ECB bond-buying activities referred to Europe’s highest court

The campaign of Germany’s far-right Alternative für Deutschland against European Central Bank bond-buying got a shot in the arm on Tuesday with a referral to Europe’s highest court.

Germany's constitutional court in Karlsruhe has asked the European Court of Justice for an expedited ruling on whether the Frankfurt bank's crisis-era asset purchase programme, worth over €2.3 trillion to date, broke the bank's own ban on financing governments.

The complaint, focused on security purchases of public banks and other financial institutions, was brought by Alexander Gauland, head of the AfD's campaign to enter the Bundestag next month.

“Significant reasons indicate the ECB decisions governing the asset purchase programme violate the prohibition of monetary financing,” the Karlsruhe court said. By exceeding its mandate, the court added, the bank would be “encroaching upon the competences of the member states”.

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Any ECJ ruling on public sector purchases is likely to come after quantitative easing (QE) expected to be wound up next year.

However the referral on the so-called Public Sector Purchase Programme (PSPP) could result in limits imposed on the ECB decision to extend or wind up the programme, now in its fourth year, or on future action.

Supranational organisations

At present the PSPP scheme allows the ECB buy up securities in supranational organisations such as the EU and European Stability Mechanism (ESM) bailout fund, but also euro area institutions such as Germany's public development bank KfW and Ireland's Housing Finance Agency.

In a statement, the ECB said its €60 billion-a-month asset purchases would continue.

Sensing another round looming in its long-running battle with Karlsruhe on QE, the ECB said it believed the programme was “fully within our mandate” but said it was the ECJ’s job to decide.

In a previous referral from Karlsruhe, the Luxembourg court agreed with the ECB on its still-inactive emergency bond programme known as Outright Monetary Transactions (OMT).

That forced the Karlsruhe judges to back down on previous concerns they aired, in cases brought by the AfD and other complainants.

The referral by Karlsruhe is a campaign gift to Germany’s far-right party, as diminished euro and refugee crises have left it struggling to attract attention in Germany’s looming federal election.

Defended by the ECB and Berlin as essential to stabilise the single currency, the AfD and others have attacked the QE programme as monetary financing by other means. This contradicts euro rules, they say, and leaves Germany exposed to a quarter of liabilities should the bonds not be repaid.