European banking union ruled constitutional
July 30, 2019
Germany's highest court on Tuesday rejected a legal challenge to the European Central Bank's (ECB) supervision of large banks and structural fund for failing institutions.
The Federal Constitutional Court concluded an extensive review after plaintiffs claimed the ECB's oversight and liquidation powers were not covered by EU treaties or the German constitution.
Read more: EU banking union: Spreading risk or collectivizing bad behavior?
What the court said:
- The fact that the ECB shares oversight powers was "pivotal" because national regulators still retain "broad authority."
- There are "questions" about the structural fund, but it is constitutional if "the boundaries of the tasks and powers granted to the [fund's] board are strictly respected."
Government relieved
German State Finance Secretary Jörg Kukies told the Reuters news agency: "The ruling confirms the legal opinion of the Federal Government."
What was the case about?
A group of plaintiffs led by Markus Kerber, a Berlin-based financial expert, said the EU treaties did not cover the decision to grant the EBC supervisory powers over eurozone banks.
They also said Germany's constitution does not permit the government to put billions of euros of taxpayer money into a common ECB fund to the group.
The government has little say over how the funds are spent and makes itself liable for saving weak banks in other eurozone countries, they said.
Why does this matter?
The eurozone started the banking union in 2014 to protect the banking sector against future crises. As the biggest member of the eurozone, Germany's participation is vital for it to work.
What is the European Central Bank? It's a politically independent organization that controls monetary policy in the eurozone — the 19 European Union members that use the euro as their official currency. The ECB was established alongside the euro in 1998.
Read more: The ECB: 20 years of protecting the euro
What is the ECB's banking union? It refers to the ECB's power to check whether the biggest banks in the eurozone are following banking rules and help any of them that are failing to overcome their financial difficulties.
What is the Federal Constitutional Court? It's the highest court in Germany. Sixteen judges are tasked with interpreting the constitution, also known as the Basic Law.