25th Oct 2016

Banking union faces legal challenge in Germany

  • ECB governing council (Photo: European Central Bank)

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.

The five academics argue that the Banking union - a new supervisory and bank resolution system for eurozone banks - breaches German law as it was not agreed with the right treaty changes, reports Die Welt am Sonntag.

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.

Markus Kerber, a finance professor at Berlin Technical University (TUB), told the paper that the banking union had "no legal basis in the EU treaties and so represents a breach of constitutional rights."

The supervisory system - under which the European Central Bank will, from November, oversee the financial health of around 120 banks with the power to shut them down - is the "pinnacle of Brussels power-grabbing to date", says Kerber.

The complainants, who filed their papers last week, also find that a conflict of interest has arisen because the ECB council, which also makes interest rate decisions, has a veto right on banking supervision decisions.

The challenge also calls into question the Single Resolution Mechanism, which sets out to deal with failing banks, as well as the €55bn fund meant to cover the costs of the process.

Kerber and his allies say that EU leaders did everything to avoid a treaty change because the ensuing national ratifications would have been too politically risky.

He accused German finance minister Wolfgang Schaeuble of "misleading" the public about the risks of the banking union and said the parliament was "fast asleep".

Germany's constitutional court has been the scene of several challenges concerning further economic and monetary integration in the eurozone. Its rulings normally allow the action to go ahead but with some caveats.

Each challenge, however, represents renewed uncertainty for policy-makers and the markets while the case makes its way through the court.

The banking union is seen by some as the most far-reaching integration step since the introduction of the euro.

The court earlier this year rejected a challenge - in which Kerber was also involved - to the eurozone bailout fund, the European Stability Mechanism.

It found the fund to be legal so long as the Bundestag, the German parliament, exercised enough oversight on it.

But the court also referred a decision on Outright Monetary Transactions (OMT) a never-used 2012-announced plan to buy the government debt of troubled eurozone countries, to the European Court of Justice (ECJ).

The German judges asked several questions about the legality of the scheme - widely credited with easing the eurozone crisis - and outlined how the EU court would have to interpret OMT in order for the German court to find it acceptable.

The ECJ still has to rule on the matter.


Europe ready to tackle Greek debt relief

The Greek government has built and broadened alliances in EU institutions and member-states that acknowledge the need to restructure the debt and deliver another economic model for the eurozone.

Stakeholders' Highlights

  1. EFADraft Bill for a 2nd Scottish Independence Referendum
  2. UNICEFCalls on European Council to Address Plight of Refugee and Migrant Children
  3. ECTAJoin us on 9-10 November in Brussels and Discover the new EU Digital Landscape
  4. Access NowCan you Hear me now? Verizon’s Opportunity to Stand for Global Users
  5. Belgrade Security ForumMeaningful Dialogue Missing Not Only in the Balkans, but Throughout Europe
  6. EuropecheEU Fishing Sector Celebrates Sustainably Sourced Seafood in EU Parliament
  7. World VisionWomen and Girls Urge EU Leadership to Help end Gender-based Violence
  8. Dialogue PlatformIs Jihadism Blind Spot of Western Intellectuals ? Wednesday 26 October
  9. Belgrade Security ForumGet the Latest News and Updates on the Belgrade Security Forum @BelSecForum
  10. Crowdsourcing Week EuropeMaster Crowdsourcing, Crowdfunding and Innovation! Conference 21 November - 10% Discount Code CSWEU16
  11. EJCEU Parliament's Roadmap for Relations with Iran a Massive Missed Opportunity
  12. Nordic Council of MinistersFish Skin on Bare Skin: Turning Fish Waste into Sustainable Fashion