Starting today, and continuing through tomorrow, the German Federal Constitutional Court (FCC) will consider the legality and conformability of the European Stability Mechanism (ESM) and the ECB’s Outright Monetary Transaction programme (OMT) in particular. What does the press expect will be the outcome of the FCC’s deliberations (spoiler alert: nobody will dare to threaten Deutsche Bank’s towering mountain of derivatives, all $56 trillion of them, but let’s pretend it is exciting). Here is a brief recap via Bruegel Think Tank.
On 11 and 12 June, 2013 the German Federal Constitutional Court (FCC) will once again debate and consider the legality and conformability of the European Stability Mechanism (ESM) in general and the ECB’s Outright Monetary Transaction programme (OMT) in particular. In September last year, the court preliminarily approved the ESM on condition that German financial liabilities have to remain within the amount set by the German parliament (Court decision from September 2012 here). In the current hearing the FCC will consider several constitutional complaints (“Verfassungsbeschwerde”). According to the FCC’s press statement (here), the court will evaluate (1) scope and boundaries of the ECB’s monetary policy mandate, in particular the independence of the ECB and the OMT programme, (2) consequences of the OMT programme on the parliament’s budget right, (3) the role of the Bundesbank in the European System of Central Banks, and (4) possibilities of the parliament and the government react and respond to the ECB’s policies. The Court will invoke a joint assessment of whether or not the ECB acts ultra-vires and violates Germany’s constitutional identify.
The focus of this hearing will be on the ECB’s rescue policies and specifically whether or not the ECB’s OMT is indirectly circumventing the prohibition of financing euro zone countries’ budgets. While the programme eases borrowing costs of struggling states, critics stress that it also eases pressure on governments to reform their fiscal policies and render the independent central bank dependent on governments’ policy choices. The ECB argues that its primary goal to safeguard price stability has to be accompanied by secondary goals, in particular maintaining the stability of financial markets. The Bundesbank, by contrast, argues that OMT exceeds the boundaries set by the ECB’s mandate. In December last year, a statement by the Bundesbank in which the ECB’s OMT program is criticised was leaked and published by Handelsblatt.
