The Legality of Outright Monetary Transactions of the European System of Central Banks

Siekmann, Helmut

doi:10.1007/978-3-319-17380-1_6

Helmut Siekmann⁵

Part of the book series: Financial and Monetary Policy Studies ((FMPS,volume 40))

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Abstract

On 6 September 2012, the Governing Council of the ECB took decisions on a number of technical features regarding the Eurosystem’s outright transactions in secondary sovereign bond markets (OMT). This decision was challenged in the German Federal Constitutional Court (GFCC). In its seminal judgment of 14 January 2014, the GFCC expressed serious doubts about the compatibility of the ECB’s decision with EU law.

It admitted the complaints and petitions even though actual purchases had not been executed and the control of the acts of an organ of the EU is, in principle, not the task of the GFCC. As justification for this procedure, the court resorted to its judicature on a reserved “ultra vires” control and the defence of the “constitutional identity” of Germany. In the end, however, the court referred the case to the European Court of Justice (ECJ/CJEU) for preliminary rulings on several questions of EU law. In substance, the German court assessed OMT as an act of economic policy beyond the competences of the ECB. Furthermore, it judged OMT as a monetary financing of sovereign debt prohibited by EU primary law. The defence of the ECB (the disruption of the monetary policy transmission mechanism) was dismissed as “irrelevant”. Finally, the court presented a way for a compromise by an interpretation of OMT which was in conformity with EU.

Both the procedure and the findings of this judgment were harshly criticised not only by many economists but also by the majority of legal scholars. This criticism is, by and large, convincing in view of the admissibility of the complaints. It is also questionable whether the referral to the ECJ/CJEU was indicated. The arguments of the court are, however, conclusive with regard to the transgression of competences by the ECB, and—to somewhat lesser extent—with regard to the monetary debt financing.

This essay uses reflections of Helmut Siekmann and Volker Wieland (2014a) and Helmut Siekmann and Volker Wieland (2014b) as a starting-point. They are considerably intensified and enlarged. All references are new

