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Is the European Central Bank behaving in a constitutional manner? On Friday, the German Constitutional Court said no -- but declared that the European Court of Justice should have the final say in the matter. At issue is a key weapon in the ECB’s crisis-fighting arsenal.
In the midst of the European sovereign-debt crisis, the ECB announced it would buy unlimited amounts of member states’ bonds, if needed. ECB chief Mario Draghi famously said he would do “whatever it takes”, and that promise has, so far, been enough: the ECB hasn’t needed to actually use the bond-buying program, called Outright Monetary Transactions.
German citizens appealed to the Constitutional Court, saying the program, which Draghi laid out in this 2012 statement, amounted to economic, not monetary policy. (The ECB is barred by the Lisbon Treaty of 2007 from making economic policy). Now the German Court has decided that the program violated the EU treaty, but has referred the case the to the European Court of Justice to have the final say.
FT Alphaville says that court’s ruling is based on a pretty basic misunderstanding of how the OMT works: the Court seems to think that OMT calls for debt restructuring and/or haircuts, when in fact the ECB said it would buy bonds on their standard, pre-existing terms.