LONDON (Reuters) - Germany’s top court on Tuesday told the Bundesbank to stop participating in the European Central Bank’s long-running PSPP stimulus scheme unless the ECB can prove the purchases are needed.
Euro zone bond yields rose and the euro fell after the ruling, which deals a blow to a programme that has kept the euro zone’s economy afloat during several crises.
Following are reactions from market participants and politicians.
JEROME LEGRAS, HEAD OF RESEARCH AT AXIOM ALTERNATIVE INVESTMENTS
“Never seen such a legal slap in the face in my entire life. (But) ultimately, I’m not sure there will be real consequences.”
LUIS GARICANO, LIBERAL SPANISH MEMBER OF EUROPEAN PARLIAMENT:
“Very worried about the future of Europe... Europe cannot work if national Constitutional Courts decide unilaterally when the Luxembourg Court has primacy. Expect Hungary’s and Poland’s constitutional court to follow this precedent.”
SARAH HEWIN, CHIEF EUROPE ECONOMIST AT STANDARD CHARTERED:
“The good news is that the ruling does not seem to apply to the PEPP, but there is a bigger concern that it limits the ability of the ECB to ‘do whatever it takes’... The plaintiffs in the court case by contrast argue that ECB QE is not within its sole mandate of ensuring price stability, and the court seems to back that.”
“The important takeaway is that the ECB and Bundesbank have three months to remedy the court’s concerns. What we don’t know is how they can address those worries.
“The least likely but most positive outcome for markets is if the ECB tries to convince the court on the importantance of the PSPP. The second outcome could depend on whether they can add some safeguards to make sure PSPP honours the principle of proportionality between economic and monetary policy. This is the hardest one to assess.”
MARIJA VEITMANE, SENIOR STRATEGIST, STATE STREET GLOBAL MARKETS
“(The ruling)... can be even seen as the beginning of the end of the euro. However... the court is allowing the ECB three months to mend problems with QE. The decision ultimately relies on the Bundesbank being a willing participant in the programme.
“At the moment, it looks like there is enough wiggle room for QE programs to continue, even if delayed somewhat.”
“It’s probably the uncertainty surrounding this decision. It doesn’t seem like anything that the ECB can’t fix, but as things stand at the moment, this is a pretty big bump in the road.”
“The court’s decision may bring into question the Bundesbank’s future participation in Europe-wide programmes..
“This will put pressure not only on future quantitative easing participation but also deliver political pressure to not support fiscal burden-sharing.”
“This looks like a little big bang... If all of this leads the ECB to make its decisions and their proportionality more transparent, than the ECB can probably deal with it... However, Karlsruhe has emphasized that there are limits to bond purchases. This could make it more difficult for the ECB to expand PEPP.”
“In essence, the Constitutional Court gave the ECB the green light... With its armada of specialists, it will be easy for the ECB to carry out (the proportionality) ...check. The ECB’s bond purchases will continue. Today’s ruling won’t change that.”
GERMAN CONSERVATIVE MEP MARKUS FERBER, EPP COORDINATOR IN THE ECONOMIC AND MONETARY AFFAIRS COMMITTEE:
“I welcome that the German Constitutional Court has now defined a set of clear reference points to determine the legality of asset purchasing programmes...
“The ECB would be well advised to conduct the required proportionality analysis as soon as possible... This is first and foremost a formal hurdle, but it has to be taken swiftly.”
Reporting by London markets team and European bureaus; editing by John Stonestreet