Top German court refers ECB bond-buying case to EU judges


German judges have asked the European Court of Justice (ECJ) to rule whether the European Central Bank's (ECB) bond-buying programme has violated EU law by promising unlimited buying of sovereign debt for eurozone countries on the brink of bankruptcy, EURACTIV Germany reports.

Germany’s highest court has refused to make a final decision over whether the ECB’s bond-buying plan, credited with calming euro markets in 2012, complies with EU law.

Instead, the court announced Friday (7 February) that it would refer several questions from the case to the ECJ.

“It’s the first time that the [German constitutional] court has taken such a decision,”said Simon O’Connor, a spokesman for the EU’s Commissioner for Economic and Monetary Affairs Olli Rehn. “We welcome the fact that the court has referred this question to the European Court of Justice.”

In September 2012, ECB chief Mario Draghi announced the bank would buy unlimited amounts of sovereign bonds from crisis-ridden eurozone states under a measure called the Outright Monetary Transaction (OMT).

Draghi’s move was promptly challenged by Germany’s central bank (Bundesbank) which argued the ECB was overstepping its bounds.

Professor Franz C. Mayer, who has acted as counsel to the European Parliament on issues of the German Constitutional Court, explained the decision to the Bertelsmann Foundation.

“The Federal Constitutional Court is currently of the opinion that these provisions of EU law have been violated, that the OMT-programme is outside the mandate of the ECB and thus illegal under EU law,” said the professor of European law.

In its preliminary interpretation of the case, the German court sided with the Bundesbank’s assessment, saying the OMT plan “exceeds the European Central Bank’s monetary policy mandate and thus circumvents the powers of the member states, and that it violates the prohibition of monetary financing of the budget.”

“However,” Mayer explained, “[the German Constitutional Court] believes that the European Court of Justice can still issue a ruling with regard to the OMT programme which will make it possible to avoid a violation of EU law by the ECB.”

ECB ‘will not dare’ to use OMT

Though the ECB has not yet implemented the OMT bond-buying program, many experts believe it helped shore-up growing fear over the integrity of the euro in 2012.

And Hans-Werner Sinn, President of the Ifo Institute, said pending referral of a final decision to the ECJ, it is doubtful that the ECB will jump to implement its OMT powers.

“The ECB will not dare to activate the OMT before the European Court has taken a decision”, Sinn, who was called before the Court as an expert witness in June 2013, said in a press release on Friday.

“Without any concrete application of the programme it can still say that no measures have been taken to date, which could be a legally relevant aspect,” the financial expert said.

Initial interpretation a victory

Politicians in Germany have mostly received the announcement with approval, albeit with different rationales. 

Peter Gauweiler, deputy head of Bavaria’s Christian Social Union (CSU) and one of the prosecuting parties in the case is pleased with the initial interpretation of the German court.

“The German Constitutional Court has confirmed our legal evaluation of the OMT programme,” the CSU politician said. “The ECB is overstepping its competence for monetary policy, is interfering with the sovereignty of euro member states and additionally violates the prohibition of monetary financing of governments through the central bank.”

MEP Markus Ferber, chair of the CSU’s European Parliament group also welcomes the German court’s appraisal: “The German Constitutional Court is observing the independence of the European Central Bank and is following an established procedure of EU law.”

In addition, the MEP said, “I expect that the European Court of Justice will interpret the EU treaties in a strictly legal sense and not allow itself to be guided by political considerations.”

Meanwhile, the Commission is sure that the ECB is acting within its bounds and is in conformity with EU law, Commissioner Rehn’s spokesman O’Connor said in a statement.

ECJ right to rule on ECB’s remit

Michael Theurer, chair of the budget control delegation in the European Parliament and deputy head of the Germany’s Free Democratic Party (FDP) believes the court was right to refer to its European counterpart.

“The ECB is responsible for monetary stability”, Theurer said, “whether it has exceeded its mandate in the unlimited purchase of sovereign bonds, has a European dimension.” In this sense, Theurer argued, it is more logical for a European tribunal to rule on the case than a national court.

Mayer offered a similar view: “If we allow national constitutional or supreme courts to propound some kind of final and independent exegesis of European law, we risk to end up with twenty-eight different versions of EU law at the national level. It would make a mockery of the whole idea of a single body of EU law.”

The European Central Bank agreed on 6 September to launch a new and potentially unlimited bond-buying programme to lower struggling eurozone countries' borrowing costs and draw a line under the debt crisis.

ECB President Mario Draghi said the new plan, aimed at the secondary market, would address bond market distortions and "unfounded" fears of investors about the survival of the euro.

The German Central Bank (Bundesbank) is opposed to bond-buying, saying it is akin to bailing out states.

Draghi said the ECB would only help countries that signed up to and implemented strict policy conditions, with the eurozone's rescue fund also buying their bonds, and preferably with the IMF involved in designing and monitoring the conditions.

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