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EZB-Turm Frankfurt
Image: picture-alliance/dpa

Bond-buying referred to ECJ

February 7, 2014

Germany's Constitutional Court has dodged a decision on the European Central Bank's bond-buying program used to shore up debt-laden EU economies. The judges passed the ruling on to the European Court of Justice.


Karlsruhe bittet Europäischen Gerichtshof um Rat

Germany's Constitutional Court referred the task of reaching a verdict to the European Court of Justice (ECJ) for the first time in its history on Friday by declining to rule on whether ECB monetary policy enacted during the eurozone crisis conforms with German law.

The panel of top German judges in Karlsruhe was addressing a challenge to what has been dubbed the European Central Bank's "big bazooka" when combating eurozone sovereign debt.

Known as the Outright Monetary Transaction (OMT) program and approved in September 2012, the deal allows the ECB to directly purchase the sovereign debt of struggling eurozone and EU countries. The move has been credited with stabilizing the euro currency since its introduction, although critics ask whether it oversteps the bounds of a traditional central bank's role in stabilizing currencies.

In an initial reaction, the Frankfurt-based European Central Bank said: "The ECB reiterates that the OMT program is within the bounds of its mandate."

Could conform, says Karlsruhe

The top German court said on Friday 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."

The judges in a preliminary assessment said the court "also considers it possible that if the OMT decision were interpreted restrictively," it could then conform to German law.

The court was legally obliged to submit its own preliminary interpretation of the case when referring the matter to the ECJ in Luxembourg.

Bundesbank challenge

Germany's central bank, the Bundesbank, had challenged the OMT initiative when it was first announced by ECB chief Mario Draghi.

Bundesbank President Jens Weidmann, who brought the case to Karslruhe, was among the most vocal critics of the OMT during the negotiating process in 2012. Weidmann reportedly came close to resigning in protest over the issue.

Last year, Chancellor Angela Merkel and her finance minister, Wolfgang Schäuble, defended the process at the German court.

Currency markets unswayed

In Friday morning market reactions, the euro currency's exchange rates fell only slightly against many major currencies, including the dollar, the yen, the British pound and the Swiss franc.

Although the ECB says it currently has no plans to use its OMT powers, a possible curbing of the bank's theoretical abilities might concern investors.

Nevertheless, the Reuters news agency interpreted Friday's ruling as a potential reprieve for the OMT program, citing the ECJ's "reputation for giving federalist rulings that take a broad interpretation of the European instution's powers."

The German Constitutional Court is also considering the legality of the European Stability Mechanism, the eurozone's permanent bailout fund. The judges said on Friday that they would issue this ruling on March 18.

msh/ipj (AFP, dpa, Reuters)

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