German Constitutional Court Refers QE Challenge to ECJ

By Todd Buell Features Dow Jones Newswires

Germany's constitutional court said Tuesday that it is referring a challenge to the European Central Bank's large-scale bond-buying program to the Court of Justice of the European Union, delaying efforts to set up a legal block to the ECB's signature scheme.

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The German court expressed reservations about the legality of the ECB's bond-buying program in its statement Tuesday. "It is doubtful whether the [QE] decision is compatible with the prohibition of monetary financing," it said in a statement.

The referral echoes a 2014 move by the German court when it said the ECB's never-used bond-buying program--known as Outright Monetary Transactions, or OMT--also likely exceeded the central bank's mandate. It deferred its ruling to the European Court of Justice, which backed the program. The German court then said the program was in line with German law.

The ECB's current quantitative easing program, unlike OMT, purchases bonds of countries from across the eurozone, rather than from a specific set of troubled states. Its quantitative easing program started in March 2015 and the current purchase volume is EUR60 billion a month and is due to remain in place until the end of the year. Economists expect the ECB to gradually reduce purchase volumes thereafter.

Markus Kerber, a Berlin-based law professor, filed an injunction in late May in an attempt to get the German court to force the Deutsche Bundesbank to stop participating in the ECB's QE program. Though the ECB centrally decides bond purchase quantities, national central banks do most of the buying--effectively in proportion to the size of their country's economy. The Bundesbank is the largest purchaser of bonds under the QE program.

Mr. Kerber said he was "pleased with the decision" of the German Court and said this case was different because OMT had never been used. "Then they were talking about a case that's fictitious."

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The ECB had no immediate comment on the court decision.

The German court requested an "expedited procedure" to push the European court to deal with the case quickly.

Write to Todd Buell at todd.buell@wsj.com

(END) Dow Jones Newswires

August 15, 2017 06:06 ET (10:06 GMT)