6th Apr 2020

Germany's top court hosts ECB showdown

  • EU media attention is turning again to the court in Karlsruhe (Photo: Mehr Demokratie)

The German Constitutional Court Tuesday (11 June) is set to hear from opposing camps about the legality of bond-buying and other measures taken by the European Central Bank to stem the euro-crisis.

Two German economists and former allies in the Merkel government are expected to give opposing testimonies about the ECB's actions. In favour is ECB board member Joerg Asmussen. Speaking out against the ECB is fellow board member and head of the Bundesbank, Jens Weidmann.

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"It is not about two central banks fighting in the court, but two representatives of central banks are invited as experts and will answer the questions of the court," Weidmann said on Monday before travelling to Karlsruhe.

Meanwhile, Asmussen told mass-selling newspaper Bild on Monday that there would be "considerable consequences" were the court to decide against the bond-buying programme.

Announced last year, the so-called Outright Monetary Transactions programme would allow the ECB to buy "unlimited" bonds from a euro-country whose borrowing costs are too high. In return, the government of that country must sign up to an extensive reforms programme.

The mere announcement that the ECB was willing to intervene in such an extensive way calmed markets. ECB chief Mario Draghi last week called the OMT programme "the most successful monetary policy that has been taken."

However, the main charge against it and the reason the Bundesbank is opposed - but was outvoted in the ECB governing council - is the legality of the measure, with the ECB banned from funding governments.

The Bundesbank is also concerned about its own balance sheet, as financial risks related to these bonds would be shared among central banks in the eurozone. This could collide with German law and the financial caps set by the German parliament.

The Karlsruhe-based court will also examine to what extent these financial risks are in line with EU law and the German Constitution. Any new EU competences need to have a clear legal base in the EU treaties.

The hearing will continue on Wednesday, with a verdict expected in the coming months.

Similar hearings were held last year about the establishment of a permanent eurozone bailout fund. The Karlsruhe judges in the end ruled it was in line with EU and German law, but required more powers for the German parliament.

A similar verdict is expected also this time - that the Bundestag should exercise more scrutiny over the Bundesbank and indirectly the ECB.

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