«They say things are happening at the border, but nobody knows which border» (Mark Strand)
by Diego Rossano
Abstract: This paper analyses the recent decision of 18 July 2017, published on 15 August 2017, with which the German Federal Constitutional Court (BVerfG) decided to suspend the proceeding aimed at ascertaining the validity of Quantitative easing (Qe), submitting a reference for a preliminary ruling at the CJEU.
The investigation thus proposes to identify the differences and similarities between the “OMT” program (set out by the European Central Bank (ECB) in September 2012) and the program called Quantitative easing (Qe), carried out in March 2015, to ascertain whether the decision of the Court of Justice of the European Union (CJEU) of 16 June 2015 regarding the legitimacy of the “OMT” program, could provide a significant contribution to verify the validity of Qe.
Summary: 1. Introduction. – 2. The “OMT” case: the legality of European Central Bank’s sovereign bond purchases. – 3. The Law and Economics of Quantitative easing. – 4. Final considerations.
1. At just over two years from the decision of the Court of Justice of the European Union (CJEU) on the legitimacy of the OMT program (Outright Monetary Transactions), the German Federal Constitutional Court (BVerfG), with the ruling of 18 July 2017, published on the 15 August 2017, decided to stay the proceedings aimed at ascertaining the validity of the so called Quantitative easing (Qe) and submitted a reference for a preliminary ruling to the above mentioned judicial authority.
Preliminarily, it is noteworthy that the instruments of monetary policies present substantial differences even if they are attributable to the unconventional measures that the ECB, in accordance with EU rules, has the power to adopt.
As a general rule, it has to be said that the adoption of such measures is justified by the extraordinary contingent situations and pursue different aims. In particular, the “OMT” program consisted in the indefinite acquisition, by the ECB, of sovereign bonds Member State on the secondary market; acquired, moreover, subordinate to some conditions, among which was the necessary inclusion of the issuing Member State in specific economic assistance programs (EFSF or ESM). A further characteristic of the program consists in the sterilization of the liquidity created with the aim of realizing an anti‐spread shield without increasing the money in circulation. It should also be added that the acquisitions should have focused on short or medium term securities (with a maturity of between one and three years); these circumstances are symptomatic of the ECB controlling inflation rates. It should also be noted that the “OMT” program has never been concretely implemented as such, as the announcement of its essential characteristics, produced beneficial effects for the whole financial system .
On the other hand, the program called Quantitative easing (Qe) was launched at the beginning of 2015 and, even having some characteristics in common with the OMT program (in as much as this also specifies the acquisition of public debt securities on the secondary market of Eurozone countries), it differentiates itself on numerous aspects. In particular, the Qe is aimed at assuring greater liquidity for the system, increasing, therefore, the quantity of money in circulation, and returning the inflation rate to about 2%. It is aimed at all the Eurozone countries (and, therefore, not only at those who adhere to a specific procedure of financial assistance) and, however, its implementation is subordinate to strong elements of conditionality; we refer to the evidence that the securities of this acquisition can only be investment grade government bonds, asset-backed securities (ABS) and covered bonds. It can be deduced that the program regards specific categories of securities with certain rating restrictions that do not include, therefore, State bonds without these characteristics (such as Greek ones), and this is to favor the concession of loans to companies and individuals from credit institutions assuring a significant “injection” of liquidity into the banking system.
2. As mentioned above, the CJEU, with the provision of June 2015, considered the “OMT” program, announced by the ECB in a brief press release of 6 September 2012, compatible with European law. The BVerfG doubted that the ECB could adopt, legitimately, a similar program of intervention having regard for the rules stated in Articles 119, 123 and 127 of theTreaty on the Functioning of the European Union (TFEU) as well as those of Articles from 17 to 24 of the Protocol on European System of Central Banks (ESCB) and the ECB.
In particular, on the advice of the BVerfG, if the ECB had adopted this measure, it would have inevitably invaded the field of competence of the Member States regarding economic policies. From another viewpoint, it was seen that such an intervention would violate the prohibition of monetary financing of Member States in the Eurozone provided for by Article 123 of the TFEU.
