FRANKFURT: Germany’s top court voiced doubts about the European Central Bank’s bond-buying program, credited with calming the euro zone crisis, and sent the case to the European Court of Justice.
The EU Commission in Brussels welcomed the decision and experts suggested the move could actually be good for the euro.
A rejection by the Constitutional Court would remove a key tool from the ECB’s arsenal and risk ratcheting up tensions again as bailed-out eurozone states try to return to the debt markets.
Back in September 2012, the Constitutional Court had overruled a number of legal challenges by a group of euroskeptics to the two key eurozone crisis tools — the European Stability Mechanism (ESM) and the European fiscal pact.
As a result, German President Joachim Gauck was able to sign those two crisis tools into law.
But the euroskeptics also filed a last-minute challenge to the ECB’s OMT bond purchase program, arguing that it overstepped the central bank’s mandate and was tantamount to printing money to pay countries out of their debt.
The Outright Monetary Transactions program — under which the central bank can theoretically buy up unlimited amounts of the sovereign debt of crisis-ridden countries — was unveiled by ECB chief Mario Draghi in August 2012.
While it has never actually been put into use so far, its mere existence has proven to be the most effective weapon against the crisis and largely defused fears of an imminent break-up of the eurozone.
The German constitutional court, based in Karlsruhe, said it would issue its final ruling on the ESM on March 18.
But it also decided to consult the European Court of Justice with regard to the OMT because the ECB as a European body comes under the jurisdiction of the Luxembourg-based court.
It is the first time that the constitutional court has made such a referral.
In the court’s opinion, “there are important reasons to suggest that it goes beyond the ECB’s monetary policy mandate and infringes on the powers of the member states and contravenes the ban on monetary deficit financing,” it argued.
Nevertheless, the court said it “believes it is possible” that limitations could be applied to the OMT program in such a way as to make it compatible with EU law.
Observers said the decision could actually be good for the euro, because the ECJ as a European body was unlikely to overturn an anti-crisis measure that has been instrumental in restoring calm to the markets.
“It’s the solution we wanted,” one source said.
The EU Commission in Brussels welcomed the move.
“The Commission has stated on more than one occasion that it is confident that the ECB is exercising its mandate in full independence, and acts in conformity with EU law,” said Simon O’Connor, spokesman for the EU’s commissioner for economic and monetary affairs, Olli Rehn.
The ECB, too, insisted once again that the OMT program “falls within its mandate.”
ING DiBa economist Carsten Brzeski said the announcement “could either be a sign that the court has reached its legal limits on European issues or that the issue is so tricky and touchy that it is better to pass it on.”
In the short term, the news could reduce market tensions.
“But not entirely. It is not a given that the European Court of Justice will only rubber-stamp the OMT program,” Brzeski warned.
By contrast, Natixis economist Johannes Gareis thought it “very unlikely that the European Court will rule against the ECB’s bond-buying program.”
Commerzbank economist Michael Schubert agreed.
“We assume that the European court will not share the constitution court’s misgivings about the OMT program, so that it will continue to be available to the ECB as a crisis tool,” Schubert said.
But Bert van Roosebeke, a banking expert at Freiburg-based think tank the Center for European Policy, said it was “completely up in the air how the European court will rule” and that a ruling could take months.
In Berlin, the Finance Ministry said it “respectfully takes note of the constitutional court’s decision.”