Focus: German constitutional court tries to rein in ECB

Focus: German constitutional court tries to rein in ECB
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Updated 12 May 2020

Focus: German constitutional court tries to rein in ECB

Focus: German constitutional court tries to rein in ECB

What happened:

US President Donal Trump wants to advance to phase 2 of reopening the economy. The White House is considering disbanding its coronavirus task force by the end of the month, while nearly 70 percent of Americans remain afraid of catching the disease.

The UK has surpassed Italy as Europe’s worst affected country, with 195,000 confirmed cases and 29,427 deaths at time of writing. The UK government is considering how to reopen the economy: Chancellor Rishi Sunak is said to be considering how to wean the country off the £39 billion ($48.25 billion) workplace support schemes he was forced to establish at the start of the crisis. The British Chambers of Commerce advocate doing so at a measured pace, warning against a “falling off the cliff” scenario.

Euro-area services Purchasing Managers Index (PMI) came in at 12, and the composite PMI at 13.6. The Shanghai composite index rose by 0.63 percent as traders came back after a 5-day break.

German factory orders fell by 15.6 percent in March, the biggest slump since data collection started in 1991. This is significant as Germany is the manufacturing powerhouse of the world’s largest economic bloc.

The earnings season continues:

Disney has taken a $1.4 billion coronavirus hit. Revenues were up 21 percent to $18 billion. Its theme parks performed particularly badly, while the movie streaming channel Disney+, which debuted Nov. 12 last year, had reached 54.5 million subscribers by May 4. Earnings per share fell by more than half to $0.60.

UniCredit came in with a first quarter loss of €2.7 billion ($2.9 billion). The bank shored up its loan loss provision to €1.26 billion, up from the previously announced €900 million. Credit Agricole shored up its loan loss provisions to €621 million.

BMW’s first quarter operating profit fell by 78 percent to €589 million. Its car sales plunged by 20.6 percent or 477,111 units. Motorcycle sales dropped by 9.9 percent.

The second quarter will be worse for car makers if April sales data are anything to go by. In the UK alone new car registrations plunged by 97 percent to 4,321, reaching levels last seen in 1946.

Germany’s constitutional court ruled yesterday that the European Central Bank (ECB) did not adhere to proportionality when purchasing assets under the Public Sector Purchase Programme (PSPP), which has spent €2.7 trillion since 2015 on the financial crisis quantantive easing scheme.

The court voiced its concerns that the bank’s primary mandate was inflation and that the PSPP risked protecting defunct companies, having an adverse effect on savers. 

Germany’s highest court gave the ECB three months to answer its queries.

The bank responded that it was fully committed to “doing everything necessary within its mandate to ensure that inflation rises to levels consistent with its medium-term aim,” endeavoring to transmit price stability to all jurisdictions in the eurozone.

This had an immediate effect of the euro-dollar exchange rate. However, the options market seems to suggest a more relaxed medium-term outlook.


Germany’s highest court is casting aside a 2018 ruling by the European Court of Justice that the PSPP was legal. This has has injected uncertainty over the independence of the ECB and seems to underline the bank’s political underpinnings. It also echoes German uneasiness over prolific expansionary policies by the ECB as well as over risk-sharing among ECB member states.

The verdict cast a shadow over the ECB’s €750 billion Pandemic Emergency Purchase programme (PEPP), at a time when the bank is considering expanding its response to COVID-19. While the original public sector quantitative easing program has strict limits aimed at ensuring proportionality, such as how much of each nation’s debt it buys, most of those do not apply to the PEPP.

If the German constitutional court is not satisfied, the ECB risks the German Bundesbank (the ECB’s largest shareholder) not participating in the PEPP. This decision remains in the purview of the Bundesbank.

The PEPP has had a big impact lowering government bond yields of highly indebted southern EU member states. Immediately after the verdict, Italy’s two-year bond rose by 20 basis points.

Going forward:

The G20 Debt Service Suspension Initiative for some of the world’s poorest nations could free up more than $20 billion by the end of 2020 according to the Institute of International finance. The institute warned, though, that legal and financial obligations would warrant a case by case approach.

All official bilateral creditors of the G20 participate in the initiative. The G20 Action Plan also publicly calls on private creditors to join the initiative on comparable terms on a voluntary basis.


— Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources.
Twitter: @MeyerResources


Yemen’s government vows to mitigate effects of Houthi terrorism designation

Yemen’s government vows to mitigate effects of Houthi terrorism designation
A military vehicle is stationed on the tarmac of Yemen’s Aden airport. Yemen says the Stockholm Agreement has failed to bring peace to the country. (File/AFP)
Updated 9 min 48 sec ago

Yemen’s government vows to mitigate effects of Houthi terrorism designation

Yemen’s government vows to mitigate effects of Houthi terrorism designation
  • International community urged not to surrender to ‘blackmailing and intimidation’ 
  • Stockholm Agreement has failed to bring peace, Yemen PM said

AL-MUKALLA: Yemen’s prime minister has vowed to address any impact on humanitarian assistance or the remittances of citizens abroad following the US move to designate the Iran-backed Houthis as a terrorist organization.

Maeen Abdul Malik Saeed also urged the international community not to surrender to “Houthi blackmailing” and intimidation.
Saeed defended his government’s strong support of the designation during a virtual interview with foreign journalists sponsored by the Sanaa Center for Strategic Studies.
He said that his government had formed a committee to handle any effects on the delivery of humanitarian assistance inside Houthi-controlled areas and the remittances of Yemenis abroad.
“We are determined to prevent any impact of the decision on the Yemenis. We have formed a committee to mitigate effects of the decision,” he said.
When the US announced its intention to designate the Houthi movement as a terrorist organization last week, Yemen’s government quickly urged the US administration to put the decision in place, predicting it would stop Houthi crimes and their looting of humanitarian assistance, and would smoothe the way for peace.
Referring to the impact of the US designation on peace talks between the Yemeni government and the Houthis, Saeed said that the decision would not undermine peace efforts. He said that the Houthis would be accepted as part of the Yemeni political and social spectrum when they abandoned hard-line ideologies and embraced equality and justice.

The Yemeni government agreed to go to Stockholm for reaching a solution to stop fighting and saving the city. This model has failed.

Maeen Abdul Malik Saeed, Yemen’s prime minister

“This is an important pressure card on them and a real definition of them,” he said, adding that the Yemenis would not allow the Houthi movement to rule them.
“Yemen would not be ruled by a racist and terrorist group,” he said.
Formed under the Riyadh Agreement, Yemen’s new government’s ministers narrowly escaped death on Dec. 30 when three precision-guided missiles ripped through Aden airport shortly after their plane touched down.
The government accused the Houthis of staging the attack, saying that missile fragments collected from the airport showed that they were similar to missiles that targeted Marib city in the past.
The prime minister said that the Yemeni government had offered many concessions to reach an agreement to end the war. It had agreed to engage in direct talks with the Houthis in Stockholm in 2018 despite the fact that the Yemeni government forces were about to seize control of the Red Sea city of Hodeidah. However, the Stockholm Agreement had failed to bring peace to Yemen, he said.
“The government forces were about to capture the city within five days maximum. The Yemeni government agreed to go to Stockholm for reaching a solution to stop fighting and saving the city. This model has failed,” Saeed said.
In Riyadh, Yemen’s president Abed Rabbo Mansour Hadi on Friday appointed Ahmed Obeid bin Daghar, a former prime minister and a senior adviser to the president, as president of the Shoura Council.
Hadi also appointed Ahmed Ahmed Al-Mousai as the country’s new attorney general.
Fighting continues
Heavy fighting between Yemeni government forces and the Houthis broke out on Sunday for the third consecutive day in contested areas in the districts of Hays and Durihimi in the western province of Hodeidah. Official media said that dozens of Houthi rebels and several government troops were killed in the fighting and loyalists pushed back three assaults by Houthis in Durihimi district.
In neighboring Hays, the Joint Forces media said on Sunday that the Houthis hit government forces with heavy weapons before launching a ground attack in an attempt to seize control of new areas in the district.
The Houthis failed to make any gains and lost dozens of fighters along with several military vehicles that were burnt in the fighting, the same media outlets said. Heavy artillery shelling and land mines planted by the Houthis have killed more than 500 civilians since late 2018, local rights groups said.