Germany's constitutional court said Tuesday it was referring a challenge to the European Central Bank's large-scale bond-buying program to the European Union's Court of Justice, delaying efforts to set up a legal block to the scheme, but still giving some hope to its opponents.
The German court expressed reservations about the legality of the ECB's signature scheme on Tuesday and requested an "expedited procedure" to push the European court to deal with its case quickly.
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"It is doubtful whether the [QE] decision is compatible with the prohibition of monetary financing," it said in a statement. Under European law, the ECB isn't allowed to buy bonds directly from governments, but is allowed to purchase them indirectly on the secondary market.
The German court made a similar referral in 2014, when it ruled that 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 and the German court then said the scheme was in line with German law.
This time, a possible coalition partner for Chancellor Angela Merkel's center-right bloc after parliamentary elections on Sept. 24 praised the court's move.
Christian Lindner, head of the pro-business Free Democratic Party, told Germany's Rheinische Post newspaper that the program represented "the financing of public debt through the backdoor."
"We respect the independence of the ECB, but of course it is also bound by the law," he said.
The ECB's current quantitative-easing program, unlike OMT, buys bonds of countries from across the eurozone, rather than from a specific set of troubled states. The scheme started in March 2015; the current purchase volume is EUR60 billion ($71 billion) a month and is due to remain in place until the end of 2017. Economists expect the central bank to gradually reduce purchase thereafter.
Markus Kerber, a Berlin-based law professor, filed an injunction in late May to try to get the German court to force the Deutsche Bundesbank to stop participating in QE. 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 program.
Mr. Kerber said he was "pleased with the decision" of the German Court and said this case was different to OMT because the former had never been used. "Then they were talking about a case that's fictitious."
Noting the court's move, the ECB said it believed its asset purchases were "fully within our mandate." The bank added that the program remained "fully operational, in line with previous Governing Council statements."
The German Bundesbank declined to comment on the move.
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(END) Dow Jones Newswires
August 15, 2017 07:16 ET (11:16 GMT)