ECJ says ECB bond buying is compatible with EU law, adds to sense ECB is winning political debate with Germany

ECJ says ECB bond buying is compatible with EU law, adds to sense ECB is winning political debate with Germany

16 June 2015, 11:40
Anton Voropaev
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A top adviser to the European Court of Justice paved a way for aggressive action by the ECB next Thursday, after he said an earlier and more controversial debt-buying plan lay within the ECB’s mandate.

ECJ advocate-general Pedro Cruz Villalón said the ECB’s pledge in the summer of 2012 to do “whatever it takes” to save the region from economic catastrophe by buying government bonds was compatible with EU law. The final decision on the Outright Monetary Transactions (OMT) programme, expected in four to six months, is likely to follow the advocate-general’s view.

His comments were seen as weakening the case of German opposition to purchases of sovereign debt.

As the Financial Times reported, Hans-Werner Sinn, president of the Ifo think-tank and a fierce critic of QE, said the EU prosecutor had “blatantly contradicted” the opinion of the German Constitutional Court in Karlsruhe, which referred the decision to the European Court in Luxembourg.

He added that this is tantamount to a carte blanche for the ECB, provided that it justifies its behaviour.

Mr Cruz Villalón’s view that definite conditions are met — including that the ECB refrain from “direct involvement in a financial assistance programme” for a country receiving OMT support — opens the way for a possible compromise between the central bank and the German court. The official insisted the ECB give a “proper account” of the “extraordinary circumstances” that would trigger OMT.

Two among the eight German Constitutional Court judges involved in the OMT ruling opposed the referral to the ECJ. They claim that the decision was one for Germany’s sovereign authorities — the government and parliament. The Karlsruhe-based court will await the ECJ’s final ruling before beginning its own review.

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