Margarida Vasconcelos: the German Constitutional Court said that the OMT Decision is incompatible with EU law

It is well know that Brussels and the eurozone leaders have not been concerned in ensuring the rule of law. In fact, they have breached the EU Treaties in order to save the euro. All measures adopted to tackle the debt crisis, including the EFSF and the ESM are not in line with the EU Treaties.

The EFSM, EFSF and the ESM particularly breach Article 125 TFEU, the no bailout clause, which forbids Member States for being liable for the debts of another. The inter-governmental Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union confers powers on EU institutions, consequentely it is unlawful as the EU institutions legally cannot have a formal role in any agreement outside the EU Treaties.

Moreover, in September 2012, aimed at restoring stability in the eurozone, Mario Draghi announced plans for unlimited ECB bond-buying in the secondary market. However, under Article 123 TFEU “Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favor of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.” Moreover, Article 21 of the Statute of the European System of Central Banks and of the European Central Bank provides “In accordance with Article 123 of the Treaty on the Functioning of the European Union, overdrafts or any other type of credit facility with the ECB or with the national central banks in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.”

The ECB is not allowed to fund government spending but the Treaties have been interpreted as not allowing the ECB to directly buying bonds from states but allowing it to buy bonds on the open market. Under the OMT scheme eurozone countries facing serious debt issues may apply to the ECB to buy their sovereign bonds in the secondary market. Hence, one could say that the ECB by doing this would create a credit facility in favour of those countries, breaching, consequently, the rule of law and spirit of the Maastricht treaty.

Nevertheless, Mr Draghi said that this bond-buying scheme is within the ECB's mandate. The president of the Deutsche Bundesbank, Jens Weidmann, voted against such move, as he believes it extends the ECB's role by financing governments and threats its independence. The ECB will not buy the bonds itself, but the national central banks according to their capital key with the ECB. Hence, one could say that the German Bundesbank would be in charge of buying the biggest bonds share in case of a eurozone country applies to the OMT.

The ECB’s decision could have a massive impact for European’s taxpayers, particularly German taxpayers. Thus, German as well as taxpayers from other countries would be ultimately liable for this without their parliaments having a say. According to Jens Weidmann Mr Draghi’s scheme entails a resource transfer between member states without democratic accountability.

Several complaints were filled with the German Constitutional court against the ECB’s the Decision concerning the Outright Monetary Transactions (OMT) and the continued purchases of government bonds of the eurozone member states intended to indirectly financing states on the secondary market. The complainants particularly claimed that the ECB acted outside its mandate, i.e. ultra vires and argued that the Basic Law‘s constitutional identity and the Bundestag’s overall budgetary responsibility are violated. There were also constitutional complaints challenging the Federal Government unconstitutional omission of bringing an action before the Court of Justice against the OMT decision and the purchase of government bonds or to work, in another way, towards a repeal of the ECB’s Decision as well as the German Bundestag unconstitutional omission to work towards a cancellation of the OMT decision.

In order to ensure the effective and uniform application of Community law, national courts when faced with an issue concerning the interpretation or validity of an act of Community law, may seek a preliminary ruling from the ECJ. However, if it is a last instance court, it is compelled to refer the matter before the ECJ. The ECJ has expressed in the Foto-Frosto case its exclusive competence to declare Community acts invalid as decisions from national courts on validity could threaten the unity and effectiveness of the Community legal order. It is well known that the ECJ and the German Constitutional Court have been playing a cat and mouse game since the ECJ proclaimed the primacy of Community law as a cornerstone of European Integration.

The German Constitutional Court has recently decided to suspend the proceedings and referred several questions to the Court of Justice for a preliminary ruling. In fact, this was the first time that the Bundesverfassungsgericht has referred a case to the ECJ. Nevertheless, the Constitutional Court has already considered the OMT Decision incompatible with EU law particularly with Article119, Article 127 TFEU, Article 17 of the ESCB Statute and Article 123 TFEU. According to the German Constitutional Court the European Central Bank exceeded its monetary policy mandate with the OMT Decision, which impinges upon the responsibility of the Member States for economic policy. The Court also believes that the OMT Decision breaches the prohibition of monetary financing of the budget provided in Article 123 TFEU. The Court is aware that the ECJ can reach a different interpretation, making it possible to avoid a breach of EU law by the ECB. It noted that its concerns in relation to the validity of the OMT Decision, based on its interpretation, could be met by an interpretation in conformity with Union law. Nonetheless, it stressed, “This would require that the content of the OMT Decision, when comprehensively assessed and evaluated, essentially complies with the above-mentioned conditions.” Thus, the German Constitution Court has already set conditions that the ECJ should impose on the OMT.

The ECJ will now decide on this matter. It is important to mention that the ECJ is mainly a political court hence it is likely to be guided by political rather than just legal considerations. According to Wolfgang Münchau “This ruling was the legal equivalent of “No, no, no” – with one important addition.” He noted, in The Financial Times, “If the ECJ were to side with the ECB, we would end up with a “constitutional crisis”, whereby German constitutional law directly contradicts EU law.” He then stressed “The German court left no doubt that the Bundesbank and other German institutions were bound by the constitution.”

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