The German constitutional court sent a case concerning the European Central Bank attempt to buy $2.7 trillion dollar's worth of bonds to the European Court of Justice on Tuesday.
The Publice Sector Purchase Program of the ECB started in March 2015 [MarketWatch report] in order to bolster the Euro.
Unlike similar programs put in place by the ECB, the PSPP enables the bank to buys bonds across the eurozone, a move which the constitutional court noted may violated German monetary financing laws.
In a press release the court stated:
The primary law of the Union provides but little guidance on the decision-making of the ECB Governing Council concerning the manner and scope of risk sharing between the members of the European System of Central Banks. Consequently, the ECB Governing Council may be able to modify the rules on risk sharing within the Eurosystem in a way that would result in risks for the profit and loss accounts of the national central banks and also threaten the overall budgetary responsibility of national parliaments.
The court has asked the ECJ for expedited proceedings in order to more quickly issue its ruling at the request of the German government.
This is the latest development in the ongoing struggle to establish financial stability in the EU.
In June 2016 the German constitutional court ruled that the ECB's Outright Monetary Transaction program complied with German law.
In January 2015 EU Advocate General Cruz Villalon gave legal support to the ECB program as an attempt to remedy the financial crisis in the Eurozone.
In September 2014 the EU Parliament approved a new bank supervisory mechanism.
Last November the ECJ ruled that the Eurozone's permanent bailout fund, the European Stability Mechanism, is in line with European law.
The ruling came following several member states' own courts finding the ESM constitutional under their own laws, including Estonia and Germany.
That June the European Commission announced a proposal that would address the problems of bailing out large banks with public funds during financial crises in the future.
(Published by Jurist - August 16, 2017)