German judges refers ECB bond- buying to European Court

The German constitutional court (ECB) sent order, in German a case concerning the European Central Bank attempt to buy $2.7 trillion dollar’s worth of bonds to the European Court of Justice (ECJ) on Tuesday. It said there were indications that decisions about the programme overstepped the ECB’s mandate and contravened a ban on purchasing bonds directly from governments, known as monetary financing.

“Significant reasons indicate that the ECB decisions governing the asset purchase programme violate the prohibition of monetary financing and exceed the monetary policy mandate of the European Central Bank, thus encroaching upon the competences of the Member States,” the court said.

“It is doubtful whether the purchase of government bonds under QE is compatible with the prohibition of monetary financing.”  It said it would ask the European Court of Justice to review the programme.

“The extended asset purchase programme is in our opinion fully within our mandate,” ECB said in a statement. “That is ultimately for the European Court of Justice to assess.”

The court has asked the ECJ for expedited proceedings in order to more quickly issue its ruling at the request of the German government. This is the latest development in the ongoing struggle to establish financial stability in the EU.

The case has been brought by rightwing members of Germany’s establishment, who previously challenged the ECB’s as yet unused emergency bond-buying scheme, without success.

If their complaint is successful, it would forbid Germany’s central bank, the Bundesbank, from taking part in the QE programme, which it does as one of the national central banks operating under the ECB.

“The wait for the ECJ decision may well be an elegant way out for the ECB,” said Hendrik Haag, partner at Hengeler Mueller. “It may put pressure on the ECB to be a little bit quicker with tapering the QE programme.”

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