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Is the European Central Bank allowed to buy government bonds? After a citizens' suit, the German Constitutional Court is currently wrestling with the question. There is no verdict as yet, but the court seems skeptical.
In September 2012, Germany's Karlsruhe-based supreme court dismissed a complaint against the European Stability Mechanism, following a fast-tracked process. The judges gave the European Union's bailout plan the German constitution's stamp of approval, but only under strict conditions - one of which was an upper liability limit for Germany.
Now both claimants and expert witnesses have been called to testify in the case. Jörg Asmussen, board member at the European Central Bank (ECB), German Finance Minister Wolfgang Schäuble, and several parliamentarians defended the ECB's policy as necessary for preserving the euro. Meanwhile, critics accuse the bank of being undemocratic and exceeding its jurisdiction. A verdict is not expected for several months, but during the hearings the judges expressed their own skepticism of the ECB's policy of buying up government bonds.
In the summer of 2012, the central bank presented its program of "Outright Monetary Transaction" (OMT), allowing it unlimited purchasing of state bonds. This signal proved enough to at least dampen betting against the euro and the nations worst affected by the crisis.
But was the OMT program legal? Germany has a particular interest in answering this question, since, as the ECB's biggest stakeholder, it also carries the biggest risks.
"When is monetary policy still monetary policy, and when does it cease to be that, and is aimed instead at financing the crisis-hit nations?" That, according to Oliver Sauer, consultant at the think tank Centre for European Policy (CEP) in Freiburg, is the central question. He insists that though the Maastricht Treaty allows the ECB to make independent financial decisions to guarantee price stability in the eurozone, it is not allowed to finance states directly.
And that, according to critics, is exactly what the central bank is doing by buying government bonds - and on a huge scale. "It's not allowed to do that at all, at least not under European law," former Social Democrat Justice Minister Herta Däubler-Gmelin told German public broadcaster Deutschlandfunk. She is representing plaintiffs from the organization "More Democracy" in the case, and to her, the ECB's argument that it only buys from other investors, and not from the states themselves, is no more than a flimsy excuse.
The ECB mandate
The ECB argues that buying bonds is necessary to stabilizing the financial markets. Asmussen told German tabloid newspaper Bild that the bank's declaration of readiness to do anything to save the euro had done much to preserve the common currency so far. But constitutional court president Andreas Voßkuhle declared recently that even this end did not justify the means.
Conservative MP Gunther Krichbaum, meanwhile, counters, "We, in this case the Bundestag and the government, believe the ECB acted within its mandate." If that had not been the case, maintains Krichbaum, chairman of the parliamentary committee on EU affairs, the government would have brought its own suit before the European Court of Justice. "The ECB has shown in the past that it acts out its mandate with great responsibility," Krichbaum told DW.
Siegfried Kauder, another MP in Angela Merkel's Christian Democratic Union and chairman of the parliament's legal committee, considers the ECB's monetary policy just on the right side of the law. "The judges don't seem to like it much," he said. "But I have the feeling they recognize that there is no alternative."
Roman Huber, head of More Democracy, who is effectively representing 37,000 German citizens in the suit at the constitutional court, is not so sure. "This is the biggest constitutional suit in the history of the Federal Republic," he claimed, before giving his view of the ECB. "The German Bundestag must give its approval before the ESM bailout program is allowed to provide help," he says. "But if the ECB buys government bonds, then it can just go ahead and do it without asking anyone - the risk is transferred to all the parliaments in the euro system."
According to online news portal Zeit Online, Voßkuhle has the same concern. The top judge warned that while citizens have an influence over their MPs when it comes to decisions of national significance, that is not the case with the ECB. Kauder, on the other hand, doesn't see the problem if the population and national parliamentarians don't get a vote on buying government bonds. "That is just an operating business, people and the parliament don't need to decide on that," he said.