20th Mar 2018

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.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

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.

VW dismisses complaints on Dieselgate fix

'I think customers who want to get information (...) are able to receive information if they want," VW management board member Hiltrud Werner told EUobserver. Consumer groups disagree.

Stakeholders' Highlights

  1. EUobserverHiring - Sales Associate With 2+ Years Experience - Apply Now!
  2. EUobserverHiring - Finance Officer With Accounting Degree or Experience - Apply Now!
  3. ECR GroupAn Opportunity to Help Shape a Better Future for Europe
  4. Counter BalanceControversial Turkish Azerbaijani Gas Pipeline Gets Major EU Loan
  5. World VisionSyria’s Children ‘At Risk of Never Fully Recovering', New Study Finds
  6. Macedonian Human Rights MovementMeets with US Congress Member to Denounce Anti-Macedonian Name Negotiations
  7. Martens CentreEuropean Defence Union: Time to Aim High?
  8. UNESDAWatch UNESDA’s President Toast Its 60th Anniversary Year
  9. AJC Transatlantic InstituteAJC Condemns MEP Ana Gomes’s Anti-Semitic Remark, Calls for Disciplinary Action
  10. EPSUEU Commissioners Deny 9.8 Million Workers Legal Minimum Standards on Information Rights
  11. ACCAAppropriate Risk Management is Crucial for Effective Strategic Leadership
  12. EPSUWill the Circular Economy be an Economy With no Workers?