Wednesday

29th Jun 2022

German top court 'not interested' in saving euro

  • The Constitutional Court is expected to deliver its verdict in autumn (Photo: Al Fed)

The German Constitutional Court is not interested whether the European Central Bank's (ECB) actions in the euro-crisis were successful, but whether they were legal, the court's top judge said on Tuesday (11 June) in a public hearing.

"Otherwise the end alone would justify the means," Andreas Vosskuhle, the presiding judge, noted.

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In the run-up to the hearing, ECB chief Mario Draghi had called his bank's bond-buying programme "the most successful monetary policy undertaken in recent time."

It recently bought some €1.1 billion of troubled bonds, helping Italy and Spain to keep their heads above the water.

The plaintiffs - a group which has so far challenged almost every euro-rescue step taken by Germany - also asked the Karlsruhe-based court to look at the ECB's Outright Monetary Transactions (OMT) scheme.

Under the OMT, the bank is to buy "unlimited" bonds from troubled euro-countries, provided they sign up to strict reforms.

In this respect, the programme is different to the other bond-buying scheme, which comes with no strings attached on reform.

OMT has never been activated.

But it's very announcement in August last year helped calm markets and also lowered borrowing costs in Italy and Spain.

The plaintiffs, backed by the Bundesbank - the German central bank - say it would burden the German taxpayer with undemocratic, non-transparent financial risks to the tune of several billion euros and that it is therefore unconstitutional.

The plaintiffs also say the scheme is illegal under EU law, because the ECB is not allowed to fund governments directly.

The German court has no clear jurisdiction over the ECB, with judges still making up their minds if they can actually rule on this case or not.

Another option is to refer the case to the European Court of Justice in Luxembourg or to rule only on those parts of the complaint that affect the German legal system.

Judges on Tuesday quizzed ECB board member Joerg Asmussen for over one hour, with questions on: Who is to decide how many bonds are to be bought? What is the "acceptable" price? Would the ECB also lose money on bonds if a country goes through a Greek-type debt restructuring?

Asmussen said the exact rules of the OMT scheme are "ready to be published within days."

He predicted there would be no other debt restructurings as in Greece.

He also said ECB would only buy bonds with a maturity of up to three years, imposing a time limit on the anti-crisis programme.

"The ECB and its decision-makers are aware of the limits of its monetary policy mandate. Our measures are aimed at ... preventing an unwanted break-up of the euro. It is not allowed to, is not able to and does not want to replace the actions of democratically elected governments," Asmussen noted.

His former university colleague, Jens Weidmann, now head of the Bundesbank, disagreed.

Weidmann was the only one to vote against the OMT scheme last year, when the ECB board first announced it.

"I see considerable problems with the bond-buying programmes and other measures of the euro-system, which blur the line between European monetary policy and financial policies of individual member states," Weidmann told the court.

Despite their policy differences, Asmussen and Weidmann sat next to each other in court and the presiding judge even mixed up who is who at one point.

The hearing continues on Wednesday, but a verdict is not expected before autumn.

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Germany's constitutional court is expected to rule this spring on the legality of the European Central Bank's bond purchases, a scheme that has eased the eurozone crisis by calming markets.

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