BVerfG gives the green light for OMT

The German Federal Constitutional Court (BVerfG) rejected the complaint brought before it against the ECB’s OMT programme, declaring the suit filed to be in part “inadmissible” and in part “unfounded”. Moreover, in the opinion of the court, the “rights and duties of the German Bundestag including its fundamental responsibility for budget policy have not been impaired.”

The Karlsruhe court thus followed the European Court of Justice (ECJ), which ordained in its ruling of 15 June 2015 that the ECB’s OMT programme was compatible with European law under the conditions and constraints stated at the time. Although the BVerfG again expressed substantive reservations as regards the OMT, these were not so severe as to require the court to deviate from the principle that European law must take precedence over national law.

Today’s judgement by the BVerfG is unlikely to have surprised many market players. Following the ECJ’s judgement last year the pundits agreed that the hurdle was henceforth very steep for a German court to actually stop the OMT programme.

Many investors rightly counted on the BVerfG continuing its policy hitherto of pro-European rulings. Had the Constitutional Court in fact made use of its veto right the legal consequences would have been immense – it would even have potentially called into question the legal validity of the European treaties.

However, it was a moot point whether the BVerfG would set additional conditions for the programme. Here it was noticeably restrained and in substantive terms followed what the ECJ had ordained. Accordingly, among others the volume of purchases must be limited, the actual purchases may not be announced beforehand, and government bonds may only be acquired from states that can still raise refinancing in the market.

In addition to the ECJ conditions, Karlsruhe only limited itself to obligating the German Bundestag and German Federal government to assess the due application of the programme to the extent it should even be applied.

Today’s decision marks a real hiding for the critics of the ECB’s policies. They had hoped with regard to the course of the litigation before the BVerfG consulted the ECJ that the evidently critical opinion of the German court would lead to Karlsruhe stopping the OMT. Going forward, other law suits brought against other ECB programmes such as the APP likewise presumably have at best limited prospects of being successful. However, this is unlikely to silence the critics who consider the ECB measures to be an illegal act despite the BVerfG judgement.

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