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Notes

1.
ECB/2009/16, Official Journal 2009/L 175/18; ECB/2011/17 Official Journal 2011/L 297/70.
2.
Decision of the European Central Bank of 14 May 2010 establishing a securities markets programme (ECB/2010/5), Official Journal 2010/L 124/8.
3.
Two longer-term refinancing operations provided about one trillion euro to commercial banks at favourable interest rates for 3 years, ECB press release of 8 December 2011.
4.
For example, the decision of the European Central Bank of 6 May 2010 on temporary measures relating to the eligibility of marketable debt instruments issued or guaranteed by the Greek Government ECB/2010/3, Official Journal of 11 May 2010, L 117/102; the decision of the European Central Bank of 31 March 2011 on temporary measures relating to the eligibility of marketable debt instruments issued or guaranteed by the Irish Government ECB/2011/4, Official Journal of 8 April 2011, L 94/33; the decision of the European Central Bank of 7 July 2011 on temporary measures relating to the eligibility of marketable debt instruments issued or guaranteed by the Portuguese Government ECB/2011/10, Official Journal of 12 July 2011, L 182/31; for further examples, see Helmut Siekmann (2013a, p. 113 at footnote 55).
5.
Critical, see Martin Seidel (2010); Martin Seidel (2011); supporting, or at least not questioning, the “unconventional” measures: Christoph Herrmann (2010b).
6.
GFCC, judgment of 7 May 2010, BVerfGE [Reports of judgements of the Federal Constitutional Court] 125, 385 et seq.; judgment of 7 September 2011, BVerfGE 129, 124 (128 et seq.); GFCC, judgment of 18 March 2014 on the basis of the oral hearing of 11 and 12 June 2013, cases: 2 BvR 2728/13, 2 BvR 2729/13, 2 BvR 2730/13, 2 BvR 2731/13, 2 BvE 13/13, available at: www.bundesverfassungsgericht.de/entscheidungen/rs20140318_2bvr139012en.html (in English) [ESM final judgment]. A transgression of the competences of the ESCB and a (prohibited) monetary financing of budgets was already seen by Helmut Siekmann (2013a, pp. 144–149); Helmut Siekmann (2014c, Article 88 margin no. 20).
7.
The context was as follows: “When people talk about the fragility of the euro and the increasing fragility of the euro, and perhaps the crisis of the euro, very often non-euro area Member States or leaders underestimate the amount of political capital that is being invested in the euro. And so we view this, and I do not think we are unbiased observers, we think the euro is irreversible. […] But there is another message I want to tell you. Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” The full text of the speech can be found at: http://www.ecb.europa.eu/press/key/date/2012/html/sp120726.en.html.
8.
Press release of 6 September 2012, infra Appendix 1.
9.
Supporting the measure: Roland Henry (2012); Guntram Wolff (2013)—also in view of German constitutional concerns; Vestert Borger (2013, p. 125), as an obiter dictum; critical: Deutsche Bundesbank (2012); Martin Seidel (2010, p. 521); Hans-Werner Sinn (2013, pp. 9–30); to some extent sceptical in view of quantitative easing and “unconventional“ monetary policies: International Monetary Fund (2013); Carl Christian von Weizsäcker (2012).
10.
German Federal Constitutional Court, judgment of 12 September 2012, cases: 2 BvR 1390/12, 2 BvR 1421/12, 2 BvR 1438/12, 2 BvR 1439/12, 2 BvR 1440/12, 2 BvR 1824/12, 2 BvE 6/12, (http://www.bundesverfassungsgericht.de/SharedDocs/Entscheidungen/EN/2012/09/rs20120912_2bvr139012en.html?nn=5403310) [ESM provisional order] at margin no. 278: “For an acquisition of government bonds on the secondary market by the European Central Bank aiming at financing the Members’ budgets independently of the capital markets is prohibited as well, as it would circumvent the prohibition of monetary financing” (= BVerfGE 132, 195 [286]).
11.
Press release No. 9/2014 of 7 February 2014, available at: http://www.bundesverfassungsgericht.de/SharedDocs/Pressemitteilungen/EN/2014/bvg14-009.html?nn=5404690.
12.
