Page 19 - Investment Outlook

German Constitutional Court Ruling
within the Eurozone, a lack of fiscal union has proven problematic during the Eurozone debt crisis and more recently during the coronavirus pandemic. This German court ruling that aspects of the ECB’s quantitative easing is unlawful shows a lack of unified support for burden sharing even within the monetary union. A lack of economic coordination within the Eurozone has been a key driver of our decision to underweight European equities and this decision reaffirms this view.
The German Constitutional Court has now marked out the limit of ECB intervention and this may have consequences to the range and scope of financial support the ECB can offer. Therefore, national governments will now have to decide how to react to the ruling, particularly Angela Merkel. A crisis in confidence would occur if Germany refused
to support the ECB as QE in Europe would stop without German backing.
The key issue in the German Constitutional Court ruling against the ECB bond purchasing programme is that if France, Italy, Spain and Greece are denied future funding, then tax rises and spending cuts will have to result. Germany on the other hand, is able to offset the cost of the coronavirus. German Courts are exposing the imbalances in Europe and siding with their long-held aversion to inflation and support for sound money.
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