The euro fell today after Germany’s constitutional court issued a long-awaited ruling on the legality of the European Central Bank’s massive asset-purchase programme.
The judges in Karlsruhe appear to have dropped quite a bombshell — instructing the Bundesbank that it must drop out of the Public Sector Purchase Programme unless the ECB proves, within three months, that the PSPP is needed.
The ECB has already bought billions of euros of government bonds under the programme, which was created by former president Mario Draghi during the debt crisis.
The court has considered a claim that PSPP was illegal as it amounted to the direct financing of eurozone governments. They concluded that the ECB needs to prove that the programme is justified, through “a proportionality assessment”.
“The Bundesbank may thus no longer participate in the implementation and execution of the ECB decisions at issue, unless the ECB Governing Council adopts a new decision that demonstrates…the PSPP are not disproportionate to the economic and fiscal policy effects.”