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 The issue is highly sensitive at a time when Eurosceptical parties
that seek to roll back the EU's powers are gaining ground in many
member states ahead of direct elections for the 28-nation European
Parliament in May.
By a 6-2 majority decision, Germany's top judges asked the European
court in Luxembourg for a preliminary ruling on whether the ECB
breached its mandate when it agreed to do "whatever it takes" to
preserve the euro.
A ruling could come this year if the ECJ decides to use a fast-track
procedure. Otherwise it could take up to 18 months to rule on the
complaint brought by more than 35,000 plaintiffs, with Eurosceptical
politicians and academics prominent amongst them.
At issue is the so-called Outright Monetary Transactions (OMT)
policy under which the ECB would buy unlimited amounts of bonds of a
government that sought a loan from the euro zone's rescue fund and
accepted an internationally supervised economic reform program.
ECB President Mario Draghi's announcement of the decision in 2012
was a turning point in the euro zone's debt crisis. It calmed
turmoil in European bond markets within weeks by removing fears of a
break-up of the single European currency.
The German court spelled out its view that the ECB plan, although
not yet implemented, is probably illegal because it would violate a
ban on monetary financing of governments.
It was the first time the judges in Karlsruhe had referred any case
to the ECJ for a preliminary ruling, but in doing so they avoided
acknowledging the supremacy of European treaty law over the national
constitutions of member states.
They did not spell out what they would do if the European court
determines that the ECB was within its rights, as German Finance
Minister Wolfgang Schaeuble and the ECB both argued in testimony at
a Karlsruhe hearing last year.
If the OMT plan were ruled illegal in Germany, the court could bar
the German Bundesbank from participating by buying its share of
bonds.
That would not stop other central banks doing so, but it would cause
a severe crisis of confidence between Europe's biggest economy and
the rest of the euro zone, and would be bound to rattle financial
markets.
QUESTION AVOIDED
The European Union operates on the basis that treaties are "primary
law" that takes precedence over national law, and that the ECJ is
the arbiter of compliance with the treaties.
"It's clear that EU law has primacy over national law, but as to
whether it has primacy over national constitutions, that question
has always been avoided," said Michel Petite, a former head of the
European Commission's legal service now in private law practice in
Paris with Clifford Chance.
Only the Dutch supreme court has explicitly ruled that EU treaties
outweigh national constitutions, said Franz Mayer, professor of
public and European law at Bielefeld University.
However, the German court has challenged that hierarchy in a series
of judgments beginning with a 1993 ruling which upheld the legality
of the Maastricht Treaty that created the European monetary union
but said the EU could not go much further in integration without
greater democratic control.
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A subsequent 2009 ruling on the Lisbon Treaty sought to tighten
those limits by asserting that the European Parliament was less
legitimate than national parliaments because it was not elected on a
one-man-one-vote basis, with smaller countries having a
disproportionate number of seats.
In the 2010 Honeywell case, the German court established a procedure
under which it must refer a disputed European measure to the ECJ
and, if the latter does nothing, only declare the measure illegal if
the illegality is serious and manifest.
In Friday's ruling, the court said that a very restrictive
version of the OMT policy, with limited bond buying and ruling out
any debt reduction, might be considered legal.
However such a watered down policy might be ineffective and Guntram
Wolf, director of the Bruegel economic think-tank in Brussels, said
it would amount to making the ECB a preferred creditor, which would
raise the borrowing costs of a country in trouble and make it harder
to access capital markets.
LENDER OF LAST RESORT? Legal and political analysts say the European court is far more
likely to rule in the ECB's favor than the German judges.
Bert Van Rossebeke of the Centre for European Politics (CEP) in
Freiburg called the decision to refer to the European court for the
first time "historic".
"The (OMT's) chances are better in Luxembourg than in Karlsruhe," he
said.
Gunnar Beck, a Eurosceptical German expert on European law at London
University, said: "This surrenders German sovereignty to a European
Union court.
"Practically speaking the (EU) Court of Justice is not an
independent organization but is pre-disposed to interpret legal
questions in the interest of the European Union."
Whether the German court would go as far as to overrule such an
interpretation remains to be seen. German legal experts said the
Karlsruhe judges are clearly divided on how far to undermine the EU
and some are worried about the economic and political consequences
of any legal confrontation.
Mayer said that if the ECJ, as he expects, rules that the ECB has
not acted illegally, the German court could in theory stick to its
initial view, declare the OMT plan "ultra vires" and bar German
authorities from implementing it.
But it was more likely to save face by accepting the Luxembourg
court's interpretation, he said.
However, another European law professor, Damian Chalmers of the
London School of Economics, said the German court had made clear
that if the ECJ does not rule the plan illegal, it will.
(Additional reporting by Alexandra
Hudson and Annika Breidhardt in Berlin; writing by Paul Taylor;
Editing by Giles Elgood)
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