THE German Constitutional Court has shaken the European Union with its statement yesterday that the European Central Bank’s (ECB) bond-buying scheme could be ‘incompatible’ with EU law.
When he announced the Outright Monetary Transactions (OMT) programme, ECB President Mario Draghi said he was saving the euro and would do ‘whatever it takes’ to save the single currency.
But the German court has said there is good reason to think this ‘saving option’, the OMT, violated a ban on the bank-funding governments.
In a statement, the court added: ‘There are important reasons to assume that it exceeds the European Central Bank’s monetary policy mandate and thus infringes the powers of the member states.’
The European Court of Justice will now decide the legality of the so-called debt ‘backstop’, introduced in 2012.
Although the ECB has not used the emergency power, its existence calmed turmoil in European financial markets as it was regarded as turning the ECB into the lender of last resort.
The Constitutional Court referred the task of reaching a verdict to the European Court of Justice (ECJ) for the first time in its history yesterday.
In an initial reaction, the Frankfurt-based European Central Bank said: ‘The ECB reiterates that the OMT programme is within the bounds of its mandate.’
However, the top German court did decide that there was good reason to think that the scheme ‘exceeds the European Central Bank’s monetary policy mandate and thus circumvents the powers of the member states, and that it violates the prohibition of monetary financing of the budget’.
Germany’s central bank, the Bundesbank, had challenged the OMT initiative when it was first announced by ECB chief Mario Draghi.
Meanwhile, the German Constitutional Court is also considering the legality of the European Stability Mechanism, the eurozone’s permanent bailout fund. The judges said yesterday that they would issue a ruling on this on March 18.
