Berlin defends ECB bond plan, casts doubt on court's power
GERMANY’S finance minister defended the European Central Bank'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 euro zone.
The comments by Wolfgang Schaeuble 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.
More than 35,000 Germans filed complaints against the ECB's programme to buy up the debt of stricken southern euro zone members, claiming it violates the central bank's mandate for price stability and amounts to illegal back-door financing of governments.
But although the ECB is based in Frankfurt, it is bound by European Union law, raising questions about whether the Karlsruhe-based court has jurisdiction over it.
In his introductory remarks, court president Andreas Vosskuhle said this was "the most difficult legal question" facing the eight red-robed judges, whose rulings on euro zone bailouts have been closely watched by financial markets since the bloc's crisis broke out over three years ago.
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.
Making the case for the German government, Schaeuble 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 euro zone 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," Schaeuble said.
The judges are not expected to reach a final ruling until after German parliamentary elections in September.
"WHATEVER IT TAKES"
ECB President Mario Draghi, who unveiled the programme dubbed Outright Monetary Transactions (OMT) last year as fears of a catastrophic euro breakup flared, has called it "probably the most successful monetary policy measure undertaken in recent time".
The crisis has subsided significantly since Draghi promised to do whatever it takes to save the euro last July, before unveiling details of the bond scheme two months later.
Even though the ECB has not bought a single bond of any distressed euro zone government, yields on 10-year Spanish bonds have fallen from 7.6 to 4.6 percent, while their Italian equivalents have dipped from 6.6 to 4.3pc.
Despite this, 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 nearly a century after runaway prices under the Weimar Republic devastated the economy, helping the Nazis rise to power.
In a rare public clash, Weidmann was due to face off against another German, Joerg Asmussen, who was making the case for the ECB. Only a few years apart in age, both studied at Bonn University and worked closely together in formulating Berlin's response to the 2008/9 global financial crisis.
Asmussen was Schaeuble's top deputy at the time and Weidmann an economic adviser to Merkel.
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.
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.
Speaking at an industry conference in Berlin, Chancellor Angela Merkel said the ECB had acted appropriately to stabilise the euro and stressed the importance of the euro zone's permanent rescue mechanism, on which the court still has to deliver a final verdict.
The complaints against the OMT reflect fatigue in Europe's largest economy at funding the lion's share of successive sovereign bailouts. About 20 members of the new anti-euro "Alternative for Germany" party demonstrated outside the court.
In earlier rulings the court has approved euro zone bailout schemes while insisting the German parliament be consulted more fully. For plaintiffs like Peter Gauweiler, on the eurosceptic fringe of Merkel's conservatives, this is not clear enough.
"A 'yes, but' does not help anymore. A clear 'no' is what is needed," his lawyer Dietrich Murswiek told the court.