ECB and Bundesbank square off over bond-buying plan

Tue Jun 11, 2013 1:37pm EDT
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By Annika Breidthardt

KARLSRUHE, Germany (Reuters) - The European Central Bank vigorously defended its bond-buying program in a German courtroom on Tuesday, arguing that the scheme many credit with saving the euro from collapse was within its mandate and had not spawned unlimited risks.

ECB policymaker Joerg Asmussen, who put the case for the central bank, received strong backing from the German government. But he had to watch as his colleague Jens Weidmann, president of the Bundesbank, attacked the plan in a rare public clash between Germany's top monetary policymakers.

The two-day hearing of Germany's Constitutional Court was called after more than 35,000 Germans filed complaints against the ECB's plan to buy up the debt of stricken euro zone member states.

The plaintiffs argue that the program, announced last year by ECB President Mario Draghi, violates the bank's mandate of achieving price stability and amounts to illegal back-door financing of governments.

The court cannot revoke the ECB scheme and in any case is not expected to reach a final ruling until after German parliamentary elections in September. But in considering whether it violates parliament's right to control the budget, it could block German participation or challenge certain aspects of the program, such as its "unlimited" nature.

This could wreck the effectiveness of the "Outright Monetary Transactions" (OMT) scheme, which has worked largely by giving investors the confidence to buy bonds, safe in the knowledge the ECB would intervene on the secondary market if any government were at serious risk of defaulting.

In earlier rulings the court has approved euro zone bailout schemes while insisting the Bundestag, or lower house of parliament, be consulted more fully.


Christian Democratic Union's member Siegfried Kauder stands in front of the President of the German Constitutional Court (Bundesverfassungsgericht) Andreas Vosskuhle (5th L) and other judges of the second senate during a hearing at the court in Karlsruhe, June 11, 2013. REUTERS/Ralf Stockhoff