Dismantling the Boundaries of the ECB's Monetary Policy Mandate

Kronberger Kreis Studies No. 61

22 Pages Posted: 25 Apr 2016

See all articles by Lars P. Feld

Lars P. Feld

Walter Eucken Institute

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich; Ludwig-Maximilians-University, Munich; Center for Economic Studies (CES)

Justus Haucap

Heinrich Heine University Dusseldorf - Department of Economics; German Institute for Economic Research (DIW Berlin)

Heike Schweitzer

Humboldt University of Berlin - Faculty of Law

Volker Wieland

University of Frankfurt

Berthold U. Wigger

Karlsruhe Institute of Technology

Date Written: January 25, 2016

Abstract

The German Federal Constitutional Court (Bundesverfassungsgericht) submitted an order for referral to the European Court of Justice (CJEU) in 2014, asking it to clarify the compatibility of the “Outright Monetary Transactions” (OMT)-Programme with European Union law. The OMT-Programme prepares the ground for the selective purchasing of government bonds of crisis-struck Member States of the European Monetary Union (EMU). A year later, the CJEU decided that the OMT-Programme is covered by the mandate of the European Central Bank (ECB) and does not violate the prohibition of the monetary financing of Member States. Concerns raised by the Federal Constitutional Court were only partially adressed. Now the ball has been passed back to the Federal Constitutional Court.

In this study, the Kronberger Kreis, Scientific Council of the Stiftung Marktwirtschaft, explains why the CJEU’s reasoning would have irreversable consequences, if the German Federal Constitutional Court were to follow. The CJEU’s judgment dismantles the boundaries of the ECB’s monetary policy mandate and significantly weakens the prohibition of the monetary financing of Member States in the long run. Effective judicial review of the scope of the ECB’s competence would no longer be guaranteed. An act of crisis intervention by the ECB threatens to irrevocably turn the future structure of the EMU into the wrong direction.

Nonetheless, the Federal Constitutional Court remains obliged to execute its ultra vires control in an EU-friendly manner. A rupture in the cooperative relationship between the German Federal Constitutional Court and the CJEU could have farreaching consequences, especially considering the current crisis-riddled state of the EU. The Federal Constitutional Court may therefore want to follow the operative part of the CJEU’s judgment, but base it on a different legal reasoning, so as to reserve itself the possibility for future judicial review of the acts of the ECB based on more demanding legal standards than those laid out by the CJEU.

Keywords: German Federal Constitutional Court; European Court of Justice; CJEU; Outright Monetary Transactions; OMT; European Monetary Union; EMU; European Central Bank; ECB; prohibition of monetary financing of Member States; ultra vires control; cooperative relationship; judicial review

Suggested Citation

Feld, Lars P. and Fuest, Clemens and Haucap, Justus and Schweitzer, Heike and Wieland, Volker and Wigger, Berthold U., Dismantling the Boundaries of the ECB's Monetary Policy Mandate (January 25, 2016). Kronberger Kreis Studies No. 61. Available at SSRN: https://ssrn.com/abstract=2767622

Lars P. Feld

Walter Eucken Institute ( email )

Goethestrasse 10
Freiburg im Breisgau, Baden-Württemberg D-79100
Germany

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich

Poschinger Str. 5
Munich, DE 81679
Germany
++89-9224-1430 (Phone)

Ludwig-Maximilians-University, Munich ( email )

Schackstrasse 4 / II
Munich, DE 80539
Germany

Center for Economic Studies (CES) ( email )

Schackstr. 4
Munich, DE 80539
Germany
++89 2180-2748 (Phone)
++89 2180-17845 (Fax)

Justus Haucap

Heinrich Heine University Dusseldorf - Department of Economics ( email )

Duesseldorf
Germany

HOME PAGE: http://www.dice.uni-duesseldorf.de

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Heike Schweitzer (Contact Author)

Humboldt University of Berlin - Faculty of Law ( email )

Unter den Linden 6
Berlin, D-10099
Germany

Volker Wieland

University of Frankfurt ( email )

House of Finance
Grüneburgplatz 1
Frankfurt am Main, D-60323
Germany
+49 69 798 33805 (Phone)
+49 69 798 33907 (Fax)

HOME PAGE: http://www.volkerwieland.com

Berthold U. Wigger

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

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