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German court challenges ECB over bond-buying scheme

Asset purchases by the European Central Bank (ECB) may have overstepped the bank's powers, Germany's Constitutional Court has said.18 Aug 2017

The German court had been asked to rule on whether the Public Sector Purchase Programme (PSPP) for the purchase of public sector securities was compatible with German law.

The PSPP is part of the ECB's Expanded Asset Purchase Programme (EAPP), a framework for the purchase of financial assets. It was launched by the European System of Central Banks (ESCB), which consists of the ECB and the national central banks of all EU countries. As of 12 May, the EAPP had reached a total volume of €1,862.1 billion, of which €1,534.8 billion was allotted to the PSPP, the court said.

The court stayed its own proceedings and referred the challenge to the Court of Justice of the European Union (CJEU), as it said there are "significant reasons" to believe that ECB decisions on the asset purchase programme "violate the prohibition of monetary financing and exceed the monetary policy mandate of the European Central Bank".

It has asked for an expedited procedure at the CJEU as "the nature of the case requires that it be dealt with within a short time".

The challengers claim that by launching the programme the ESCB violated the prohibition of monetary financing and the principle of conferral under the Treaty on the Functioning of the European Union. The German Bundesbank (Federal Central Bank) may not therefore participate in the programme and the German parliament and federal government are obliged to take suitable measures against the programme, they said.

The CJEU ruled in 2015 that the bond-buying programme was legal.