* German court refers complaint against OMT to European
* But German court says OMT may well exceed ECB's mandate
* ECB says OMT "falls within its mandate"
* European Court has a history of federalist rulings
By Norbert Demuth
KARLSRUHE, Germany, Feb 7 Germany's
Constitutional Court will refer a complaint against the European
Central Bank's flagship bond-buying plan to the European Court
of Justice, removing the prospect of it curbing the programme.
In an apparent attempt to set the terms of the European
Court's deliberations, the German court in Karlsruhe said on
Friday there was good reason to think the plan exceeded the
ECB's mandate and violated a ban on it funding governments.
However, it said in a statement that it "also considers it
possible that if the OMT decision were interpreted
restrictively" it could conform with the law.
The history of the ECJ has not been to scupper such
The ECB's Outright Monetary Transactions (OMT) programme,
announced by President Mario Draghi in September 2012 at the
height of the sovereign debt crisis and as yet unused, is widely
credited with stabilising the euro.
Its powers lies in the promise of potentially unlimited
sovereign bond purchases - a prospect that calmed fears about
the euro zone falling apart and backed up Draghi's vow to do
"whatever it takes" to save the bloc.
The ECB took note of the German court's announcement and
stood by its legality, saying in a statement: "The ECB
reiterates that the OMT programme falls within its mandate".
Legally, the German court has to offer its own preliminary
interpretation of the case to the European Court. It in turn
will use that as the initial basis for evaluation.
The ECJ has a reputation for giving forward-leaning
federalist rulings that take a broad interpretation of European
institutions' powers, so analysts said there was less risk that
it will obstruct the OMT policy.
"The (OMT's) chances are better in Luxembourg than in
Karlsruhe," said Bert Van Rossebeke of the Centre for European
Politics (CEP) in Freiburg, calling the court's decision to
refer to the European Court for the first time "historic".
University of London European Law expert Gunnar Beck agreed
the ECJ would likely back the OMT. That could take up to two
years, though, so uncertainty will linger for some time yet.
"Practically speaking, the Court of Justice is not an
independent organization but is pre-disposed to interpret legal
questions in the interest of the European Union," he said.
"The court of justice doesn't take account of national
sensibilities ... there is no doubt of the outcome now."
The German court's decision is a defeat for the Bundesbank,
whose president, Jens Weidmann, was the only member of the ECB
Governing Council to oppose the plan.
The German central bank, which challenged the legality of
the ECB decision in testimony given by Weidmann last year,
declined to comment on the court's decision on Friday.
The euro fell to a session low against the dollar in
response to the court's ruling while German government bond
futures rose to day's highs and Italian bond yields reversed
earlier falls, suggesting some disquiet about the decision.
While the ECB has no immediate need to use the bond-buying
plan, the lack of final clarity over its legality may still
crimp its room for manoeuvre on other measures while it awaits a
The central bank has been considering the possibility of
suspending operations to soak up money it spent buying sovereign
bonds during the euro zone's debt crisis under its
now-terminated Securities Markets Programme.
Ending the so-called "sterilisation" operations would inject
about 175 billion euros ($237.99 billion) of liquidity into the
financial system, which would help ease strains in euro zone
One argument against doing so would be to avoid raising
questions about ECB policy ahead of a ruling by the European
The ECB has already used other measures in its toolbox, such
as interest rates cuts and liquidity injections with long-term
funding operations, and could deploy them again.
Even if the European Court were to act on Karlsruhe's strong
doubts and restrict the power of the OMT, that could increase
the likelihood of the ECB turning to full-blown quantitative
easing, or money printing.
"The ECB has to quickly assess what repercussions the ruling
will have for the range of tools available to calm markets,"
said Christian Schulz at Berenberg bank, a former ECB economist.
"Ironically, depending on the exact decision, the court may
have made a much more wide-ranging quantitative easing programme
at the ECB more likely," he said.
The German court said it will rule on the legality of the
currency bloc's permanent bailout scheme, the European Stability
Mechanism (ESM), on March 18.