German Federal Constitutional Court, judgment of 17 December 2013, cases: 2 BvR 1390/12, 2 BvR 1421/12, 2 BvR 1438/12, 2 BvR 1439/12, 2 BvR 1440/12, 2 BvR 1824/12, 2 BvE 6/12 (http://www.bundesverfassungsgericht.de/SharedDocs/Entscheidungen/EN/2014/01/rs20140114_2bvr272813en.html?nn=5403310) [ESM separation order] (= BVerfGE 134, 357).
13.
GFCC, judgment of 14 January 2014, cases: 2 BvR 2728/13, 2 BvR 2729/13, 2 BvR 2730/13, 2 BvR 2731/13, 2 BvE 13/13, available at: [http://www.bundesverfassungsgericht.de/SharedDocs/Entscheidungen/EN/2014/01/rs20140114_2bvr272813en.html?nn=5403310] [OMT-judgment] (= BVerfGE 134, 366); now ECJ case C-62/14.
14.
GFCC, judgment of 18 March 2014 upon the basis of the oral hearing of 11 and 12 June 2013, cases: 2 BvR 2728/13, 2 BvR 2729/13, 2 BvR 2730/13, 2 BvR 2731/13, 2 BvE 13/13, available at: (www.bundesverfassungsgericht.de/entscheidungen/rs20140318_2bvr139012en.html) (in English) [ESM final judgment].
15.
At margin no. 176.
16.
At margin nos. 158, 176 et seq. (Article 136 paragraph 3 TFEU), 183 et seq. (Treaty Establishing a European Stability Mechanism), 243 et seq. (Treaty on Stability, Coordination and Governance in the Economic and Monetary Union [SCG Treaty—TSCG]).
17.
Enumeration of competences in Articles 93(1) and 100 Grundgesetz [GG] (German Constitution).
18.
ECJ, judgment of 15 July 1964, Case 6/64 Costa/E.N.E.L., Reports of Cases 1964, 587 (594); judgment of 9 September 1978, Case 106/77 Simmenthal, Reports of Cases 1978, 630 margin no. 17: “automatically inapplicable”; BVerfGE 31, 145 (173 et seq.); 37, 271 (277 et seq.); 73, 339 (375 et seq.); 89, 155 (175); see, for more details, e.g., Hans D. Jarass and Saša Beljin (2004, pp. 1–6); Burkhard Schöbener (2011, p. 889 et seq.).
19.
BVerfGE [Reports of judgments of the Federal Constitutional Court] 89, 155 (187 and 188); earlier BVerfGE 58, 1 (30 and 31); 75, 223 (235, 242); affirmed in the judgment on OMT (footnote 14 above) at margin no. 21.
20.
BVerfGE 126, 286 (304 and 305 with further references); affirmed in the judgment on OMT (note 14 above) at margin no. 21.
21.
BVerfGE 126, 286 (307).
22.
Cf., BVerfGE 58, 1 (30 and 31); 75, 223 (235, 242).
23.
BVerfGE 123, 267 (354); 126, 286 (303 and 304); GFCC, OMT-judgment (footnote 14 above), margin nos. 27, 29.
24.
GFCC OMT-judgment (footnote 14 above), margin no. 42.
25.
GFCC, OMT-judgment (footnote 14 above), margin no. 27: “it is for the Federal Constitutional Court to determine the inviolable core content of the constitutional identity, and to review whether the act (in the interpretation determined by the Court of Justice) interferes with the core.”
26.
Section 2.4.2. below.
27.
Section 2.4.3. below.
28.
Section 2.4.4. below.
29.
GFCC, OMT-judgment (footnote 14 above), margin no. 34.
30.
At margin no. 35.
31.
At margin no. 56.
32.
At margin nos. 56–83.
33.
At margin no. 70.
34.
At margin no. 73.
35.
At margin no. 74.
36.
At margin no. 80.
37.
GFCC, OMT-judgment (footnote 14 above), margin no. 85 et seq.; already prepared by GFCC, ESM provisional order (footnote 11 above), margin no. 278. As support for this view, it gives exactly the following references: “cf. Vestert Borger (2013) 14 German Law Journal, pp. 113–140, at 119, 134; Alberto de Gregorio Merino, CMLR (2012, p. 1613, 1625, footnote 36, 1627); Koen Lenaerts and Piet Van Nuffel, European Union Law, 3rd ed., London: Sweet & Maxwell, 2011, margin no. 11-037.”
38.
“GFCC, OMT-judgment (footnote 14 above), margin no. 87, elaborated at margin nos. 88–93.
39.
At margin no. 84.
40.
At margin no. 95.
41.
At margin no. 98.
42.
At margin nos. 99 and 100.
43.
At margin no. 100.
44.
Ibid.
45.
Ibid.
46.
Adalbert Winkler (2014), imputing that the Court has decided on a financial theory.
47.
Werner Heun (2014), questioning the admissibility of the original complaints (p. 331), also questioning the admissibility of the referring order (p. 332), and criticising distinctively the qualification of OMT as ultra vires (p. 333); Alexander Thiele (2013, p. 320); idem (2014b), stating serious technical flaws (p. 694) and disagreeing with the demarcation between monetary policy and general economic policy and stipulating in essence an almost free discretion of the ECB (pp. 694–697); Daniel Thym (2013, p. 264); see, also, Jörg Ukrow (2014, p. 120) (“not continuously convincing”); Alexander Thiele (2014a, pp. 244, 246–250).
