June 3, 2013 / 3:21 PM / 7 years ago

German court may sidestep decision over ECB bond-buying plan

* Constitutional Court holds hearing on June 11-12

* Karlsruhe judges deeply divided on ECB bond buys

* Referral to EU court would be unprecedented for Germany

By Annika Breidthardt

BERLIN, June 3 (Reuters) - Germany’s top court may for the first time defer to European judges in the euro zone crisis when it weighs the legality of the boldest move so far to buoy the common currency - the European Central Bank’s bond-buying scheme.

The Constitutional Court’s red-robed judges have kept the bloc and investors waiting while they mull whether Europe’s largest economy can legally participate in bailout schemes.

But even they may have qualms about subjecting the ECB’s bond-buying programme, which more than anything else demonstrated Europe’s determination to defend the euro, to the jurisdiction of a single state.

Legal experts say the court in Karlsruhe, southwest Germany, may swallow its pride and signal at a hearing on June 11-12 that it must seek the opinion of the European Court of Justice (ECJ) - making a judicial blessing for the OMT far more likely.

A ruling is not expected until after Germany holds national elections in September on whether the ECB’s promise to buy struggling states’ debt infringes the constitution’s insistence on sovereign parliamentary control over budget matters.

“It could refer the case to the ECJ because only the ECJ can decide whether the ECB’s actions are legal throughout the EU as a whole,” said Gunnar Beck, a German constitutional expert teaching in London.

“The Constitutional Court itself can only decide on the legality within its own jurisdiction, i.e. Germany,” he said, adding however, that such a referral was just one option.

The case against the OMT was lodged in Germany by more than 35,000 plaintiffs.

Karlsruhe has tried to avoid transferring jurisdiction since the ECJ was established in the 1950s, aiming to keep as much decision-making power in Germany as possible.

Many experts still doubt the court will break this taboo but sources close to the court said the judges hearing the case are so divided that they may decide to pass the buck.

“It’s a risk because you don’t know what you’ll get back from (the ECJ in) Luxembourg and depending on how tightly the verdict is phrased, it may not leave room for national interpretation,” said Mattias Kumm, a law professor in Berlin.

“But the one reason it may do so is because the acute phase of the crisis is still so close. It does not want to be seen as exercising so much influence that it can be held responsible for things getting worse.”


So far, the court has tended to endorse German contributions to euro zone bailout programmes while insisting on more consultation with the Bundestag lower house of parliament. Such a “yes, but” response is more difficult to imagine in the case of the independent ECB, legal experts said.

In a preliminary ruling in September, the court approved German ratification of the region’s permanent bailout fund - a “no” would have had dire consequences for the currency - but made no decision on the part of the case pertaining to the ECB.

If it does decide to recognise the jurisdiction of the ECJ in Luxembourg, the German court will offer its own interpretation in a preliminary hearing for the ECJ to evaluate.

But neither it nor the ECJ is expected to put a spoke in the wheel of the OMT, the announcement of which in September was enough to persuade investors that Europe would not let the currency break up. So far, ECB President Mario Draghi has not needed to put his money where his mouth is.

The Frankfurt-based ECB has argued in a 52-page statement to the court that the OMT is legal, within its mandate of securing price stability and strengthens trust in the euro.

The OMT’s loudest critic is Germany’s central bank, whose chief Jens Weidmann misses few chances to air his objections. The Bundesbank’s 29-page report to the court said the ECB’s line of argument was based on “strongly subjective elements”.

“Technically speaking, the OMT programme appears to be clean and so Karlsruhe will have little to say about that,” said Carsten Brzeski, an economist at ING. “In terms of content, however, it is about the big question of whether it is even the ECB’s job to make sure that the currency union is irreversible.”

Weidmann, a former advisor to Chancellor Angela Merkel, will represent the Bundesbank at the hearing and his compatriot Joerg Asmussen will put the case of the ECB, where he is an executive board member. Asmussen’s former boss Wolfgang Schaeuble, Germany’s finance minister, will represent the government.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below