23rd Sep 2023

German court sets conditions to ECB bond-buying

  • The Constitutional Court in Karlsruhe requested a "compulsory monitoring" of OMT by the German government and parliament (Photo: ©Bundesverfassunsgericht│bild_raum, Stephan Baumann, Karlsruhe)

The German constitutional court on Tuesday (21 June) ruled that a European Central Bank (ECB) bond-buying programme was not against German law.

The ECB's Outright Monetary Transactions (OMT) had been brought to the court by over 35,000 plaintiffs who said it was out of the ECB's mandate and deprived the Bundestag, the German parliament of its right to have its say on eurozone financial matters.

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OMT, which has never been used, allows the ECB to buy eurozone state bonds on markets to help countries to avoid bankruptcy. It was launched in 2012 after ECB president Mario Draghi said he would do "whatever it takes" to prevent a collapse of the eurozone.

The constitutional judges in Karlsruhe said that OMT "did not 'manifestly' exceed[ed]" the ECB's competences if the programme remained limited in its scope.

They also said it did not "currently impair[ed] the Bundestag’s overall budgetary responsibility".

But they laid down some conditions.

They said that the Bundesbank, the German central bank, could participate in the programme only if "purchases are not announced", if "the volume of the purchases is limited from the outset" and if purchases concern only certain kind of bonds from countries with access to the markets.

The court also requested a "compulsory monitoring" of OMT by the German government and parliament to ensure that conditions are met "but also whether there is a specific threat to the federal budget".

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