48.
Ashoka Mody (2014, p. 6 et seq.), discussing the tasks the ECJ now has to fulfil (p. 17 et seq.).
49.
Alexander Thiele (2014a, p. 264): “can hardly be interpreted as a ‘friendly act’”.
50.
Cf. Alexander Thiele (2014a, p. 248).
51.
GFCC, OMT-judgment (footnote 14 above), margin nos. 27, 29.
52.
Protocol (No 3) on the Statute of the Court of Justice of the European Union, Official Journal of 26 October 2012, C 83/210; hereafter “Statute ECJ”.
53.
GFCC, ESM final judgment (footnote 15 above); partially dissenting Jörg Ukrow (2014, p. 120).
54.
BVerfGE 37, 271 (285)—Solange I.
55.
BVerfGE 73, 339 (387)—Solange II; 102, 147 (162 et seqq.)—Soweit I; 118, 79 (95)—Soweit II.
56.
BVerfGE 102, 147 (162 et seqq.)—Soweit I.
57.
BVerfGE 102, 147 (164)—Soweit I; 118, 79 (95)—Soweit II.
58.
BVerfGE 89, 155.
59.
BVerfGE 97, 350; affirmed BVerfG (K), Neue Jurisitsche Wochenschrift 1998, p. 3187.
60.
BVerfGE 123, 267.
61.
GFCC judgment of 27 October 2011, EFSF temporary injunction (BVerfGE 129, 284); final decision: GFCC judgment of 28 February 2012 (BVerfGE 130, 318), no decision by small committee of Bundestag; GFCC judgment of 29 June 2012 (BVerfGE 131, 152), obligation to inform the Bundestag.
62.
GFCC ESM provisional order (footnote 11 above) (= BVerfGE 132, 195 [239, margin no. 106]).
63.
BVerfGE 125, 260 (denial of issuing a temporary injunction).
64.
BVerfGE 126, 158 (denial of issuing a temporary injunction); GFCC judgment of 27 October 2011, EFSF temporary injunction (= BVerfGE 129, 124); see commentary, Daniel Thym (2011, p. 1011).
65.
GFCC ESM provisional order (footnote 11 above) (= BVerfGE 132, 195); additional provisional order denied: BVerfGE 132, 287.
66.
GFCC ESM provisional order (footnote 11 above) (= BVerfGE 132, 195); margin nos. 91, 93–102; GFCC ESM final judgment (note 15 above), margin no. 123.
67.
GFCC, ESM provisional order (footnote 11 above), margin no. 197 et seq., with reference to BVerfGE 129, 124 (167 et seq.); GFCC ESM final judgment (note 15 above), margin no. 122.
68.
GFCC ESM final judgment (note 15 above), margin no. 122: “complaints are admissible to the extent that (…) incalculable risks are taken and democratic decision processes are shifted to the supranational or intergovernmental level, so that it is no longer possible for the German Bundestag to exercise its overall budgetary responsibility.”
69.
See the dissenting opinion of Justice Lübbe-Wolff to GFCC OMT-judgment (footnote 14 above), margin no. 1; highly critical in this point Alexander Thiele (2014a, pp. 250–255).
70.
Dissenting opinion Gertrude Lübbe-Wolf, GFCC, OMT-judgment (footnote 14 above), margin no. 1; Alexander Thiele (2014a, pp. 250–255); Jörg Ukrow (2014, p. 128); disagreeing Armin Steinbach (2013, p. 918).
71.
Werner Heun (2014), questioning the admissibility of the original complaints (p. 331), also questioning the admissibility of the referring order (p. 332); Jörg Ukrow (2014, p. 20); Alexander Thiele (2014a, pp. 250–255).
72.
See p. 123 above.
73.
Alexander Thiele (2014a), p. 247 et seq.
74.
ECJ, judgment of 12 March 1998, C-314/96 Djabali, I-1157 margin no. 19, judgment of 30 March 2004, C-147/02 Alabaster, I-3127 margin no. 4, judgment of 26 February 2013, C-617/10 Åkerberg Fransson, ECLI:C:2013:105, margin no. 2.
75.
BVerfGE 73, 339 (366).
76.
BVerfG, 1 BvR 1036/99, judgment of 9 January 2001, Deutsches Verwaltungsblatt, 2001, p. 720; 1 BvR230/09, judgment of 25 February 2010, Neue Juristische Wochenschrift, 2010, p. 1268.
77.
BVerfGE 126, 286 (304).
78.
See, for details, with many references also for German courts: Jörg Ukrow (2014), p. 122 et seq.
79.
Specifically, Jörg Ukrow (2014, pp. 122, 124, 129 et seq.); see, also, Giuseppe Martinico (2010); Franz C. Mayer (2010, pp. 402, 434–436); Jan Komárek (2013).
80.
Also, the ECJ describes the reference procedure as an “instrument of cooperation”, judgment of 12 March 1998, C-314/96 Djabali, I-157, margin no. 7.
81.
ECJ judgment of 30 March 2004, C-147/02 Alabaster, I-3127 margin no. 54.
