Thursday

23rd Feb 2017

ECB overstepped its mandate, German top court says

  • The German Constitutional Court for the first time in its history referred a verdict to the EU top court (Photo: Al Fed)

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.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

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.

German top court to rule on whether ECB can buy bonds

Germany's constitutional court is expected to rule this spring on the legality of the European Central Bank's bond purchases, a scheme that has eased the eurozone crisis by calming markets.

Banking union faces legal challenge in Germany

Germany's constitutional court is once again to be a testing ground for the eurozone's reponse to the financial crisis as a group of academics has filed a case arguing that the banking union is illegal.

MEPs approve Canada trade deal amid protest

Amid protests in front of the European Parliament's Strasbourg building and after heated debate among MEPs, the landmark trade deal with Canada was approved with a comfortable majority.

News in Brief

  1. Romanian parliament buries controversial corruption decree
  2. Dozens drown off Libyan coast
  3. EU ministers approve anti-tax avoidance directive
  4. Poland rejects EU criticism of court changes
  5. German nationalist leader met with Putin allies in Moscow
  6. German housing market overheated, says Bundesbank
  7. France invites three EU leaders for Versailles summit in March
  8. Greece agrees on new bailout reforms

Stakeholders' Highlights

  1. Malta EU 2017Economic Governance: Agreement Reached on Structural Reform Support Programme for Member States
  2. Socialists & DemocratsWomen Have to Work Ten Years Longer to Match Lifetime Earnings of Men
  3. Counter BalanceTrans-Adriatic Pipeline Is a Major Risk for Banks, Warns New Analysis
  4. Martens CentreEU and US Migration Policies Compared: Join the Debate on February 28th
  5. Swedish EnterprisesTechnology and Data Flows - Shaping the Society of Tomorrow
  6. UNICEFNearly 1.4 Million Children at Risk of Death as Famine Looms Across Africa and Yemen
  7. Malta EU 2017End of Roaming Fees: Council Reaches Agreement on Wholesale Caps
  8. Nordic Council of MinistersNordic Innovation House Opens in New York to Help Startups Access US Market
  9. Centre Maurits CoppietersMinorities and Migrations
  10. Salzburg Global SeminarThe Child in the City: Health, Parks and Play
  11. UNICEFNumber of Ukrainian Children Needing Aid Nearly Doubles to 1 Million Over the Past Year
  12. Centre Maurits CoppietersThe Situation of Refugee Women in Europe