ECJ gives green light to ECB bond -buying programme
In the much awaited Gauweiler judgment, the ECB’s OMT bond-buying programme targeted at crisis-struck Eurozone states was ruled to be in line with the ECB’s monetary objective.
In a Grand Chamber judgment given on June 16th 2015 (C-62/14 Gauweiler e.a.), the European Court of Justice upheld the European Central Bank’s bond-buying programme Outright Monetary Transactions (‘OMT’). In the ruling, the Court provides clarity on some of the most fundamental questions of the Economic and Monetary Union: the independence of the ECB, the distinction between monetary and economic policy, and the prohibition on monetary financing. This blog will focus on the monetary policy mandate of the ECB.
On September 6th 2012, the ECB released a press statement announcing that it was willing to buy government bonds on the secondary market of crisis-struck Eurozone states that saw interest spreads rising to unreasonable levels. By imposing certain conditions on this OMT programme, such as compliance of the targeted state with a European Stability Mechanism programme, the ECB intended to calm down the markets. This in turn would allow the ECB to continue to effectively ensure price stability. Peter Gauweiler, a Bavarian CSU politician, lodged a complaint together with several other German parliamentarians and Die Linke, to review the lawfulness of the ECB measure. The GCC referred the case to the ECJ, expressing doubt over the compliance of the programme with the Treaties and the German Basic Law. It reasoned that the measure could qualify as economic policy, fell outside the mandate of the ECB, and that it breached the prohibition of monetary financing, i.e. the financing of a state’s budget.
The Treaty ensures the ECB’s independence from any political pressure, and articles 119 and 127 TFEU give it the mandate to adopt the measures it considers necessary to carry out its monetary policy objective. To see whether the ECB acted within that mandate, the Court of Justice looks at the objectives of the OMT programme and the instruments it employs. Concerning the objective, the Court concludes that the measure intends to ensure the singleness and the effective transmission of monetary policy, which in turn contributes to ensuring price stability. That the measure may also contribute to the stability of the Eurozone (a matter of economic policy falling outside the ECB’s mandate) does not alter that assessment. With regard to the instruments used, the Court refers to article 18 of the Protocol on the ESCB and the ECB, which explicitly allows the ECB to operate on the markets by buying and selling marketable instruments.
Next, as to proportionality, the Court underlines the technical and complex nature of the ECB’s tasks, which requires a “broad discretion”. The Court limits itself to a limited review, looking mainly at the compliance with certain procedural guarantees. It finds that the ECB complied with the duty to state reasons, and did not make a “manifest error of assessment” in doing so. The conditions imposed on the OMT programme stated by the press release are sufficient to ensure that it does not “manifestly” go beyond what is necessary.
With its judgment, the Court has sidelined the GCC’s complaints against the OMT programme. It is now up to the GCC to give its final verdict that is reconcilable with the ECJ’s judgment – a precarious task, considering the bold stance it took in its preliminary reference. But what relevance does all this carry, if we consider that the challenged programme is just a press statement, issued almost three years ago and never put into effect? The answer can be phrased as a cliché: only time will tell. But it is worth noting that the mere announcement of the programme in 2012 helped to calm down the markets and provided relief for affected member states. The situation in summer 2015 is different in many ways, but it is not unthinkable that a similar scenario may arise again. With the Greek government debt crisis reaching a new climax and bond yield spreads on the rise again, the value of this judgment may be more than just hypothetical.