82.
GFCC, OMT-judgment (footnote 14 above), margin no. 34, referring BVerfGE 1, 396 (413); 74, 297 (318 et seq.); 97, 175 (164); 108, 370 (385); 112, 363 (367); 123, 267 (329).
83.
Appendix 2 below.
84.
See supra 1.
85.
Alexander Thiele (2014a, p. 250).
86.
Even stricter Jörg Ukrow (2014, p. 127) (change of judicature), contending furthermore that another extension can be seen that not only an “identity control”—affecting only German constitutional law—but also an “ultra vires control”—affecting all Member States—has been admitted (p. 125 et seq.).
87.
Jörg Ukrow (2014, p. 127 et seq.); Werner Heun (2014, p. 331).
88.
Alexander Thiele (2014a, p. 253 et seq.); Werner Heun (2014, p. 332); Jörg Ukrow (2014, p. 128), disagreeing: dissenting opinion of judge Gerhard, GFCC, OMT-judgment (footnote 14 above), margin no. 54; Werner Heun (2014, p. 331).
89.
Critical Alexander Thiele (2014a, p. 254 et seq.).
90.
Jörg Ukrow (2014, p. 128), disagreeing: dissenting opinion of judge Gerhard, GFCC, OMT-judgment (footnote 14 above), margin no. 54; Werner Heun (2014, p. 331).
91.
Martin Seidel (2010, p. 521); Walter Frenz and Christian Ehlenz (2010, p. 334); Helmut Siekmann (2013a, p. 144–149); disagreeing: Christoph Herrmann (2010b, p. 645); Hanno Kube (2012); Peter Sester (2013, pp. 453–456) (without structured legal reasoning); Werner Heun (2014, pp. 333–335); Alexander Thiele (2014a, pp. 256–264); idem (2014b, p. 697 et seq.).
92.
Alexander Thiele (2014a, pp. 255–264); idem (2014b, p. 697 et seq.).
93.
Werner Heun (2014, p. 333); Alexander Thiele (2014a, pp. 255–264); idem (2014b, p. 697 et seq.).
94.
Werner Heun (2014, p. 333).
95.
Helmut Siekmann (2012, p. 366); idem (2013b), Einführung, margin no. 30; Article 119 TFEU margin nos. 22, 24 et seq.; strongly disagreeing Alexander Thiele (2013, p. 33), referring to Article 127(1) sentence 2 TFEU, which is, however, not a suitable basis for measures outside of monetary policy.
96.
Max Vogel (2012, p.487 et seq.); Alexander Thiele (2013, p. 39 et seq.); Werner Heun (2014, p. 333).
97.
In essence, only bonds of the Federal Government and the agencies it has assumed liability for may be purchased, provided that they are bought “in the open market”. The purchase of obligations of any state, county, district, political subdivision, or municipality in the continental United States is only allowed if they are issued in anticipation of the collection of taxes or in anticipation of the receipt of assured revenues and only if they have maturities not exceeding 6 months from the date of purchase, 12 USC § 355(1).
98.
This is, however, a main argument of Werner Heun (2014, p. 334).
99.
Martin Seidel (2010, p. 521); Walter Frenz and Christian Ehlenz (2010, p. 334); Helmut Siekmann (2012, p. 371); idem (2013a, p. 144–149); disagreeing: Christoph Herrmann (2010b, p. 645); Werner Heun (2014, pp. 333–335); Alexander Thiele (2014a, pp. 256–264), idem (2014b, p. 697 et seq.).
100.
See Koen Lenaerts and Piet van Nuffel (2011, margin no. 11–037); Alberto de Gregorio Merino (2012, p. 1625, footnote 36, 1627); Helmut Siekmann (2012, p. 370 et seq.); Vestert Borger (2013, pp. 119, 134).
101.
Walter Frenz and Christian Ehlenz (2010, p. 334); Helmut Siekmann (2012, p. 371); with further references; idem (2013a, p. 149); in principle, also conceded by: Alexander Thiele (2013, p. 73); with critical discussion of Siekmann (2013a, b)); Werner Heun (2014, p. 335).
102.
Werner Heun (2014, p. 335), retreating again to a wide margin of discretion; cf. with a more sublime argumentation Alexander Thiele (2013, pp. 63–76), discussing in particular the possibilities of circumvention.
103.
Section 2.4.5. above.
104.
GFCC, OMT-judgment (footnote 14 above), margin no. 29 at the end, with reference to: BVerfGE 89, 155 (188); 126, 286 (302 et seq.).
105.
GFCC, OMT-judgment (footnote 14 above), margin no. 27.
106.
Section 2.4.5. above
107.
Taken from the report of the facts of the Case, GFCC, OMT-judgment (footnote 14 above), margin no. 3.
108.
Taken from the report of the facts of the Case, GFCC, OMT-judgment (footnote 14 above), margin no. 2.

