Paper by Prof. Lars P. Feld and Prof. Volker Wieland on the proportionality of the ECB bond purchases in the „Journal of Financial Regulation“

In a joint paper in the „Journal of Financial Regulation“ Prof. Lars P. Feld and Prof. Volker Wieland explain how a regular proportionality check of the ECB bond purchases could look like. In May 2020, the German Federal Constitutional Court ruled that the ECB‘s large-scale bond-buying program exceeds European Union competencies. It stated that the ECB failed to assess that the program satisfies the principle of proportionality. The ECB has now integrated a proportionality assessment in its monetary policy strategy statement as s a result of its strategy review.

At the request of the Constitutional Court, the European Court of Justice (ECJ) had previously ruled that the program was legally correct and did not violate EU law. However, the judges in Karlsruhe did not accept this and thus opposed the ECJ. Their main criticism of the bond-buying program was the ECB's failure to justify why the program was proportionate.

Feld and Wieland explain in their paperhow a regular proportionality check could be integrated in the ECB’s strategy. They propose to include quantitative benchmarks for policy rates and the central bank balance sheet in the context of  such a proportionality check. In their view, proportionality assessments regarding monetary policy could be used as a way to strengthen the independence of the ECB.

Proportionality is listed explictly in the new ECB's monetary policy strategy statement. On July 8, ECB President Christine Lagarde presented the outcome of the ECB strategy review.

Journal of Financial Regulation
Lars P. Feld und Volker Wieland
The German Federal Constitutional Court Ruling and the European Central Bank’s Strategy