For these reasons, the BVerfG wanted to submit an alternative program to the CJEU, with characteristics, instead, compatible with the rules of the TFEU; the modus operandi of the latter appears to confirm a behavior that in the literature has been attributed to “primacy” and will “of command” by the German Authorities regarding EU countries and European institutions.
With the aim of determining if the decision of the CJEU on the legitimacy of the “OMT” program could provide a significant contribution as regards the verification of the compatibility of the Qe with the rules of the TFEU, some conclusions have to be remembered that come from the above mentioned judicial Authority in that case. More specifically, the BVerfG clarified that, within the TFEU, there was no mention of the expected notion of “monetary policies”, including only indications about the finality and the instruments to carry it out. It followed that the aim of maintaining price stability, mentioned in Articles 127 and 282 of the TFEU, constitutes, also, the criterion that delimits, at the same time, the scope of the ESCB. Therefore, as already stated by the CJEU in other circumstances, it is necessary to consider the finality following the adoption of the interventions in it, stability is given to the respective areas on which it will act.
Leading on from such assumed logic, the CJEU considered that the aim of the “OMT” program, that is to assure “‘an appropriate monetary policy transmission and the singleness of the monetary policies” (pt. 47) should be considered compatible with the finality laid out in Article 127 of the TFEU: although such measures can influence the stability of the Eurozone and, in this way, produce indirect effects on economic policies of the member countries, this circumstance, according to the CJEU, is not enough to change its function.
With specific reference to the presumed violation of Article 123 of the TFEU, the CJEU underlines the necessity that the ECB builds into the “OMT” program with sufficient safeguards, being understood that acquisition of public bonds, such as those we have spoken of here, could lead a Member State to not follow a sound budgetary policy. To avoid this risk, according to the orientation of the CJEU, the date has to be established when the OMT program would finish as soon as its finality has been reached of guaranteeing “an appropriate monetary policy transmission and the singleness of the monetary policy” (pt. 4). Such an opportune delimitation of the operational area of the program in question would not have allowed, therefore, the beneficiary States to predetermine their own budget policies based on the certainty of the future reacquisition of the public debt bonds by the ESCB.
On this point, it was significant the prevision, already mentioned above, according to which the purchase would have concerned bonds of countries adhering to programs of structural adjustment (EFSF or ESM); therefore, the member states would not have been encouraged to renounce projects of financial recovery already undertaken, and that for the obvious observation for which adhesion is the prerequisite for the activation of the program.
And, finally, it should be noted that an eventual violation of Article 123 of the TFEU, could have taken place in the hypothesis in which “the potential purchasers of government bonds on the primary market knew for certain that the ESCB was going to purchase those bonds within a certain period and under conditions allowing those market operators to act, de facto, as intermediaries for the ESCB” (pt. 104). This danger, however, according to the CJEU, appeared averted in as much as the ECB, in the proceedings (!), assured that the ESCB would have foreseen the need to wait until the government bonds issued on the primary market were purchased by the ESCB on the secondary market.
3. The lack of predefined instruments able to handle the recent crisis events that also struck the countries belonging to the Eurozone and, in particular, those of the Mediterranean area, made the ECB make decisions justified by the state of emergency and suitable to overcome the contingent situation of difficulty.
It is true that, as has been authoritatively supported, the measures taken by the ECB to mitigate some negative effects of the problems that currently afflict Europe, do not seem, however, to constitute an effective remedy; nevertheless, they contributed to playing an important role towards the realization of a European identity. It is necessary, in fact, to note that the ECB appears to be the only authority able to resist the German center forces, applying, everywhere, its own autonomy. The arguments put forward by the CJEU in its recent sentence on the legitimacy of the “OMT” program seem to divert the CJEU from starting a new preliminary procedure concerning the Qe.
This did not take place. The BVerfG, with a decision of 18 July 2017, published 15 August 2017, asked the CJEU of verify the compatibility of the Qe with the relevant regulatory framework.
It must first be said that the CJEU, on that occasion, seems to have adopted more subdued tones with respect to the recent past; such a change in behavior by the CJEU was underlined by the doctrine according to which <<virtually every conclusion it reaches on the 63 pages of its decision is relativized and framed as a possibility, a probability, a prospect, not as an assertive truth claim>>.
