Berlin: Germany's highest court has opened a two-day hearing on a legal challenge to the European Central Bank's bond-buying programme, unveiled by ECB President Mario Draghi last September, for struggling euro zone nations.
The Federal Constitutional Court in Karlsruhe has to decide whether the scheme to buy sovereign bonds of debt-stricken nations from secondary markets, not been deployed yet but praised by many experts as a key factor for the current stability in the euro zone, violated the German constitution.
More than 35,000 petitioners, who include leading politicians, economists, lawyers and ordinary citizens, have argued that the ECB decision to buy sovereign bonds in "unlimited quantities, if necessary" is in effect a direct financing of governments, which is banned under the EU rules.
They complained that with its decision, the ECB crossed the limits of its mandate, which is to ensure price stability in the euro zone.
The petitioners also expressed concern that the scheme, known as Outright Monetary Transactions (OMT), exposed taxpayers in Germany and other euro zone nations to "unforeseen risks" over which officials have no control and it violated the German parliament's sovereignty over the national budget enshrined in the constitution.
German Finance Minister Wolfgang Schaeuble, who represented the government at yesterday's hearing, defended the ECB's policies to shore up the cash-strapped nations and denied that the bond-buying programme violated its mandate.
"We have no doubt that the ECB has taken its decision within its mandate," he said.
ECB governing board member Joerg Asmussen, a former German finance ministry official, also denied that the central bank had violated its mandate.
"The ECB is fully aware of its mandate. The ECB cannot and will not substitute the actions of democratically legitimised government," he told the court.
Asmussen emphasised that the bond-buying programme significantly contributed to the stability in the euro area, by bringing down the borrowing costs of heavily indebted member-nations, especially in southern Europe and improved the availability of credits for businesses as it calmed down the financial markets.
The situation in 2012 summer was so precarious that the ECB had to act to prevent a disintegration of the monetary union, he added.
German Bundesbank president Jens Weidmann, a staunch opponent of the ECB scheme, warned that the bond-buying programme will reduce the independence of the central bank and in future it will find it increasingly difficult to ensure price stability.
President of the Federal Constitutional Court Andreas Vosskuhle said in his opening statement that the court will examine whether Germany's constitution has been violated.
"It will not decide about the purpose and sense of the European bailout policies. That is the responsibility of the politics. The court also will not be influenced by how successful the ECP programme has been," he said.
The court is expected to deliver its verdict after some months.
First Published: Wednesday, June 12, 2013, 13:21