ECB overstepped its mandate, German top court says
Germany's Federal Constitutional Court on Friday (7 February) for the first time in its history referred a case to the EU's top judges - with the final ruling key to the future stability of the eurozone.
The case concerns the European Central Bank's (ECB's) controversial bond-buying proposal, a not-yet activated scheme announced in September 2012, which is largely considered to be the main reason why the euro-crisis has stabilised.
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The German court said that the bank overstepped its mandate when promising to buy as many government bonds as necessary to stabilise the euro, known as Outright Monetary Transactions (OMT).
“Subject to the interpretation by the Court of Justice of the European Union, the Federal Constitutional Court considers the OMT Decision incompatible with primary law,” the Karlsruhe-based court said in a statement.
It added, however, that a different ruling could be issued by the ECJ, "if the OMT decision could be interpreted as in conformity with primary law."
The German judges argue that the ECB overstepped its mandate because it promised to engage in what can be considered government financing, even if the bonds would not bought directly from the governments, but from traders.
According to EU law, the ECB is forbidden to directly fund governments.
But, if the OMT scheme was applied "restrictively" with a series of caveats - particularly that bond purchases are "limited" - it could be deemed legal, the German court said.
The case had been brought to the Karlsruhe court by the German Central Bank (Bundesbank), who opposed the scheme from the very beginning.
“The ECB takes note of the announcement made today by the German constitutional court,” the ECB said in a statement.
“The ECB reiterates that the OMT programme falls within its mandate,” it added.
A similar statement was made by the European Commission, where a spokesman on Friday said the EU executive is "confident" that the OMT is legal.
The parts of the constitutional challenge referring to Germany's participation in the eurozone bailout fund (ESM) will be ruled upon on 18 March.
As for the OMT final ruling, Karlsruhe will wait until the ECJ pronounces its verdict - a process which could take up to 16 months.
"It does not happen a lot that the German Constitutional Court passes sensitive decisions on to the European level," ING Bank's chief economist Carsten Brzeski said in an emailed statement.
"Today’s announcement therefore could either be a sign that the Court has reached its legal limits on European issues or that the issue is so tricky and touchy that it is better to pass it on," he added.
While the "fear factor" that Karlsruhe may repel OMT has been "clearly reduced," Brzeski warned that it is "not a given" that the ECJ will rubber-stamp the scheme.
The euro fell slightly on the news against the US dollar, the British pound and the Swiss franc.