The Legality of Outright Monetary Transactions of the European System of Central Banks

Abstract

On 6 September 2012, the Governing Council of the ECB took decisions on a number of technical features regarding the Eurosystem's outright transactions in secondary sovereign bond markets (OMT). This decision was challenged in the German Federal Constitutional Court (GFCC). In its seminal judgment of 14 January 2014, the GFCC expressed serious doubts about the compatibility of the ECB's decision with EU law. It admitted the complaints and petitions even though actual purchases had not been executed and the control of the acts of an organ of the EU is, in principle, not the task of the GFCC. As justification for this procedure, the court resorted to its judicature on a reserved ``ultra vires{''} control and the defence of the ``constitutional identity{''} of Germany. In the end, however, the court referred the case to the European Court of Justice (ECJ/CJEU) for preliminary rulings on several questions of EU law. In substance, the German court assessed OMT as an act of economic policy beyond the competences of the ECB. Furthermore, it judged OMT as a monetary financing of sovereign debt prohibited by EU primary law. The defence of the ECB (the disruption of the monetary policy transmission mechanism) was dismissed as ``irrelevant{''}. Finally, the court presented a way for a compromise by an interpretation of OMT which was in conformity with EU. Both the procedure and the findings of this judgment were harshly criticised not only by many economists but also by the majority of legal scholars. This criticism is, by and large, convincing in view of the admissibility of the complaints. It is also questionable whether the referral to the ECJ/CJEU was indicated. The arguments of the court are, however, conclusive with regard to the transgression of competences by the ECB, and-to somewhat lesser extent-with regard to the monetary debt financing.