ECB's 'Whatever It Takes' May Be Too Much for German Top Court

The Search For Clues on Draghi Stimulus Begins
  • ECB's OMT bond-buying program returns to German top tribunal
  • Case exposes German judges' struggles with EU rulings

Germany’s top judges this week will once again ask whether Mario Draghi’s 2012 promise to do “whatever it takes” to save the euro can exist alongside the nation’s constitution.

Eight months after the region’s highest court backed European Central Bank president Draghi’s bond-buying program, the Federal Constitutional Court will again hear arguments over Germany’s role in the Outright Monetary Transactions program, or OMT.

Tuesday’s hearing comes as the EU faces stress from an influx of refugees, a weak euro and an upcoming British vote on membership. While the OMT wasn’t implemented, an adverse ruling by Germany’s top judges could restrict the ECB’s options during the next crisis. National courts are expected to follow the EU tribunal’s guidance, although the German panel expressed independence in the past. A ruling last month in another case read as if the German judges were signaling a willingness to challenge parts of the EU court’s decisions, some lawyers say.

"The constitutional court wants to show that it’s a dog that can also bite and not just bark," Christoph Ohler, a law professor at Jena University, said. "I still hope it will follow the ECJ on the OMT. We can’t allow two important courts to be at war with one another."

Earlier Hearing

The court in Karlsruhe is rehearing lawsuits that attack the OMT in the next step in a long national dispute over the program. In early 2014, the judges sent the case to the European Union’s highest tribunal with a list of demands to curb the program. The German court will now look at the guidelines and test them under the constitution.

ECB is overstepping its mandate, Mehr Demokratie, a group representing 37,000 people supporting the case, said on its website this week. Germany’s finance ministry didn’t return a call seeking comment.

When the German court asked the European judges in Luxembourg for guidance, it argued that Draghi’s proposal should be only cleared if its volume was limited to be in line with the ECB’s mandated monetary policy. A clear-cut limit would have stopped the ECB president from buying as much as he deemed fit, which he promised to do to prevent the currency’s breakup.

In its June ruling, the ECJ required the central bank not to buy bonds too soon after issuance nor disclose its strategy beforehand. It ruled that the program was tailored to ensure that its scope wasn’t broader than needed.

Skillful Juggling

These concessions may have been too small to soothe the concerns of the German judges, according to Jan Klement, a law professor at Saarbrücken University. The Luxembourg court didn’t respond to all of the questions submitted and rejected an absolute cap. As to the ECB mandate, it simply copied the central bank’s arguments, he said.

"That may make it difficult for Karlsruhe to back away from its own position and not to intervene," Klement said. "To defuse the confrontation, the ECJ could have juggled the issues a bit more skillfully."

The German court can’t rule on ECB action directly, but it can issue orders to the nation’s authorities, including the Bundesbank. To find a way to limit the program, the court may stress the constitution’s demand that the people must have a say, Klement said.

Court Compromise

"They could ask the German parliament to adopt a resolution legitimizing the ECB policy," he said. "And they could rule that the German participation in the program could be stopped by parliament at any time if certain limits of financial burdens are exceeded."

Even harsh critics of the ECB warned the German court from escalating the dispute. The Kronberger Kreis, a group including economist Lars Feld and law professor Heike Schweitzer, in a recent study criticized the EU judges for freeing Draghi from all restraints but warned that conflict between the top tribunals could trigger a constitutional crisis -- additional stress when "aid for Greece and the handling of refugee migration reveal deep splits in the European structure."

Law professor Ohler is also hoping for a compromise. The judges could take the European ruling and put a German spin on it, he said.

"The court could mark some territory without torpedoing the program altogether," Ohler said. "The national discussion only knows friends and foes. But I believe there’s room for compromise."

The ruling is likely to outline principles that will guide four new cases pending at the court that target the Quantative Easing program the ECB put into action last year.

The OMT cases are: BVerfG, 2 BvR 2728/13 et al.

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