More specifically, the CJEU contested the legitimacy of the measures adopted by the ECB, namely: Public Sector Assets Purchase Program; Asset Backed Securities Purchase Program; Third Covered Bonds Purchase Program; Corporate Sector Purchase Programme. Such interventions would violate the Articles 123 and 127 of the TFEU, as well as the provisions contained in the Protocol on the Statute of the European System of Central Banks and of the European Central Bank. However, the BVerfG recognizes that the Bundesbank and the autonomous German government is responsible, this derives from the circumstances of not having applied all the instruments in their possession to prevent the measures in discussion.
The German judges’ observation is decisive, in par. 49 of the decision of 18 July 2017, it says: <<Aus der Integrationsverantwortung erwächst für den Deutschen Bundestag und die Bundesregierung die Pflicht, über die Einhaltung des Integrationsprogramms zu wachen und aktiv auf diese hinzuwirken>>; hence, the consideration that <<dabei sind sie grundsätzlich verpflichtet, sich im Rahmen ihrer jeweiligen Kompetenzen mit rechtlichen oder politischen Mitteln für die Aufhebung von Maßnahmen einzusetzen, die vom Integrationsprogramm nicht gedeckt sind, sowie – solange die Maßnahmen fortwirken – geeignete Vorkehrungen dafür zu treffen, dass die innerstaatlichen Auswirkungen der Maßnahmen so weit wie möglich begrenzt bleiben>>. It can be deduced that the violation of the principle of responsibility for integration (integrationsverantwortung), could affect the interests of the German electors who could safeguard their own purposes through legal proceedings; from which their power to directly condition the process of European integration.
On the other hand, the federal German government should have acted, in the appropriate forums, to contrast the decisions adopted by the ECB; in particular, the opportunity of proceeding with an appeal to the Court of Justice (Article 263 Abs. 1 AEUV) namely <<die Beanstandung der fraglichen Maßnahme gegenüber den handelnden und den sie kontrollierenden Stellen>> or, alternatively, <<das Stimmverhalten in den Entscheidungsgremien der Europäischen Union einschließlich der Ausübung von Vetorechten, Vorstöße zu Vertragsänderungen (vgl. Art. 48 Abs. 2, Art. 50 EUV) sowie Weisungen an nachgeordnete Stellen, die in Rede stehende Maßnahme nicht anzuwenden>>. Moreover, it should be underlined how <<Der Deutsche Bundestag kann sich insbeson dere seines Frage-, Debatten- und Entschließungsrechts bedienen, das ihm zur Kontrolle des Handelns der Bundesregierung in Angelegenheiten der Europäischen Union zusteht (vgl. Art. 23 Abs. 2 GG, BVerfGE 131, 152 <196>), sowie – je nach Angelegenheit – auch der Subsidiaritätsklage (Art. 23 Abs. 1a GG the.V.m. Art. 12 Buchstabe b EUV und Art. 8 Subsidiaritätsprotokoll), des Enquêterechts (Art. 44 GG) oder des Misstrauensvotums (Art. 67 GG; vgl. BVerfGE 142, 123 <211 f. Rn. 171>)>> (par. 73 of the decision of 18 July 2017). In other words, the German government, in good time, should have carried out its right of veto, as well as proposing modifications to the TFEU or, alternatively, stimulated debates on the subject; because the intervention program proposed by the ECB could have been a concrete risk for the federal budget.
That said, the BVerfG showed how the Qe violate the disposition of Article 123 of the TFEU by not having the necessary guarantees to assure, concretely, the respect of the prohibition of financial assistance to the Member States. In fact, according to the BVerfG, the Qe would give the operators if not a juridical certainty, at least a certainty for the possible purchase by the ESCB of the public bonds/securities on the secondary market, as well as the respect for the minimum time, provided for in this program, between emission of the bonds/securities on the primary market and their purchase on the secondary market.
From another perspective, the BVerfG noted that the Qe exceed the mandate of the ECB. In particular, the judges do not doubt that the purchase program is a measure of monetary policies, and as such, adoptable by the ECB; however, the possibility that interventions of this type can produce indirect effects on economic politics of a Member State was not contested (without them losing their original sense). The BVerfG, instead, suspects that the impact of the Qe produces consequences on the economic politics of a Member State equal to those generated by monetary policies; such outcomes, however, were foreseen and evaluated during the planning of the program .
