Analysis: German court's ECB move leaves sovereignty unresolved

Fri Feb 7, 2014 1:20pm EST
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By Paul Taylor

PARIS (Reuters) - By referring a complaint against the European Central Bank's bond-buying policy to the European Court of Justice, Germany's constitutional court has sidestepped a crucial dispute over who has ultimate authority in the European Union.

The issue is highly sensitive at a time when Eurosceptical parties that seek to roll back the EU's powers are gaining ground in many member states ahead of direct elections for the 28-nation European Parliament in May.

By a 6-2 majority decision, Germany's top judges asked the European court in Luxembourg for a preliminary ruling on whether the ECB breached its mandate when it agreed to do "whatever it takes" to preserve the euro.

A ruling could come this year if the ECJ decides to use a fast-track procedure. Otherwise it could take up to 18 months to rule on the complaint brought by more than 35,000 plaintiffs, with Eurosceptical politicians and academics prominent amongst them.

At issue is the so-called Outright Monetary Transactions (OMT) policy under which the ECB would buy unlimited amounts of bonds of a government that sought a loan from the euro zone's rescue fund and accepted an internationally supervised economic reform program.

ECB President Mario Draghi's announcement of the decision in 2012 was a turning point in the euro zone's debt crisis. It calmed turmoil in European bond markets within weeks by removing fears of a break-up of the single European currency.

The German court spelled out its view that the ECB plan, although not yet implemented, is probably illegal because it would violate a ban on monetary financing of governments.

It was the first time the judges in Karlsruhe had referred any case to the ECJ for a preliminary ruling, but in doing so they avoided acknowledging the supremacy of European treaty law over the national constitutions of member states.   Continued...

Guests of the presentation of the new 10 euro banknote throw a shadow on a video projection at the European Central Bank headquarters in Frankfurt, January 13, 2014. REUTERS/Ralph Orlowski