BERLIN\FRANKFURT (Reuters) - Germany’s Constitutional Court will rule on June 21 on an emergency bond-buying plan devised by the European Central Bank at the height of the crisis, in a verdict that has the potential to upset the ECB’s current money-printing programme.
The case was initiated by a group of about 35,000 politicians and academics in Germany who wanted to block the outright monetary transactions (OMT) scheme, created by the ECB in 2012 but never used, arguing it violated European law.
An outright rejection of the programme is not likely after a largely favourable verdict by the European Court of Justice last year, but it would have far-reaching consequences.
For instance it would make it hard for Germany’s Bundesbank to participate in ECB’s current 1.7 trillion euros bond buying.
Germany blocking the plan “would be an act of revolution against the European Court”, Dietrich Murswiek, a law professor at the University of Freiburg and a legal adviser to parliamentarians of Angela Merkel’s ruling party, said.
“Germany would find itself in a dilemma because on one hand it is bound by decision by the Constitutional Court, on the other hand it’s bound by obligations under European law.”
Murswiek, expected the German court to follow the opinion of the ECJ, albeit with some warning to German authorities to take care that constitutional law is not violated.
The German judges had been leaning in favour of the applicants, saying in 2014 that there was good reason to think the scheme exceeded the ECB’s mandate and violated a prohibition on financing governments.
But the ECJ - the EU’s top legal authority - rejected the German group’s challenge to the ECB’s freedom to buy government bonds in an emergency.
That is the decision that Germany’s constitutional court is now reviewing.
The OMT programme was launched at the height of the euro zone debt crisis, shortly after ECB President Mario Draghi said the ECB would do “whatever it takes” to prevent the collapse of the currency.
The case is a clear reminder that many in Germany have misgivings about a currency their then-chancellor Helmut Kohl helped create in the early 1990s but which they now fear has bound their nation to bail out economically weaker euro zone countries such as Greece.
In a separate lawsuit announced earlier this week, the German constitutional court has also been asked to block the purchase of corporate bonds by the Bundesbank for the ECB.
Legal experts said that case challenge was unlikely to succeed because the ECB’s actions were not unusual and the German court might also lack jurisdiction.