On the other hand, in the literature, it has been shown how <<there can be monetary financing of Member States if the ECB and the national central banks have to face considerable losses from a waiver of rights (a so-called “haircut”) or from the default of a sovereign. Such losses can, however, only be considered as monetary financing if the ECB had an influence on the waiver or the default. Otherwise, both cases relate only to a future and hypothetical situation entailing the restructuring of the State’s debt and are not an intrinsic component of QE. Any purchase of financial assets entails the risk of default>>, although <<such a situation, however, may never occur so long as the Eurozone exists>>. 
4. It was possible to state during the present discussions that the ECB has had (and still has) a decisive role in overcoming the critical situation in which the Eurozone countries find themselves. In such a climate of emergency, it was not possible to wait for the normal periods provided for by the traditional decisional procedures laid down by the TFEU; in this context, it was necessary to quickly identify the best risk strategies, however, to adopt not well-thought-out measures, in conditions of ” democratic deficit “.
These are measures adopted by the ECB that appeared to conform to the relevant regulatory framework (which, as is known, does not recognize in this Authority the role of last-resort lender) . To this end, the CJEU has stated that these interventions have to be necessarily covered by suitable guarantees and, however, in our opinion, the reference to such a conditioning element, being rather generic, carries a wide discretional power of evaluation by the ECB.
On this point, the considerations expressed by the Court of Justice regarding the OMT program seem significant; in particular it refers to those, according to which (par. 68), since the ESCB is required, when it prepares and implements an open market operations program (…) to make choices of a technical nature and to undertake forecasts and complex assessments, it must be allowed, in that context, a broad discretion (see, by analogy, judgments in Afton Chemical, C‑343/09, EU:C:2010:419, paragraph 28, and Billerud Karlsborg and Billerud Skärblacka, C‑203/12, EU:C:2013:664, paragraph 35).
That said, the Court (par. 69 of the same decision) does not deny that where an EU institution enjoys broad discretion, a review of compliance with certain procedural guarantees is of fundamental importance; in particular, those guarantees include the obligation for the ESCB to examine carefully and impartially all the relevant elements of the situation in question and to give an adequate statement of the reasons for its decisions. However, it is underlined that the question whether the obligation to provide a statement of reasons has been satisfied must be assessed with reference not only to the wording of the measure but also to its context and the whole body of legal rules governing the matter in question (see, to that effect, judgment in Commission v Council, C‑63/12, EU:C:2013:752, paragraphs 98 and 99). It can be deduced that the verification of the existence of adequate reasons able to justify the adoption of specific measures by the ECB in extraordinary contingent situations, cannot exclude the analysis of further circumstances with respect to those explicitly called by the act itself (relative to the complex economic context and the general legal framework).
From here, the further and decisive observation according to which (par. 75), given that questions of monetary policy are usually of a controversial nature and in view of the ESCB’s broad discretion, nothing more can be required of the ESCB apart from that it use its economic expertise and the necessary technical means at its disposal to carry out that analysis with all care and accuracy.
This is, therefore, the recognition by the CJEU concerning the difficulty of carrying out an efficacious judicial review in sectors in which the estimates concerning convenient adoption of some interventional programs are particularly complex. There follows, thus, that in certain operational specialist contexts the Court of Justice does not have the necessary expertise to evaluate the relevance of measures of high technical profile.
From another point of view, as concerns the circumstances according to which the orientation of the CJEU expressed on this subject, could assume some relevance, also concerning the evaluation of the legitimacy of every decision of non-conventional monetary policies and, therefore, in our opinion, the validity of the Qe program.
In particular, the acknowledgement of an ample discretional power of the ECB in the identification of the best possible strategy to use in emergency situations should be a decisive factor to challenge the arguments of the BVerfG that, recently, in the decision of 18 July 2017, cast doubts on the legitimacy of the Qe program in as much as it does not present references and there are no references present regarding the necessity, and the amount and the duration of the economic effects; notwithstanding the further problems raised by the German judges regarding the uncertain determination of the moment in which it should be considered concluded .
