Complaint about loss of German sovereignty to ECB dismissed

Karlsruhe court rules banking union of 2014 does not contradict German law

The banking union was agreed in 2014 to create more robust regulation – centrally at the ECB in Frankfurt – for euro zone banks considered “too big to fail”.

The banking union was agreed in 2014 to create more robust regulation – centrally at the ECB in Frankfurt – for euro zone banks considered “too big to fail”.

 

German opponents of the euro bailout have failed – again – at the federal constitutional court to halt crisis measures introduced to stabilise and shore up the euro zone a decade ago.

After failing to stop euro bailout funds, a group of German finance experts filed another constitutional complaint, this time claiming German MPs had handed over too much sovereignty to the European Central Bank’s “banking union”, set up to oversee operations at critical euro zone banks.

Judges at the Karlsruhe court dismissed their application on Tuesday, saying the banking union did not contradict German law and parliamentarians were not precluded from backing it.

Court president Andreas Voßkuhle said the rules were valid because they don’t “transfer banking supervision competences completely to the EU level”. National regulators – in Germany’s case BaFin – still have “substantial powers”, he added.

The banking union was agreed in 2014 to create more robust regulation – centrally at the ECB in Frankfurt – for euro zone banks considered “too big to fail”.

Euro bailout

The banking union comprises regulation and resolution mechanisms and is based in the old ECB tower in central Frankfurt. It regulates institutions with holdings greater than €30 billion or 20 per cent of the gross domestic product of the country where they are based. Also overseen by the Frankfurt regulator are financial institutions in receipt of capital from euro bailout funds.

After their ruling, Germany’s federal constitutional court had another hearing into another complaint about ECB bond-buying.

Since March 2015, the central bank has bought sovereign and other bonds worth at least €2.6 billion. Tuesday’s complaint focused on the public sector purchase programme, which buys up sovereign and other public sector bonds – the largest part of the bond-buying programme

The ECB says the programme is necessary to secure stable prices in the 19-country euro zone. German critics say it creates unacceptable risk for German taxpayers to effectively provide low-cost loans for other member states.

Two years ago, Karlsruhe expressed scepticism about the programme, saying there were “weighty reasons” to suggest it “contravenes the ban on monetary financing as well as the mandate of the European Central Bank. and reaches into the competence of member states”.

The German judges referred the case to the Court of Justice of the European Union, which oversees the ECB. It dismissed the bond-buying complaint and a final ruling from the German court is expected in the coming months.