ECB's eurozone rescue scheme challenged in Germany
- 12 June 2013
- From the section Europe
Germany's top economic policymakers have clashed in court, setting out very divergent views on the legality of measures to tackle the eurozone crisis.
At Germany's Constitutional Court, the Bundesbank's chief opposed the European Central Bank's buying of bonds to ease the pressure on eurozone countries.
But Germany's finance minister and a German ECB board member strongly defended the policy.
The ECB programme is credited with arresting the eurozone crisis.
ECB President Mario Draghi promised last year to do "whatever it takes" to save the euro, setting out the Outright Monetary Transactions (OMT) scheme, whereby the ECB could buy up unlimited amounts of a country's debt if investors pulled out.
Confidence has returned to the markets, even though the ECB has not needed to put its plan into action.
The interest rates on government debt have fallen back from the unsustainable levels that forced several governments to take bailouts and threatened Italy with the same fate.
There are fears that a court ruling against it could reignite market panic.
However, at Wednesday's Constitutional Court hearing, Mr Weidmann argued that the ECB policy was incompatible with a central bank's narrow role of controlling inflation.
"Secondary market bond purchases should not be used in my understanding in a European currency union to lower the solvency risk premiums of individual countries," he told the court, according to the Financial Times.
"Because that, among other things, threatens to annul the disciplining role of market interest rates and undermine financial responsibility."
But German ECB board member Joerg Asmussen said the policy was within the mandate of the ECB, and that countries receiving help would have to sign up to a programme of tighter discipline, monitored by the EU's bailout fund.
"We have no doubt this strong signal was required to convince market participants of our seriousness and decisiveness in pursuing the objective of price stability," he said.
He also denied that Germany's liability under the scheme was unlimited, saying the potential outlay is "effectively limited" by the fact that it is restricted to bonds with a short maturity.
Opening the hearing at the Federal Constitutional Court in Karlsruhe, court president Andreas Vosskuhle said the success of the ECB's measures would play "no role" in deciding whether they were constitutional.
"We will have to decide to what extent the ECB makes use of competences which have not been given to it and were not allowed to be given to it as far as the constitution is concerned, and to what extent the normal citizen is affected by this," he said.
German Finance Minister Wolfgang Schaeuble argued that the ECB's actions did not fall under the jurisdiction of the court.
It was "up to the ECB to decide, within its wide remit, which are the correct monetary policy measures to take," he said in court.
The court in Karlsruhe will hold two days of hearings, before spending several months considering its ruling.
In a previous case, the Constitutional Court decided that the eurozone's bailout system was legal, but said the German lower house of parliament should be consulted fully on future bailouts.