ECB policy under court scrutiny
A top European Central Bank official has warned that a German court judgment against the bank's program to buy the bonds of troubled economies could reignite concerns over the future of the euro.
Germany's Federal Constitutional Court, the country's highest, is holding a two-day hearing starting June 11 centering partly on the ECB's offer last September to purchase unlimited amounts of government bonds, a policy that has been widely credited for an easing in Europe's debt crisis. It will also consider whether the euro area's rescue fund, known as the European Stability Mechanism, violates German law.
ECB executive board member Joerg Asmussen told Germany's Bild daily Monday that when the bank "announced the (bond-buying) program, the eurozone was close to an uncontrolled disintegration."
At that point, he said it was up to the ECB to make clear to speculators that "the euro will be defended."
"The program was economically necessary, legally admissible and efficient in terms of its effect," Asmussen said.
The ECB announced the program, dubbed Outright Monetary Transactions, after bank president Mario Draghi had pledged that the bank was "ready to do whatever it takes to preserve the euro."
The offer to buy bonds issued by heavily indebted countries is conditional on their first asking for help from the eurozone's bailout fund. Though no country has asked for assistance, the prospect of help has reduced tensions in financial markets and sent the borrowing rates of some of the eurozone's most indebted countries, such as Italy and Spain, sharply lower.
Critics in Germany, which as Europe's biggest economy is the major contributor to eurozone rescue packages, argue that the ECB is exceeding its powers by offering to buy unlimited amounts of government bonds.
A court finding that the bond-buying program violates the constitution of Germany, the biggest economy in the 17-nation eurozone, likely would effectively torpedo the OMT. Analysts say that an outright rejection is highly unlikely, though it is conceivable that the German judges could seek further safeguards or refer the case to the European Court of Justice.
"If the (bond) buying program had to be withdrawn, that would have significant consequences," Asmussen was quoted as telling Bild. He did not elaborate.
Finance Minister Wolfgang Schaeuble, who along with Asmussen is to testify at this week's hearing in Karlsruhe, underlined the government's support for the ECB.
"The German government is of the opinion that the ECB's decisions are covered by its independence and correspond with its mandate," Schaeuble said in Berlin on Monday.
But he also repeated his caution that expecting central banks' monetary policy to solve every problem, rather than tackling deficits and reforms, is "giving in to the human temptation not to solve today problems that need to be solved today."
"That works for a long time, but it doesn't work forever," he said.
A ruling by the constitutional court is not expected for several months, though such hearings often offer pointers on the judges' thinking.