German judges refer ECB lawsuit to European court

Germany's top court said Tuesday it had referred a lawsuit against the European Central Bank's multi-billion-euro bond-buying scheme to the European Court of Justice, saying the bank may have overstepped its mandate.

The judges at the Constitutional Court in Karlsruhe said they saw "significant reasons" to believe the ECB exceeded its monetary policy mandate when it began buying government debt on a large scale in 2015 to boost the eurozone recovery.

The court said that it would refer a case launched against QE to the European Court of Justice. 
“In the view of the [court] significant reasons indicate that the ECB decisions governing the asset purchase programme violate the prohibition of monetary financing and exceed the monetary policy mandate of the European Central Bank,” the court said in a statement. “It is doubtful whether the [the bond-buying] decision is compatible with the prohibition of monetary financing.”

The legal challenge was filed by a group of German politicians, backed by more than 1,700 plaintiffs, who want the country's Bundesbank to withdraw from a programme they argue amounts to the illegal financing of debt-laden eurozone countries.

The €2.3 trillion asset-purchasing programme sees the ECB buy up billions of euros in government and corporate bonds each month in a bid to pump cash into the economy and drive up spending and investment.

The so-called "quantitative easing" scheme, due to run at least until the end of 2017, is part of a raft of unusual measures the ECB has taken to revive the euro economy, alongside low interest rates and cheap loans to banks.
The decision to pass the issue over to the ECJ means any final ruling will come either after the bond purchases end or near the end of the scheme, which has already been running for over two years and is expected to be wound down next year.

An ECJ ruling could take more than a year and by then the QE programme may have ended. The ECB is expected to soon set out a strategy for winding down the stimulus programme, given the economic recovery under way in the eurozone. “[The wait for the ECJ decision] may well be an elegant way out for the ECB,” said Hendrik Haag, partner at Hengeler Mueller. “It may put pressure on the ECB to be a little bit quicker with tapering [the QE programme].”