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Goethe University, Frankfurt am Main, Germany
Helmut Siekmann

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Helmut Siekmann
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Editors and Affiliations

East Asia Institute, Ludwigshafen, Germany
Frank Rövekamp
Interdisc. Centre for East Asian Studies, Frankfurt University, Frankfurt, Germany
Moritz Bälz
German Institute for Int. Security Affairs, Berlin, Germany
Hanns Günther Hilpert

Appendices

Appendix 1: Press Release on the OMT-Decision of the ECB

1.1 6 September 2012: Technical features of Outright Monetary Transactions

As announced on 2 August 2012, the Governing Council of the European Central Bank (ECB) has today taken decisions on a number of technical features regarding the Eurosystem’s outright transactions in secondary sovereign bond markets that aim at safeguarding an appropriate monetary policy transmission and the singleness of the monetary policy. These will be known as Outright Monetary Transactions (OMTs) and will be conducted within the following framework:

1.2 Conditionality

A necessary condition for Outright Monetary Transactions is strict and effective conditionality attached to an appropriate European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programme. Such programmes can take the form of a full EFSF/ESM macroeconomic adjustment programme or a precautionary programme (Enhanced Conditions Credit Line), provided that they include the possibility of EFSF/ESM primary market purchases. The involvement of the IMF shall also be sought for the design of the country-specific conditionality and the monitoring of such a programme.

The Governing Council will consider Outright Monetary Transactions to the extent that they are warranted from a monetary policy perspective as long as programme conditionality is fully respected, and terminate them once their objectives are achieved or when there is non-compliance with the macroeconomic adjustment or precautionary programme.

Following a thorough assessment, the Governing Council will decide on the start, continuation and suspension of Outright Monetary Transactions in full discretion and acting in accordance with its monetary policy mandate.

1.3 Coverage

Outright Monetary Transactions will be considered for future cases of EFSF/ESM macroeconomic adjustment programmes or precautionary programmes as specified above. They may also be considered for Member States currently under a macroeconomic adjustment programme when they will be regaining bond market access.

Transactions will be focused on the shorter part of the yield curve, and in particular on sovereign bonds with a maturity of between 1 and 3 years.

No ex ante quantitative limits are set on the size of Outright Monetary Transactions.

1.4 Creditor Treatment

The Eurosystem intends to clarify in the legal act concerning Outright Monetary Transactions that it accepts the same (pari passu) treatment as private or other creditors with respect to bonds issued by euro area countries and purchased by the Eurosystem through Outright Monetary Transactions, in accordance with the terms of such bonds.

1.5 Sterilisation

The liquidity created through Outright Monetary Transactions will be fully sterilised.

1.6 Transparency

Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis. Publication of the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis.

1.7 Securities Markets Programme

Following today’s decision on Outright Monetary Transactions, the Securities Markets Programme (SMP) is herewith terminated. The liquidity injected through the SMP will continue to be absorbed as in the past, and the existing securities in the SMP portfolio will be held to maturity.^{Footnote 107}

Appendix 2: Minutes of the 340th Meeting of the Governing Council of the European Central Bank on 5 and 6 September in Frankfurt am Main

[…]

With regard to Outright Monetary Transactions (OMT), on a proposal from the President, the Governing Council:

(b) approved the main parameters of the Outright Monetary Transactions (OMT), which would be set out in a press release to be published after the meeting (Thursday, 6 September 2012);

[…]^{Footnote 108}

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Siekmann, H. (2015). The Legality of Outright Monetary Transactions of the European System of Central Banks. In: Rövekamp, F., Bälz, M., Hilpert, H. (eds) Central Banking and Financial Stability in East Asia. Financial and Monetary Policy Studies, vol 40. Springer, Cham. https://doi.org/10.1007/978-3-319-17380-1_6

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