BERLIN – Germany’s top court cast doubt Friday on the legality of a key part of the European Central Bank’s rescue plan for the 18-nation eurozone, taking the rare step of asking an EU court for its opinion.
The case involves the so-called Outright Monetary Transactions program, which allows the ECB to buy bonds of ailing eurozone members as an emergency measure. Though the program has never been used, its mere existence has been credited with easing the turmoil in bond markets that was threatening the euro currency bloc.
The ECB’s offer to buy bonds has resulted in a sharp drop in the borrowing rates in countries like Spain and Italy, calming fears that the countries might default and drop out of the euro.
Opponents, however, claim such bond purchases could fuel inflation and amounts to monetary financing of governments, which is forbidden by the ECB’s mandate — an argument the German court indicated might have merit.
In a statement explaining why it was referring the case to the European Court of Justice, Germany’s constitutional Court said there were “important reasons to assume” that the ECB’s bond-buying program exceeds the bank’s mandate and “thus infringes the powers of the member states.”
The Luxembourg-based European Court of Justice is seen by some analysts as more favourable to the ECB, and the German court’s delegation of a decision there could work in the bank’s favour.
“The announcement should clearly reduce the Karlsruhe fear factor for the ECB,” said Carsten Brzeski, chief economist at the bank ING-DiBa, referring to the city in which the German court is located. “But not entirely. It is not a given that the European Court of Justice will only rubber-stamp the OMT program.”
Bert Van Roosebeke, a banking expert at the Center for European Politics in Freiburg, Germany, said the final outcome remains open and a decision shouldn’t be expected for several months.
The ECB said in a statement that it “takes note” of the decision.