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German Finance Minister Wolfgang Schäuble awaits the beginning of a controversial case on the ECB's bond-buying scheme. Foto: Daniel Maurer/dpa
Image: picture-alliance/dpa

German government defends ECB

June 12, 2013

German Chancellor Angela Merkel and her finance minister, Wolfgang Schäuble, have defended the ECB's sovereign bond-buying policy. The comments came after the federal court began proceedings on the program's legality.


The German government emphasized its support for the European Central Bank (ECB) on Tuesday after the Federal Constitutional Court began its two-day proceedings on the legality of an ECB bond-buying program, which critics fear could have a detrimental effect on the German economy.

Last fall, the ECB established Outright Monetary Transactions (OMTs), which allow it to buy the sovereign debt of individual eurozone countries. Even though no OMT has yet been carried out, some experts credit the scheme with helping calm market fears and lowering borrowing costs of indebted nations.

The German politicians, lawyers and citizens who have brought the suit before the Karlsruhe court claim that the ECB has created a risk over which German taxpayers and officials have no control.

German justices mull ECB dilemma

However, Chancellor Merkel repeated on Tuesday that the ECB was acting within its mandate and had been doing what was necessary "to ensure monetary stability."

Her finance minister, Wolfgang Schäuble, echoed her sentiment, adding that the ECB acted independently from the EU government. Determining the correct monetary policies for the eurozone, therefore, fell within the ECB's scope, he said.

However, Schäuble also expressed his doubt in the federal court's reach in the matter. "I consider it difficult imagine that the German courts could decide directly about the legality of the ECB's actions," he said.

Opponents fear not only that OMTs pose a dangerous financial risk to the German economy, but also that the potential purchases of sovereign debt go beyond the bank's mandate as enshrined in EU treaties, which forbid it from financing governments.

ECB President Mario Draghi has defended the scheme, denying that it is effectively a way to print money to pay for governments' debts.

Court leaves politics to the politicians

The head justice, Andreas Vosskuhle, opened the proceedings in Karlsruhe on Tuesday with a reminder that the court had no interest in issuing a verdict on the monetary policies implemented in the eurozone bailouts.

"That is and remains the job of [politicians]," said Vosskuhle, adding that the court sought to establish whether the ECB's bond-buying scheme overreached its authority.

ECB board member, Joerg Asmussen, defended the OMT scheme as a responsible step toward easing markets and helping the EU recover from the financial crisis.

"From our point of view, not doing anything would have been a bigger risk. The ECB and its decision makers are aware of the boundaries of their mandate [concerning monetary policies]," said Asmussen.

One of the most vocal critics of the program, Bundesbank President Jens Weidmann, refuted the claim.

"It can't be the task of monetary policies to buy time for fiscal action," Weidmann told the court.

More than 35,000 Germans have brought a complaint against the OMT, illustrating a growing unease among some citizens in Europe's largest economy that they are being asked to take responsibility for the debts of other countries.

The Federal Constitutional Court was scheduled to reconvene on Wednesday to hear arguments on the European Stability Mechanism (ESM) fund, approved last fall. Its initial approval left many unanswered questions about the technicalities.

The ESM - the successor of a temporary fund for bailouts created in 2010 - can lend up to 500 billion euros ($665 billion). Germany agreed to taken on the largest share of the burden, which its court capped at 190 billion euros. The Bundestag must approve any lending exceeding that figure.

kms/jr (AFP, Reuters, dpa)

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