ECB bond-buying challenged

Europe’s top court yesterday heard a challenge to the European Central Bank’s landmark bond-buying scheme to contain the eurozone crisis in a case underscoring deep concerns in Germany over ECB clout.

The case comes more than two years after the ECB backed a scheme to buy government bonds, called Outright Monetary Transactions. Although the plan has since been all but mothballed, the ruling, due in the middle of next year, could have wide significance.

If successful, the action by a group of Germans would encourage other challenges to the central bank. That, in turn, could hamper the ECB’s freedom to act, such as any move towards quantitative easing or ‘printing money’ by buying state bonds across the eurozone.

The challengers argue that the ECB’s plan to buy the bonds of troubled countries would have resulted in losses for the ECB and eurozone members such as Germany.

“What the ECB is asking for of the European Court of Justice is to legally sanction a monstrous extension of its remit,” said Dietrich Murswiek, the lawyer representing Peter Gauweiler, a Bavarian conservative lawmaker who is one of the plaintiffs.

The ECB says it acted within its mandate and in an emergency situation.

The plaintiffs’ lawyers argued yesterday that the ECB had overstepped the mark with its pledge to buy bonds of countries in a crisis, drifting beyond its ‘monetary policy’ role of setting the cost of borrowing to interfere with management of the economy.

The action by more than 35,000 plaintiffs is highly politically charged and driven by a desire to curb the power of the ECB.