23rd Mar 2018

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."

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.

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.

German constitutional court to examine Lisbon treaty

Germany's constitutional court is preparing for an unusually long hearing on the EU's Lisbon treaty, in a process that will help determine the fate of the document across the European Union.

ECB overstepped its mandate, German top court says

The German constitutional court has said the ECB overstepped its mandate when promising to buy as many government bonds as necessary to stabilise the euro, but it referred the verdict to the EU's top judges.

EU top lawyer backs ECB bond programme

An EU court opinion has said the ECB's bond-buying programme is within EU law but added caveats that have implications for the unpopular troika of lenders to bailout countries.

Commission rejects ombudsman criticism over Barroso case

The European Commission repeated that it followed the rules when its former head joined Goldman Sachs - and suggested it will not follow the EU Ombudsman's demand to refer the case back to the ethics committee.

News in Brief

  1. EU will be exempted from tariffs, says US minister
  2. Malmstroem: EU 'hopes' for US tariffs exemption
  3. Parliament must publish 'trilogue' documents, court says
  4. Italy's centre-right set to share top posts with 5-star movement
  5. Brussels condemns tear gas in Kosovo parliament
  6. Finland pays billionaire €400,000 in EU farm subsidies
  7. 44 leaders sign up for Africa free trade area deal
  8. British 'blue' passports to be made in EU

Stakeholders' Highlights

  1. EUobserverStart a Career in EU Media. Apply Now to Become Our Next Sales Associate
  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?

Latest News

  1. EU summit takes hard look at Russia
  2. Germany casts doubt on Austrian intelligence sharing
  3. EU leaders set for 'stormy debate' on digital tax at summit
  4. EU praises Turkey on migrant deal despite Greek misery
  5. Judicial reforms 'restore balance', Poland tells EU
  6. Whistleblower fears for life as US arrests Malta bank chair
  7. Behind the scenes at Monday's EU talks on Russia
  8. US yet to push on Nord Stream 2 sanctions

Stakeholders' Highlights

  1. European Jewish CongressThe 2018 European Medal of Tolerance Goes to Prince Albert II of Monaco
  2. FiscalNoteGlobal Policy Trends: What to Watch in 2018
  3. Human Rights and Democracy NetworkPromoting Human Rights and Democracy in the Next Eu Multiannual Financial Framework
  4. Mission of China to the EUDigital Cooperation a Priority for China-EU Relations
  5. ECTACompetition must prevail in the quest for telecoms investment
  6. European Friends of ArmeniaTaking Stock of 30 Years of EU Policy on the Nagorno-Karabakh Conflict: How Can the EU Contribute to Peace?
  7. ILGA EuropeCongratulations Finland!
  8. UNICEFCyclone Season Looms Over 720,000 Rohingya Children in Myanmar & Bangladesh
  9. European Gaming & Betting AssociationEU Court: EU Commission Correct to Issue Guidelines for Online Gambling Services
  10. Mission of China to the EUChina Hopes for More Exchanges With Nordic, Baltic Countries
  11. Macedonian Human Rights MovementCondemns Facebook for Actively Promoting Anti-Macedonian Racism
  12. Nordic Council of MinistersGlobal Seed Vault: Gene Banks Gather to Celebrate 1 Million Seed Collections