Crisis Response or Overreach? - The Role of the European Central Bank in the Pandemic Emergency Purchase Programme in the Context of the Rule of Law

Abstract

This paper critically examines the European Central Bank’s (ECB) Pandemic Emergency Purchase Programme (PEPP) as a monetary policy response to the COVID-19 crisis in the Eurozone. It evaluates the legal compliance of the PEPP with the ECB’s mandate, focusing on the demarcation between monetary and fiscal policy, and the principles of the European Union (EU), tackling its adherence in relation to aspects of the rule of law. The ECB’s adherence to its mandate under Art. 127(2) TFEU, the limits of the prohibition on monetary financing in Art. 123(1) TFEU and the no-bailout clause in Art. 125(1) TFEU will be analysed. Despite the fiscal impact and the deviations from the capital key, the programme still complies with the ECB’s mandate. Art. 123(1) TFEU is not violated, given the established safeguards and the diversification and flexibility in the specific bond purchases. Similarly, no infringement of Art. 125(1) TFEU is evident, as risk sharing is not the default scenario. While PEPP has proven to be a proportionate measure when considering the challenges of the pandemic and the established safeguards, concerns persist regarding its potential impact on fiscal discipline and the equal treatment of EU Member States. The analysis integrates relevant key judgments of the European Court of Justice (ECJ) and the German Federal Constitutional Court (BVerfG) regarding bond purchase programmes. The author concludes that while PEPP can be legally justified, criteria for bond-buying programmes are essential to strengthen judicial oversight,
institutional accountability, ultimately leading to price stability and fiscal discipline across the EU Member States.