It is well to consider, that the argumentation used by the Court of Justice in the “OMT” case should be used by the same Authority to demonstrate that the ECB, by means of adopting the Qe program, acted in accordance with the provisions of Articles 119, 123 and 127 of the TFEU. However, aspects of specific important problems are identified by the German Court regarding the eventuality that the federal Republic of Germany should intervene to assure the functioning of the Deutsche Bundesbank (in as much as it is a federal institution of public law) if possible adverse circumstances, deriving from the implementation of the Qe program, should require; these perplexities are justified by the fact that <<Der Ankauf von Staatsanleihen durch das Eurosystem ist grundsätzlich geeignet, zu haushaltsbedeutsamen Ausgaben oder Einnahmeausfällen zu führen. Offenmarktgeschäften wohnt stets ein Verlustrisiko inne>> (par. 125 of the measure of 18 July 2017); a loss that obviously cannot be foreseen a priori (par. 128).
On this point it should be stated that the program provides for a massive purchase of State bonds and securities for a total of €60 billion every month; a sum that was increased in December 2015 and March 2016 up to €80 billion, and then reduced to €60 billion from April 2017. In the presence of loss, the program provides for a different distribution of the risk by the ECB and national central banks (ECB, press release of 10 March 2016). In particular, only for 20% of the purchases is there a sharing of the risk between the national central banks, while the remaining 80% is taken by the single national bank.
On this point, once again, interesting insights come from what was set forth in the sentence of the Court of Justice concerning the OMT case in which (par. 125) it is specified that <<a central bank, such as the ECB, is obliged to take decisions which, like open market operations, inevitably expose it to a risk of losses>>; it being understood <<that Article 33 of the Protocol on the ESCB and the ECB duly provides for the way in which the losses of the ECB must be allocated, without specifically delimiting the risks which the Bank may take in order to achieve the objectives of monetary policy>>. It can be deduced that when even an interventional program such as that described here can produce a loss borne by the ECB and the national central banks, nonetheless, if it is accompanied by suitable guarantees, has to conform to the rules of the TFEU when they are aimed at principally following objectives of monetary policies and observes the ban of financial assistance to the member states.
Diego Rossano is Associate Professor of Law and Economics at “Parthenope” University of Napoli (e-mail: email@example.com).
 See, Court of Justice of the European Union, Grand Session, 16 June 2015, in Riv. Trim. Dir. Econ., 2, 2015, with note by D. ROSSANO, Legittimo il piano OMT: la Corte di Giustizia dà ragione alla BCE
 Article 18 of the Protocol on the statute of the European system of central banks and of the European Central Bank.
 See, MESSORI, Laudatio. Mario Draghi, innovatore istituzionale, in DRAGHI, L’euro, la politica monetaria, le riforme, series of Lectures, University Press Luiss, 2013, 21.
 See, ALTAVILLA, GIANNONE, LENZA, The Financial and Macroeconomic Effects of OMT Announcements, in ECB Working Paper No. 1707, 2014.
 See, CAPRIGLIONE, Mercato Regole Democrazia. L’UEM tra euroscetticismo e identità nazionali, Torino, 2013, 189; HAIDER – LEMMA, The difficult Journey Towards European Political Union: Germany’s Strategic Role, in Law and Economics Yearly Review, 2, 2012, 390 foll.
It also has to be underlined how this historical decision of the German Federal Constitutional Court, shows how this historical decision of the German Federal Constitutional Court was not fully shared within itself; we refer to the specific fact that the ruling was made with the unfavourable vote of two high court judges. See MAYER, Rebels Without a Cause? A Critical Analysis of the German Constitutional Court’s OMT Reference, in the German Law Journal, 2, 2014, p. 144 ss
 See, for this point, the sentence: Pringle, C-370/12.
 See CAPRIGLIONE – SEMERARO, Crisi finanziaria e dei debiti sovrani. L’Unione europea tra rischi ed opportunità, Torino, 2012, 108
 See GOLDMANN, Karlsruhe refers the QE case to Luxembourg: Summer of love, in SAFE Policy Letter, No. 58, 2017, 2.
