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Changing of guard at top German court signals de-escalation for ECB

EconomyJun 21, 2020 03:01PM ET
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3/3 © Reuters. FILE PHOTO: President of Germany's Constitutional Court Vosskuhle arrives for the verdict of the court about the attempt by the country's 16 federal states to ban the far-right NPD in Karlsruhe 2/3

By Madeline Chambers and Thomas Escritt

BERLIN (Reuters) - Changes to the composition of Germany's top court are likely to make it less confrontational towards the European Central Bank following a ruling about bond purchases that sent shockwaves around Europe, according to two sources close to the court.

In its ruling last month, the Constitutional Court gave the ECB three months to justify bond purchases under its flagship stimulus programme or lose the Bundesbank as a participant, raising questions about the future of the euro.

While Berlin is likely to have the final say on whether the ECB's justification is sufficient, the plaintiffs behind the case have signalled they could bring fresh legal action against new ECB stimulus plans, which could lead to more market turmoil.

However, there will be a changing of the guard at the German court in Karlsruhe on Monday.

A key change will be a new judge joining a bench widely seen to have a narrow Eurosceptic majority: Astrid Wallrabenstein, who was nominated by the pro-European Greens and has suggested there should be a thaw in relations with the European Court of Justice (ECJ), which cleared the ECB's plan.

She will take the place on the bench vacated by Andreas Vosskuhle, president of the court whose term has expired and is leaving. His role as president will go to Stephan Harbarth, a conservative lawmaker from 2009-2018.

"She is a lot more Europe-friendly than Vosskuhle," said the first source, a constitutional law professor who is well connected at the court and knows Wallrabenstein. "So my forecast is that in future, such decisions like that on the ECB will no longer be taken."

Wallrabenstein's appointment could help pave the way towards a more conciliatory tone from the court, which experts say has a history of provoking crises before softening its stance.

"Typically what happens is the court does something that make people think it's overreached and then they back off a bit," said Justin Collings, historian of the German constitutional court at Brigham Young University in Utah.

A spokesman for the court said he could not speculate on the direction of forthcoming decisions from the court in view of the personnel changes and each decision was taken on its own merit and by a group of eight judges in confidence.

'MORE THAN A MATCH'

The constitutional court is divided into two senates, each with eight judges, which handle different cases. Wallrabenstein will join the second senate, which made the May 5 ruling on the ECB's bond purchases.

Although the second senate voted 7-1 to pass the ruling, they aim for consensus. The arrival of Wallrabenstein promises to shift the balance, at least over time, said the second source, who is close to the court, noting that she is the first judge on the second senate to be nominated by the Greens.

"Every new justice changes something. In a group of eight people, one new person will make a difference," said the source. "There may well be more vigorous discussions."

The law professor who knows the Karlsruhe judges said the dynamic on the second senate "has been strongly shaped by the interplay of Vosskuhle and (Peter) Huber", a conservative who described the May 5 ruling as "imperative".

Of Wallrabenstein, the professor added: "She won't go looking for open conflict, but she has good arguments and is more than a match for Huber."

Wallrabenstein has shown she is prepared to take a stand.

In 2014, as a lawyer, she represented a - failed - case at the Karlsruhe court to have former U.S. spy agency contractor Edward Snowden heard by an investigating committee in Berlin.

She has already suggested a softer approach in relations with the ECJ, which cleared the ECB's stimulus plan in 2018. The Karlsruhe judges decided they were not bound by that ruling, saying the European court had failed to scrutinise the ECB's actions to the point of making its own verdict "meaningless".

"The tone has become harsher lately," Wallrabenstein said late last month of relations between the courts. "Just carrying on like this perhaps becomes a bit difficult now."

Contacted by Reuters at the weekend, Wallrabenstein declined to comment further.

However, she was quoted by Germany's Frankfurter Sonntagszeitung weekly as saying she hoped that "things would move in the right direction", adding it was now about how to carry on after an argument and say: "Forget it, let's move on".

CONUNDRUM FOR BERLIN

The German court has said its May ruling did not apply to new ECB measures, leaving room for a fresh challenge.

However, while the plaintiffs behind the original case have signalled they could bring new legal action, the second source told Reuters that the Karlsruhe court felt it had made its point with the May 5 ruling.

Nonetheless, the May 5 decision still poses a conundrum for Berlin, which is bound to respect the Karlsruhe court, but at the same time, does not want to erode the independence of the ECB, whose unprecedented stimulus has kept the euro zone intact.

ECB watchers see two potential exit routes: either the Bundesbank or the European Parliament, which has the right to question the ECB, seeks a clarification about the bond purchases from the euro zone central bank.

Berlin must then either accept or reject the justification. Rejection would require the Bundesbank to pull out of the scheme, and put a question mark over Germany's role in the euro.

Changing of guard at top German court signals de-escalation for ECB
 

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Comments (5)
GEO I NIKOLOPOULOS
GEO I NIKOLOPOULOS Jun 21, 2020 6:55PM ET
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The ECB showed no remorse, by changing the court judges. Even if ECB in not an eu institution, she can control (and change) anyone.
David Wang
David Wang Jun 21, 2020 4:40PM ET
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EU need to be careful about the socialist rising again. Xi-tler is helping.
Kaveh Sun
Kaveh Sun Jun 21, 2020 2:48PM ET
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German wants cheap labor n a bigger market but dont want to bail others out. If others dont get free money, they”ll break Eu just like Uk.
Alex Malmstrom
BrassTacks1 Jun 21, 2020 12:32PM ET
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Buying positions of power, nothing changes!
Roman Cerny
Roman Cerny Jun 21, 2020 12:31PM ET
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ECB is shameful institution rewarding fiscal irresponsibility and bad management of practically all southern EU Member States. I am glad that there is a bit of sense expressed by German court and I dont think one change in composition of court will somehow change its approach. It is important to see especially who is its president. This post will stay in strongly conservative hands and that is only good.
 
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