ECB Bond Program Survives Another Challenge at German CourtBy
Judges say it would be premature to issue interim ruling
ECB’s bond-buying program faces opposition, German lawsuits
Germany’s top court rejected requests to stop the Bundesbank from taking part in the European Central Bank’s quantitative-easing program while lawsuits challenging the bond-buying plan are pending.
The Federal Constitutional Court said granting the request would give plaintiffs what they want before the case has been fully resolved. While the judges in Karlsruhe, Germany, could eventually rule against the Bundesbank’s participation in QE, a final decision is likely months, or even years, off.
"Because of the high volume of purchases by the Bundesbank, disrupting bond purchases would endanger or even thwart the program’s goal to raise inflation to about 2 percent," the court said in a statement Wednesday. "Granting the interim bid now would be more than just conserving the status quo, it would be identical with granting the lawsuit.”
The decision is part of litigation pending over the ECB’s policy in Germany, where the 2.3-trillion euro ($2.7 trillion) bond-buying program faces widespread opposition. In July, the German court put the program in doubt, asking the Luxembourg-based European Court of Justice for an interim ruling on whether it’s legal. The judges argued that QE violates the ECB’s mandate under the treaties of the European Union and the ECJ should rule against it.
No ‘Fast Track’
The German challenges have been stayed, but the constitutional court asked its EU counterpart to hear the case under a fast-track procedure, which the ECJ declined to do last month. A group of German plaintiffs sought the injunction, arguing that the Bundesbank’s help for the ECB is unconstitutional and the legal process is too slow. The cases have been pending since 2015. The German judges on Wednesday stressed that the ECJ said it will hear the case "with priority."
Spokespeople for the Bundesbank and ECB declined to comment on the court decision. The ECB has always defended its program, saying it’s fully within its mandate.
The QE case is one of a string of challenges filed by German academics and politicians to what they see as an overreaching European Union running roughshod over German sovereignty.
Several groups of plaintiffs had asked the court to issue interim rulings. One of the groups includes five members of the European Parliament lead by Bernd Lucke, a co-founder of of Germany’s euro-critical party Alternative Deutschland, which he meanwhile left to form a new party. He said the German court didn’t have the courage to stick to its view, voiced in July, that QE is illegal.
“The constitutional court is delaying the decision until there’s nothing left to decide," Lucke said. "It’s regrettable the bond-purchase program which artificially stabilizes a dysfunctional currency isn’t at least frozen at its current status."
The German top court three years ago had already asked for guidance on a challenge to the ECB’s Outright Monetary Transactions program. The ECJ cleared the program with minor strings attached and the German tribunal reluctantly followed suit with its final judgment. Most of the plaintiffs in the QE cases were in the group that sued against the OMT.
The constitutional court also on Wednesday rejected a request to order German lawmakers and the government to "actively debate" the ECB’s policy and look for ways to counter it.
The ruling comes at a time when the central bank is mulling reducing its purchases. ECB officials are considering cutting their monthly buying by at least half starting in January and keeping their program active for at least nine months, officials familiar with the debate said last week. Reducing QE to 30 billion euros a month from the current pace of 60 billion euros is a feasible option, said the officials, who asked not to be identified because the deliberations are private.
Policymakers led by ECB President Mario Draghi are becoming increasingly confident that they can agree on Oct. 26 to the specifics of how much debt the euro-area’s central banks will buy in the coming months. After more than 2 1/2 years of trying to revive the region’s economy through the purchases, some governors see the recent period of growth as a reason to rein in the support. Others are concerned that inflation remains too weak.
In their underlying suits, the plaintiffs argue that any German participation in QE violates the constitution because the ECB is overstepping its powers. Germany’s government must also work to stop it, they argue. One group of plaintiffs already asked for an injunction earlier in the process, but the German court in July opted against it and instead asked the ECJ for the fast-track handling.
In the ruling disclosed Wednesday, the court deprives citizens of efficient legal redress against action by the ECB, Markus Kerber, a professor who filed a bid on behalf of political group Europolis, said in an emailed statement. Because the program can now continue, the fiscal risks will increase, burdening Germany’s creditworthiness for decades to come, he said.
In its July QE decision, the German court argued the current assets purchases wouldn’t pass the test the ECJ had applied to the OMT. After the ECJ will have made its ruling on QE, the cases will return to Germany for a final judgment.
Wednesday’s cases are: BVerfG, 2 BvR 859/15 et al.