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Court in doubt about ECB asset buys

August 15, 2017

Germany's constitutional court has called into question the European Central Bank's asset purchases, saying they might overstep the central bank's powers, referring the case instead to the European Court of Justice.

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Deutschland Bundesverfassungsgericht Karlsruhe zu EZB Anleihenkäufe
Image: picture-alliance/dpa/U. Deck

In the ruling Tuesday, the Constitutional Court said it had declined to hear a challenge to the ECB's quantitative easing program (QE), suggesting however that the eurozone central bank's asset purchases went beyond its monetary policy mandate.

"There are doubts as to whether the (Public Sector Purchase Program) is compatible with the ban on monetary budget financing," the Constitutional Court said in a statement, asking the European Court of Justice (ECJ) to deliver a judgment quickly.

Originally, Europe's top court had referred the issue onto the German Constitutional Court after a series of lawsuits had been lodged against the ECB's bond-buying program in the country.

Under the QE program introduced in March 2015, the ECB buys eurozone government bonds and other assets to the tune of 60 billion euros ($70.5 billion) each month, flooding banks with cheap money to lend to the real economy and boost low inflation.

Illegal state financing 

Critics of the bond-buying scheme see it as a stealth bailout of indebted south European governments. Germans are especially irked by the massive cash injections, arguing that Germany taxpayers have to bear the risk for others.

Those making the challenge have argued that the scheme constitutes illegal monetary financing of some eurozone countries and say the German Bundesbank, the biggest buyers of bonds in the program, should therefore not participate.

The ECB, which was not immediately available for comment, has long argued that its self-imposed rules take into account the European Court's limitations and the scheme's aim was to fulfill its legal mandate of returning inflation to around 2 percent.

It has also indicated that it plans to stop the purchases by the end of this year and start winding down its balance sheet next year.

Since the European Court has already backed the ECB's more contentious emergency bond purchase scheme known as Outright Monetary Transactions with only relatively minor limitations, this suggests the challenge - lodged by several German academics and conservative politicians - may face an uphill battle.

Abrupt ECB tapering could harm eurozone recovery

uhe/kd (Reuters, dpa, AFP)