A German court ruling could jeopardize the continuity of one of the European Union's bond-buying programs and result in higher borrowing costs for Southern European countries at a time when their debt levels are increasing due to the COVID-19 crisis. On May 5, Germany's constitutional court ruled that the European Central Bank (ECB) must provide additional clarifications about the Public Sector Purchase Programme (PSPP), which buys sovereign debt from eurozone countries in secondary markets, within three months. Otherwise, the Bundesbank, Germany’s central bank, will not be allowed to continue participating in the program. This would probably mean the end of the PSPP, given that the Bundesbank is the ECB’s largest shareholder.
The ruling also opens the door to eventual legal challenges to the Pandemic Emergency Purchase Program (PEPP), the 750 billion euro ($816 billion) stimulus package that the ECB launched in March. Should the PEPP end abruptly, the recession in the eurozone...
