The European Central Bank faces a legal challenge
The European Central Bank may be violating laws on monetary financing in its 2.3 trillion euro ($2.7 trillion) asset purchase programme, Germany’s constitutional court said on Tuesday, and it asked Europe’s top court to make a ruling.
In the biggest challenge yet to the ECB’s unprecedented effort to revive growth, the court said bond buys under the scheme may go beyond the bank’s mandate and inhibit euro zone members’ activities.
“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 said it would ask the European Court of Justice to review the programme.
The ECB acted swiftly to defend the scheme.
“The extended asset purchase programme is in our opinion fully within our mandate,” it said in a statement. “That is ultimately for the European Court of Justice to assess.”
It said the 60 billion euro per month asset buys would continue as normal.
The European court has already backed the ECB’s more contentious emergency bond purchase scheme known as Outright Monetary Transactions or OMT with only relatively minor limitations, suggesting that the challenge – lodged by several academics and politicians – may face an uphill battle.
The decision to pass the issue over to the ECJ means any final ruling will come either after the bond purchases end or near the end of the scheme, which has already been running for over two years and is expected to be wound down next year.
Seen by some in Europe’s biggest economy as a stealth bailout of indebted south European governments, many Germans have been irked by the scheme, commonly known as quantitative easing, arguing that Germany taxpayers have to bear the risk for others.
Those making the challenge have argued that the scheme constitutes illegal monetary financing and say the Bundesbank, the biggest buyers of bonds in the programme, should therefore not participate.
Facing an election next month, Germany’s political establishment has been highly critical of the ECB arguing that low interest rates punish thrifty Germans and bond buys reward irresponsible governments on the bloc’s periphery.
The populist right wing AfD party, a top critic of the ECB, said the court challenge is too timid and comes too late as the ECB has to be stopped immediately.
The bank, based in Germany, has long argued that its self-imposed rules take into account the European Court’s limitations and the scheme’s aim was to fulfil its legal mandate of returning inflation to around 2 percent.