Tuesday

17th Oct 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.

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.

Stakeholders' Highlights

  1. EU2017EENorth Korea Leaves Europe No Choice, Says Estonian Foreign Minister Sven Mikser
  2. Mission of China to the EUZhang Ming Appointed New Ambassador of the Mission of China to the EU
  3. International Partnership for Human RightsEU Should Seek Concrete Commitments From Azerbaijan at Human Rights Dialogue
  4. European Jewish CongressEJC Calls for New Austrian Government to Exclude Extremist Freedom Party
  5. CES - Silicones EuropeIn Healthcare, Silicones Are the Frontrunner. And That's a Good Thing!
  6. EU2017EEEuropean Space Week 2017 in Tallinn from November 3-9. Register Now!
  7. European Entrepreneurs CEA-PMEMobiliseSME Exchange Programme Open Doors for 400 Companies Across Europe
  8. CECEE-Privacy Regulation – Hands off M2M Communication!
  9. ILGA-EuropeHealth4LGBTI: Reducing Health Inequalities Experienced by LGBTI People
  10. EU2017EEEHealth: A Tool for More Equal Health
  11. Mission of China to the EUChina-EU Tourism a Key Driver for Job Creation and Enhanced Competitiveness
  12. CECENon-Harmonised Homologation of Mobile Machinery Costs € 90 Million per Year

Latest News

  1. EU-Russia trade bouncing back - despite sanctions
  2. No sign of Brexit speed-up after May-Juncker dinner
  3. EU defence strategy 'outsourced' to arms industry
  4. EU privacy rules tilt to industry, NGO says
  5. Malta in shock after car bomb kills crusading journalist
  6. Spanish and Catalan leaders continue stand-off
  7. May pleads for more, as EU makes Brexit gesture
  8. EU circles the wagons around Iran deal