Saturday

28th May 2016

German top court to rule on whether ECB can buy bonds

  • The German Constitutional Court is expected to rule on the ECB's bond-purchasing scheme in April (Photo: Al Fed)

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.

Udo Di Fabio, who served as constitutional judge between 1999-2011, told an audience at the Berlin-based Stiftung fur Familienunterhmen on Wednesday (29 January) that the court is "deliberating at the moment if the ECB can buy bonds at all."

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.

According to EU laws, the ECB is prohibited from direct government funding, meaning direct bond purchases when a national government tries to sell debt on the markets.

But in the past years, the eurozone bank has engaged in "secondary bond purchases" which are bought from investors and considered an investment by the ECB.

These bond purchases helped lower Spanish and Italian borrowing costs, which had spiked in 2011, prompting fears that the third and fourth largest economies in the euro would also be forced to apply for a bailout.

One year later, when borrowing costs were on the rise again, ECB chief Mario Draghi came out with an even bolder promise.

He said his bank would buy as many bonds as necessary to help a troubled country, provided it signs up to a reform programme.

The so-called Outright Monetary Transactions (OMT) scheme has never been used. But its calming effect on markets lasted throughout 2013 and helped the eurozone regain relative stability.

Bond purchases were already deemed "unconstitutional" in a preliminary verdict by the Karlsruhe-based court in 2012.

Back then, it spoke only about direct purchases which would have been in breach of EU law.

More than 35,000 Germans have since filed complaints against the OMT, with the Constitutional Court expected to deliver a verdict in April or refer the case to the European Court of Justice.

Di Fabio said it was unlikely for the court to reject the entire scheme and cause a "firebrand in Europe."

But, as was the case with previous verdicts on the eurozone bailout fund and the Greek bailout, Karlsruhe is likely to boost the rights of the German Parliament were OMT to be activated.

"The particular issue Karlsruhe will be looking at is national budget sovereignty, as enshrined in German law. Budgetary self-determination of a nation is fundamental and cannot be transferred," he said.

"Parliaments were put in place so monarchs cannot use people's money as they please. National parliaments have to be sovereign in controlling the use of taxpayers' money.

If Rome decides on an expenditure, it cannot be that the Netherlands and Germany are held liable for it. If that were the case, then Dutch and Germans should also be able to vote in Italian elections for the parliament," he added.

Di Fabio said the current EU treaties also pose limitations on how many tasks the ECB can take on.

"EU treaties don't foresee a common bank supervisor and even less for the ECB to be it," he said.

The former judge said the treaty needed to be added to in light of the ECB new future role of supervising the eurozone's largest banks.

He also raised questions about the yet-to-be-established bank resolution fund, which foresees banks chipping in to a common pot to be used if one of them needs bailing out.

"European banks are heterogeneous. In some countries, banks are aggresive and oversized. If there was joint liability, it would force the less risk-taking banks - like the ones in Germany offering low interest rates to their customers - to guarantee the other banks in other states where interest rates are higher because risks are higher," he said.

Poland vows solution to judicial crisis

Polish PM Szydlo and EU commissioner Timmermans appeared to mend fences in Warsaw. But neither would say how Poland will address concerns.

News in Brief

  1. Syrian refugees sue Denmark over immigration law
  2. Ukraine bans Gorbachev for backing Crimea's seizure
  3. Dozens dead in two shipwrecks outside Libya
  4. Slovak PM says his country is no place for Muslims
  5. Juncker's spin-doctor warns of populist 'horror'
  6. EU urges Hungary to end discrimination of Roma children
  7. Majority of voters think UK will stay in EU
  8. Leading MEP says Greek bailout will not work

Stakeholders' Highlights

  1. ACCAEducation and Training 2020 - Giving Young People the Workplace Skills They Need
  2. EPSUTrade Unions Back New Undeclared Work Platform
  3. European Healthy Lifestyle AllianceCould targeting children’s fitness boost academic performance?
  4. World VisionDeclares the World Humanitarian Summit a Positive Step in a Longer Journey to Ending Need
  5. EJCPresident Dr. Moshe Kantor on Brexit and the Jewish Question
  6. Swedish EnterprisesNew rules for posted workers - Better Protection or the End of Posting ?
  7. World VisionWhy The EU Needs to Put Children at the Centre of Emergencies - In Their Words
  8. ACCASustainability Reporting in Danger of Losing Its Momentum Says ACCA and CDSB
  9. Dialogue PlatformDiversity as Heritage of Humanity! Join the “Colors of the World“ Show at the EP
  10. Centre Maurits CoppietersNew Responses to the Basque Peace Process? MEP Juaristi on Stateless Challenges Conference
  11. European Healthy Lifestyle AllianceImproving Cardiovascular Health Begins by Closing the Gap in Sex Disparities
  12. IPHRBrussels Talks to Take Stock of Human Rights in Turkmenistan