German court ‘won’t intervene’ in ECB plan to buy bonds

Germany’s top court probably won’t intervene in the ECB’s plan to buy bonds of crisis-torn countries, in line with previous cases involving the country’s integration with the EU.

The ECB’s outright monetary transactions programme and the European Stability Mechanism (ESM) will be reviewed by the Federal Constitutional Court in Karlsruhe at hearings this week.

While the judges may voice doubts about the central bank’s plans, the court won’t stop it, according to Christoph Ohler, a law professor at Jena University.

“It’s tough to say exactly how the court will handle this, but we can expect something close to the ‘yes, but’ approach the judges have used before in European integration and euro-rescue operation cases,” Ohler said.

“The court has never blocked anything on the European level, but in the ‘strings-attached’ part unusual and surprising details can always pop up.”

The case will pit the ECB against Bundesbank president Jens Weidmann, who voted against outright monetary transactions, in a case that could underline the limitations the ECB faces in its crisis policy.

The court last year allowed Germany to ratify the €500bn ESM bailout facility and the EU fiscal pact while ruling the measures must include provisions that the country won’t be forced to assume higher liabilities.

The September ESM ruling was preliminary and didn’t cover the bond programme. The plaintiffs, including an opposition political party and a politician from Chancellor Angela Merkel’s CSU Bavarian sister party, can address the central bank and some remaining ESM issues at a two-day hearing that starts today.

Shortly before the September decision, ECB president Mario Draghi announced the central bank’s programme would be unlimited and focus on short-term government bonds of nations signed up to rescues from the ESM or European Financial Stability Facility. The plaintiffs have added challenges to the outright monetary transactions.

Draghi last week said that the transactions had brought stability to markets worldwide, “and has been the most successful monetary policy measure undertaken in recent times”.

Two members of the ECB Governing Council and German finance minister Wolfgang Schäuble will all address the court during the hearings. Jörg Asmussen, an ECB executive board member, will represent the central bank, while Weidmann, who is also an ECB council member, will represent the Bundesbank at the court hearing. Schäuble will defend the government’s policies.

The Bundesbank submitted a brief critical of the ECB, saying unlimited bond purchases may worsen the crisis instead of solving it.

The ECB argued they are a legitimate part of the central bank’s monetary policies. Since they help stabilise the financial system, they also serve the ECB’s primary goal, price stability.

Asmussen said there would be serious consequences should the bond-buying programme be withdrawn.

Bloomberg