11 June 2013

Reuters: Berlin defends ECB bond plan, casts doubt on court's power

Germany's finance minister defended the ECB's bond-buying scheme against charges it violates German law, and questioned whether the country's top court had the power to rule on a scheme many credit with saving the eurozone.

The comments by Wolfgang Schäuble and a separate statement by the president of Germany's Constitutional Court at the start of a two-day hearing on the ECB's bond plan raised the prospect of the case being referred to the European Court of Justice (ECJ) in Luxembourg. Legal experts believe the ECJ is much more likely to give a green light to the OMT, though the German court could attach recommendations if it did refer the case. 

More than 35,000 Germans filed complaints against the ECB's programme to buy up the debt of stricken southern eurozone members, claiming it violates the central bank's mandate for price stability and amounts to illegal back-door financing of governments. 

Making the case for the German government, Schäuble said at the hearing: "I find it hard to imagine that German courts would decide directly on the legality of the ECB's actions". If they did so, he said, there was a risk that courts in all 17 eurozone Member States would try to weigh in, giving the ECB contradictory legal orders. "The German government sees no signs that the measures taken by the ECB so far violate its mandate", Schäuble said.

The judges are not expected to reach a final ruling until after German parliamentary elections in September.

Jens Weidmann, head of the Bundesbank and a member of the ECB's governing council, is testifying against OMT at the hearing. He believes the programme is tantamount to printing money to finance struggling euro states. This is seen as taboo by many in Germany, where fears of inflation still run deep.

Court president Andreas Vosskuhle began the hearing by saying the success of OMT would play "no role" in the court's view of its constitutionality. The court cannot revoke the ECB scheme but, in considering whether it violates the German parliament's sovereign right to control the budget, it could challenge aspects of the programme, such as its "unlimited" nature. But even that could wreck the effectiveness of the OMT, which has worked largely by giving investors the confidence to buy bonds, safe in the knowledge that the ECB would intervene on the secondary market if any government were at serious risk of defaulting.

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© Reuters