German Top Court Likely to Say ‘Yes, But’ to ECB Policy

Germany’s top court probably won’t intervene in the European Central Bank’s plan to buy bonds of crisis-torn countries, in line with previous cases involving the country’s integration with the European Union.

The ECB’s Outright Monetary Transactions program and the European Stability Mechanism will be reviewed by the Federal Constitutional Court in Karlsruhe at hearings this week. While the judges may voice doubts about the central bank’s plans, the court won’t stop it, said Christoph Ohler, a law professor at Jena University.

“It’s tough to say exactly how the court will handle this, but we can expect something close to the ’yes, but’ approach the judges have used before in European integration and euro-rescue operation cases,” said Ohler. “The court has never blocked anything on the European level, but in the ’strings-attached’ part unusual and surprising details can always pop up.”

The dispute will pit the ECB against Bundesbank President Jens Weidmann, who voted against the OMT, in a case that could underline the limitations the ECB faces in its crisis policy. The court last year allowed Germany to ratify the 500 billion-euro ($660 billion) ESM bailout facility and the EU fiscal pact while ruling the measures must include provisions that the country won’t be forced to assume higher liabilities without its consent.

The September ESM ruling was preliminary and didn’t cover the bond program. The plaintiffs, including an opposition political party and a lawmaker from Chancellor Angela Merkel’s CSU Bavarian sister party, can address the central bank and some remaining ESM issues at a two-day hearing that starts tomorrow.

Bloomberg

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