News Column

German Court Hears ECB's Bond-Buying Case

June 11, 2013

The European Central Bank's (ECB) policy of defending the euro by buying bonds does have a de facto limit, since it mainly applies to short-term government bonds, ECB senior executive Joerg Asmussen told Germany's highest court Tuesday.

The German was addressing the country's constitutional court as an expert witness in a case that sees critics argue that the ECB's policy breaches the German constitution.

ECB chief Mario Draghi last year successfully calmed financial markets with a vow to do "whatever it takes" to defend the common currency and later introduced the so-called Outright Monetary Transactions (OMT) programme, which foresees the unlimited purchase of eurozone government bonds if need be.

"From the implementation of the OMT it's obvious that the programme is effectively limited, for example by its restriction to the shorter bond terms, meaning a restricted pool of bonds," Asmussen said.

Asmussen, who has regularly spoken out in defence of the ECB policy, said the "strong signal" the OMT had issued to markets in September had been necessary to choke off unfounded fears that the monetary union might collapse.

"In our view, the danger from doing nothing would have been greater. The European Central Bank and its decision makers are conscious of the limits to their monetary policy powers," he said.

The ECB provided the court with an analysis showing that as of December 7, 2012, the global stock of bonds eligible for purchase under the OMT programme was valued at 524.1 billion euros (696 billion dollars).

The OMT applied to bonds with terms of 1 to 3 years issued by the governments of Spain, Italy, Ireland and Portugal.

Bundesbank president Jens Weidmann was the sole ECB governor to vote against the OMT. He contended it was tantamount to giving governments credit, which the ECB is not allowed to do.

German Finance Minister Wolfgang Schaeuble had earlier addressed the court in defence of the ECB.

A maverick conservative German lawmaker, Peter Gauweiler, is among those who have filed a lawsuit, arguing that the ECB policies were not sanctioned by German law and effectively shifted liability onto Germany, as the eurozone's most creditworthy nation.

Andreas Vosskuhle, the court president, cautioned that the fact that the ECB policy had "been largely successful in a very broad sense" was not relevant to the legal issues that had to be decided.

The sole issue was whether or not the policy breached provisions of the German constitution, he said.

Schaeuble told the court: "I find it difficult to contemplate that German courts should be able to directly decide the legality of ECB actions."

He and Chancellor Angela Merkel had no doubt that the ECB had acted within its powers, the minister said.

The court is expected to take weeks to issue a ruling.

Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH

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