MADRID Ė The European Unionís top court rejected a German legal challenge to the European Central Bankís giant bond-buying program on Tuesday, two days before the program is likely to be phased out.
The decision by the Luxembourg-based Court of Justice was widely expected, but it is still an important vindication of the ECBís policies under president Mario Draghi. Since early 2015 the ECB has purchased eurozone government and corporate debt worth 2.6 trillion euros ($3 trillion), despite fierce objections from senior officials in Germany, Europeís largest economy.
The EU courtís decision is advisory and doesnít settle the German legal case against the bond-buying program, known as quantitative easing or QE. That case must be decided by Germanyís constitutional court, which had referred it to the EU court in August 2017.
German plaintiffs have claimed the ECB is violating a ban on the direct financing of governments through its bond purchases. German judges voiced misgivings about QE in their 2017 ruling, saying it was doubtful whether these asset purchases were compatible with the prohibition on monetary financing.
In its decision, the EU court argued that the ECB didnít violate the ban on the financing of governments because its QE program contained sufficient safeguards, including the distribution of purchases according to the size of each eurozone economy, and limits on total purchases from any individual government.
ďThe program falls within the area of monetary policy... and observes the principle of proportionality,Ē the court said in a statement. ďIt does not permit the purchase of securities with a high level of risk and lays down strict purchase limits per issue and issuer.Ē
ECB officials are expected to announce on Thursday that QE will be phased out in January, more than four years after the US Federal Reserve wound down its own bond-buying program.
The decision is complicated by an economic slowdown in the 19-nation bloc and mounting external threats, which range from trade tensions to a dispute over Britainís departure from the EU.