A two-day hearing was held last week before the German Constitutional Court (Bundesverfassungsgericht) in which the compatibility of the OMT (i.e. Outright Monetary Transaction, which is the program of unlimited purchases of the government bonds of Eurozone Member States on the secondary market by the European Central Bank) with the German Constitution (and in particular with the German Basic Law called Grundgesetz) was discussed.
In the event that the Bundesverfassungsgericht should hold the OMT to be contrary to the German constitution, the Bundesbank will not be allowed participate in the program, with inevitable political/economic consequences.
Defending the positions of the ECB before the German Constitutional Court was the Board Member Jorg Asmussen (who was heard as an expert). He argued that the OMT is economically necessary, legally admissible and efficient in terms of its effects, since it would not fund the Member States’ deficits, but would buy government bonds on the secondary market. It was, therefore, a typical transaction conducted by Central Banks.
A contrary stance was adopted by the Governor of the Bundesbank and ECB Board Member, Jens Weidmann (who was also heard as an expert), who asserted that the OMT would be a direct financing of Member States and would violate article 123 of the Treaty on the Functioning of the European Union, giving rise to the risk of loosening too much the pressure on Member States to do their homework (and, ultimately, would lead to German taxpayers incurring the cost of bailouts of countries at risk ).
The decision of the Constitutional Court, which is called upon to assess, among other things, whether the OMT creates a risk for German taxpayers by violating the sovereignty of the German Parliament’s budget, will only come after the summer (probably after the German elections of September 22, next).
The Court may decide to refer the case at hand to the European Court of Justice in Luxembourg, or approve the OMT (probably subjecting the use thereof to some conditions).
The President of the Constitutional Court, Andreas Voßkuhle, acknowledged that the ECB cannot be judged by the Karlsruhe Court, since it is a European law institution. What the German courts may consider, however, is the compatibility of the ECB’s policies with the German Basic Law.
The issues with which the courts will have to deal are, therefore, essentially two:
i) The first is whether the ECB’s interventions in favor of countries in crisis may pose a risk to the German Government’s budget, which is so high as to prevent other spending decisions by the German Parliament, thereby preventing the exercise of its democratic functions.
ii) The second is whether the main condition placed by the German Parliament for the signing of the Maastricht Treaty – namely that the Euro is as stable currency as the German Mark – is respected in the light of inflation risks resulting from large injections of liquidity .
The President of the Constitutional Court Andreas Voßkuhle considered the announcement of the ECB’s intention to buy government bonds of Member States as soon as this became necessary to be akin to a government notice addressed to German citizens which was capable of violating their fundamental rights (including those set forth in art. 38 of the Basic Law, which regulates the mechanisms of democratic self-determination of the German People), even if the Judge Michael Gerhardt seemed to have some doubts in relation thereto, wondering whether it was perhaps too early for preventive legal protection, since the ECB had yet to take any decision.
Concerns were also expressed about the fact that this case could create a precedent for popular actions against decisions taken at European Union level (these concerns were shared by Judge Gertrude Luebbe-Wolff, who stated that the Federal Constitutional Court had a duty to protect the fundamental rights German citizens against abuses of the German government, not against decisions taken by European Union institutions).
Along with President Voßkuhle, the Judges Peter Huber and Herbert Landau expressed the view that, in a multi-tiered legal system, citizens have less control over their decision-makers, which can only be offset by exercising their rights before the Constitutional Court in Karlsruhe .
According to Voßkuhle: There must be a way for citizens in a multi-tiered system to react when decisions are taken by public authorities that are not for the common good … The ECB is, on account of its independence, a “wonderful organization” for the powerful, which allows them to make decisions that are virtually immune from democratic control .. For almost everyone involved, this mechanism is perfect, except for those who have to pay the piper.