Top German court examines ECB’s anti-crisis weapon


FRANKFURT: Germany’s highest tribunal, the Constitutional Court, begins two days of hearings Tuesday to decide whether the European Central Bank’s controversial OMT bond purchase programme is compatible with Germany’s Basic Law.

Bundesbank president Jens Weidmann — one of the most vocal critics of the Outright Monetary Transactions — is scheduled to take the stand alongside ECB executive board member Joerg Asmussen.

But while experts suggest the hearings could become a sort of showdown between the two central banks, Weidmann himself denied that would be the case.

“It’s not about two central banks fighting before the court,” Weidmann was quoted by Dow Jones Newswires as saying at a Bundesbank conference in Frankfurt.

“Two representatives of the central banks were invited as experts and will answer the court’s questions,” he added.

Asmussen told the mass-circulation daily Bild in an interview Monday that the ECB is not in the dock over the bond purchases programme.

“We’ve been invited as experts and the hearings will provide a good opportunity to explain the advantages of the OMT,” he said.

The issue for the court is whether the scheme is in line with Germany’s constitution.

Ever since the ECB unveiled the OMT to buy up the sovereign debt of the euro area’s most debt-wracked members last summer, fears of a break-up of the single currency have indeed receded.

Europe’s storm-battered financial markets have enjoyed a period of relative calm, without a single OMT ever being carried out.

Nevertheless, like many of the ECB’s emergency anti-crisis measures, the OMT has its critics — both in the pro-euro and anti-euro camps — who claim it oversteps the central bank’s mandate and is unconstitutional.

The plaintiffs, a diverse group of German politicians, lawyers and citizens, argue the ECB is creating risks for German taxpayers that their elected representatives cannot control.

They filed similar complaints against the eurozone’s EFSF and ESM bailout funds last year, but their objections were thrown out by the Constitutional Court last September.

The OMT is different, however.

While the EFSF and the ESM were set up by governments, the OMT programme is the brainchild of the ECB itself, drawn up within its own monetary policy mandate, which is by definition independent and must remain free from any political interference.

Very strict conditions have been laid down if a country wants to be eligible to the OMT scheme and the ECB has said it will decided on a case-by-case basis whether to grant a country access.

In an interview with German public television on Monday, ECB president Mario Draghi defended the OMT programme and rejected concerns that the scheme was effectively a way of printing money to pay for governments’ debts.

“It will only come into action if confidence in the euro fails, not to finance states,” Draghi said.

“We won’t intervene to ensure a country’s solvency,” he said.

And Draghi insisted that the “risks for German taxpayers are much less than they were a year ago.

For his part, Asmussen warned that a rejection of the OMT by the constitution would have serious consequences for the eurozone.

“I have great respect for the court and will not dole out advice to an independent body,” he said.

“But generally speaking, no institution operates in a vacuum. If the bond purchase programme has to be scrapped, that would have significant consequences,” Asmussen said.


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