programme approved last month to prop up the coronavirus-stricken euro area economy - remained unaffected, as the Constitutional Court said its decision did not apply to that.
PSPP, meanwhile, currently accounts for less than a quarter of the ECB's monthly bond purchases.
The court said the Bundesbank could no longer be part of it "unless the ECB Governing Council adopts a new decision that demonstrates ... the PSPP (transactions) are not disproportionate to the economic and fiscal policy effects," the judges said.
The ECB said it "takes note" of the judgement and vowed to do "everything necessary" to fulfil its mandate of ensuring price stability.
The statement was issued after its 25-member governing council held a telephone conference to discuss its response.
"The Governing Council remains fully committed to doing everything necessary within its mandate" to maintain price stability in the eurozone and ensure its monetary policy action filters through to the real economy, the ECB said.
