21 November 2013

Germany's FCC won't rule this year on ECB bond-buying programme

Germany's top court will not rule before 2014 on lawsuits challenging the ECB's plan to buy bonds of crisis countries. Several suits are targeting the central bank's OMT programme, arguing it oversteps the ECB's mandate to conduct monetary policy.

Partially translated from the German

No ruling will be made this year, Bernd Odörfer, a spokesman for the Federal Constitutional Court (FCC) in Karlsruhe, said in an e-mailed statement requested by Reuters. Court ruling on OMT had initially been expected in 2013. Odörfer added that the court was still trying to make a decision as quickly as possible yet no further details were available. 

The court is considering whether the ECB's plans to buy "unlimited" amounts of bonds from stricken eurozone states, announced last year at the height of the bloc's debt crisis, is really a vehicle for funding Member States through the back door. That could violate German law. The cases were filed by political groups, professors and lawmakers who argue that the programme and the European Stability Mechanism (ESM) violate European laws and the constitutional principle of democracy, writes Bloomberg. In addition, some details still need to be clarified that had remained open at the approval of the ESM bailout fund in the court's judgment last September, writes the Wall Street Journal.

The Karlsruhe-based court has never given a date for the ruling, eagerly awaited by financial markets, but it had initially been expected to come this year. In recent weeks doubts about the timing surfaced, in part due to the complexity of the case but also because of lengthy talks on forming a coalition government in Germany. Some legal experts believe the court could ultimately decide to refer the case to the European Court of Justice.

Karlsruhe cannot revoke the ECB scheme but in considering whether it violates the German parliament's right to control the budget, but it could block the country's participation or challenge certain aspects of the plan, such as its "unlimited" nature, Reuters elaborates. This could effectively derail the programme, which has worked largely by giving investors the confidence to buy bonds, safe in the knowledge the ECB would intervene on the secondary market if any government were at serious risk of defaulting. In addition, the judgement under the chairmanship of court's president Andreas Voßkuhle will give an indication of the consequences an EU Member State might draw when an EU Treaty is broken, write the FAZ and the Handelsblatt.

Most analysts think it is unlikely to derail OMT altogether, a step which could rekindle the crisis. "We expect the court to express its concerns about some aspects of the OMT, but no outright rejection of the programme or other constraints that would dilute the effectiveness of the OMT in a meaningful way", said Dirk Schumacher of Goldman Sachs in a research note this week.