 See ZEI, , La politica monetaria della BCE di nuovo al vaglio del Tribunale Costituzionale Federale, in Nomos, 2, 2017. Cfr., also, par. 119 of the decision of 18 July 2017 of the German Federal Constitutional Court: Zweifelhaft ist indes nach Auffassung des Senats, ob mit der Berücksichtigung der Zielsetzung einer Maßnahme und der gewählten Mittel allein allerdings eine Abgrenzung zwischen der Währungs- und Wirtschaftspolitik und eine Bestimmung der Grenzen des Mandats des Eurosystems möglich ist. Zwar sind nur mittelbare wirtschaftspolitische Auswirkungen währungspolitischer Maßnahmen nicht per se geeignet, die in Rede stehende Maßnahme insgesamt dem Bereich der Wirtschaftspolitik zuzuordnen (vgl. EuGH, a.a.O., Rn. 52, 59). Vom Vorliegen „mittelbarer Auswirkungen “kann indes nur dann gesprochen werden, wenn diese lediglich eine durch weitere Zwischenschritte verbundene, nicht sicher vorhersehbare Konsequenz der angegriffenen Maßnahme sind. Von einer „mittelbaren“ wirtschaftspolitischen Wirkung kann jedoch möglicherweise dann nicht mehr gesprochen werden, wenn wirtschaftspolitische Effekte einer Maßnahme intendiert oder zumindest bewusst in Kauf genommen werden und ihnen ein mit der währungspolitischen Zielsetzung jedenfalls vergleichbares Gewicht zukommt. Die Akzeptanz der von den zuständigen EU-Organen oder -Einrichtungen angegebenen Zielsetzungen, verbunden mit der Anerkennung weiter Beurteilungsspielräume dieser Stellen und einer Zurücknahme der gerichtlichen Kontrolldichte erscheint geeignet, den Organen, Einrichtungen und sonstigen Stellen der Europäischen Union eine eigenständige Disposition über die Reichweite der ihnen von den Mitgliedstaaten zur Ausübung überlassenen Kompetenzen zu ermöglichen (vgl. BVerfGE 123, 267 <349 ff.>). Ein solches Kompetenzverständnis trägt dem Prinzip der begrenzten Einzelermächtigung und der Notwendigkeit restriktiver Auslegung des Mandats der EZB nicht hinreichend Rechnung. Es bedarf vielmehr einer wertenden Gesamtbetrachtung, die auch gegen die erklärte Zielsetzung sprechende Gesichtspunkte einbezieht (vgl. BVerfGE 142, 123 <218 f. Rn. 183 f.>).
 See, BENIGNO, Poteri straordinari della banca centrale in un sistema di moneta fiduciaria, in AA.VV., La gestione della crisi. Il mercato, le imprese, la società, Padova, 2013, 102.
 See, par. 123 of the decision of 18 July 2017 according to which: Im Übrigen fehlt es auch an einer spezifischen Begründung in den Beschlüssen, die die Grundlage des Programms und seines Vollzugs bilden (vgl. Rn. 110 a.E.). Zwar hat die EZB fortlaufend die Relevanz des PSPP für die Erreichung des von ihr angestrebten Inflationsziels betont. Eine nähere Begründung für Erforderlichkeit, Ausmaß und Dauer der wirtschaftspolitischen Effekte des Programms hat sie jedoch nicht gegeben; insbesondere fehlt es an einer Abwägung der beabsichtigten währungspolitischen Wirkungen des PSPP mit den zu erwartenden zusätzlichen wirtschaftspolitischen Effekten. Dies hat auch zur Folge, dass die Bestimmung des Zeitpunkts, zu dem eine Beendigung des Programms zu erwarten ist, zumindest erschwert, wenn nicht unmöglich gemacht wird.
 See, CAPRIGLIONE, SACCO GINEVRI, Politics and Finance in the European Union: The Reasons for a Difficult Encounter, Milano, 2015, 162, according to which we have certainly a compromise, as the intent did not want to impose on the construction of the “purchase plan” the logic of a “full risk sharing”, systemic criterion believed by the Governor of the Bank of Italy «more coherent with the unity of monetary policy».