German Court Decision: Legal Authority and Deep Power Implications
By Katharina Pistor – February 26, 2014
“Who wields supreme power over the ECB? This column analyses the recent ruling by the German Constitutional Court that the ECB cannot act as lender of last resort. Although seemingly couched by the referral of this decision to the European Court of Justice, this is a bid for power and the return to the pre-crisis paradigm of ‘ultra posse nemo obligatur’.”
Can the European Central Bank legally act as lender of last resort to ensure the survival of the euro?
This question is of fundamental importance for the sustainability of the monetary union. Recently, the German Constitutional Court ruled that it cannot. In the court’s view the ECB has the power to conduct monetary policy, but not to support member states in financial distress even if necessary to ensure the survival of the common currency.
It follows that the ECB’s announcement of September 2012, to buy the sovereign debt of member states on secondary markets in unlimited amounts to fend off speculative attacks against individual member states (outright monetary transactions, or OMT), may be beyond its powers, or ultra vires.
But does the German Constitutional Court have the legal power to decide this question?
The ECB is a European entity created by European law. The European Court of Justice (ECJ), not the German Constitutional Court, has the power to review the legality of its actions. Still, the majority of the German court believes that it can decide whether ECB actions violate German constitutional law, and as a result that it can compel the German government to rectify this or risk committing unconstitutional acts on German territory. It’s worth noting that the minority argued that the court’s ruling exceeds its powers and that it should have left any response to the ECB’s actions to the democratically elected German government.
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