Friday

18th Oct 2019

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."

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

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.

EU parliament quietly hoards visitors' wi-fi data

The European Parliament is retaining the data of everyone who uses their wi-fi network, including journalists and visitors, and providing access to national authorities in case of investigations.

News in Brief

  1. Catalan president blames clashes on 'infiltrators'
  2. US imposes €6.7bn new tariffs on European products
  3. G7: Libra should not operate until all risks addressed
  4. Kurds agree with US-Turkey ceasefire but not safe-zone
  5. US to host 2020 G7 summit at Trump golf club
  6. Turkey's pension fund buys stake in Finnish defence firm
  7. Turkey agrees to Syria ceasefire, says US
  8. EU leaders endorse revised Brexit deal

Column

These are the crunch issues for the 2019-2024 EU commission

These developments will largely determine who will be running the world in the coming decades and perhaps generations. If the Europeans can't find an answer over the five years, they will be toast. And we haven't even mentioned climate change.

Magazine

The changing of the guards in the EU in 2019

The four most powerful EU institutions - Commission, Parliament, Council and Central Bank will all have new leaders in the coming ten months. Here is an overview.

Stakeholders' Highlights

  1. Nordic Council of MinistersBrussels welcomes Nordic culture
  2. UNESDAUNESDA appoints Nicholas Hodac as Director General
  3. UNESDASoft drinks industry co-signs Circular Plastics Alliance Declaration
  4. FEANIEngineers Europe Advisory Group: Building the engineers of the future
  5. Nordic Council of MinistersNew programme studies infectious diseases and antibiotic resistance
  6. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  7. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  8. Nordic Council of MinistersNo evidence that social media are harmful to young people
  9. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  10. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  11. Nordic Council of MinistersEducation gets refugees into work
  12. Counter BalanceSign the petition to help reform the EU’s Bank

Stakeholders' Highlights

  1. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  2. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  3. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  4. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  5. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  6. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  7. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  8. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  9. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  10. Nordic Council of MinistersNordic commitment to driving global gender equality
  11. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  12. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria

Join EUobserver

Support quality EU news

Join us