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Germany's highest court rejects legal challenges against ECB

Germany's highest court has ruled that a legal challenge against one of the European Central Bank's (ECB) main tools to fight the euro zone's financial crisis is not valid.

In its final ruling after several years of legal disputes over the central bank's use of outright monetary transactions (OMT), German's constitutional court has said that constitutional complaints against the OMT program are unsuccessful.

The ruling comes after the case was referred to the European Court of Justice (ECJ) which last year rejected legal opposition to OMT.

The Judges of Germany's Constitutional Court
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The Judges of Germany's Constitutional Court

The ECB announced its OMT program in September 2012 after President Mario Draghi pledged to do "whatever it takes" to prevent the euro zone from imploding at the height of its sovereign debt crisis by making borrowing more affordable for euro zone governments and to boost investor confidence.

The program has still yet to be used, however, with the ECB opting for negative interest rates and a different mix of corporate bond-buying and quantitative easing (QE).

Thousands of Germans, including politicians and academics, had appealed to the constitutional court against the OMT program, arguing that the ECB had gone beyond its mandate in the area of monetary policy, accusing it of basically financing euro zone governments and, subsequently, exposing German taxpayers to potential losses.

Germany's constitutional court agreed with some of those arguments but referred the case to the ECJ to let it evaluate the arguments. Last year, the ECJ rejected the objections to OMT and said that it did not violate with European law, saying that OMT contributes to the "singleness" of single monetary policy and price stability – the main objective of the ECB.

Germany's Federal Constitutional Court.
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Germany's Federal Constitutional Court.

Last June, the ECJ found that the ECB's OMT program was "compatible" with existing European Union treaties and that it fell "within monetary policy and therefore within the powers" of the ECB.

However, the ECJ stated that "the purchase of government bonds on secondary markets must not have an effect equivalent to that of a direct purchase of such bonds on the primary market" and said that "sufficient safeguards ... must be built into its intervention to ensure that the latter does not contravene the prohibition of monetary financing."

On Tuesday, Germany's constitutional court said that if such "conditions" made by the ECJ were met, no rights were violated.

"If the conditions formulated by the Court of Justice of the European Union in its judgment of 16 June 2015 and intended to limit the scope of the OMT program are met, the complainants' rights … are not violated by the fact that the Federal Government and the Bundestag have not taken suitable steps to revoke or limit the effect of the policy decision of the European Central Bank of 6 September 2012 concerning the OMT program."

The German constitutional court added that if these conditions are met, the OMT program would not impair the Bundestag's overall budgetary responsibility.

"If interpreted in accordance with the Court of Justice's judgment, the policy decision on the OMT program does not 'manifestly' exceed the competences attributed to the European Central Bank. Moreover, if interpreted in accordance with the Court of Justice's judgment, the OMT program does not present a constitutionally relevant threat to the German Bundestag's right to decide on the budget," it stated.