Monday

26th Sep 2016

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.

Investigation

Diesel cars still dirty, despite huge EU loans

The European Investment Bank lent billions to carmakers, in part to clean up diesel cars. But diesel cars are still dirty, prompting questions if the money was well spent.

EU redoubles attack on roaming charges

After an embarrassing U-turn last week, the EU commission has proposed to abolish roaming charges by June next year. Only "abusive" clients to pay.

Stakeholders' Highlights

  1. GoogleBringing Education to Refugees in Lebanon With the Clooney Foundation for Justice
  2. HuaweiAn Industry-leading ICT Solution Provider and Building a Better World
  3. World VisionUN Refugees Meeting a Wasted Opportunity to Improve the Lives of Millions of Children
  4. Belgrade Security ForumCan Democracy Survive Global Disorder?
  5. YouthProAktivEntrepreneurship, Proactivity, Innovation - Turn Ideas Into Action #IPS2016
  6. GoogleTrimming the Waste-Line: Weaving Circular Economy Principles Into Our Operations
  7. Crowdsourcing Week EuropeDon't Miss the Mega Conference to Master Crowdsourcing, Crowdfunding and Innovation! 10% Discount Code CSWEU16
  8. Martens CentreFighting Terrorism: Do we have what it takes? 26 September, Brussels
  9. ACCAKaras Report on Access to Finance for SMEs in a Capital Markets Union
  10. Centre Maurits Coppieters"I still believe we can change Europe" Said David Grosclaude
  11. World VisionThe Child Protection Index to be Launched in Brussels on 28 September 2016
  12. HuaweiDigital Transformation: Unleashing Europe’s Potential