Ensuring the survival of the crisis-hit eurozone


Europe’s top appeals court on Tuesday heard a challenge to the European Central Bank’s government bond-buying programme, a key part of the ECB’s strategy for ensuring the survival of the crisis-hit eurozone.


The lawsuit was brought before the European Court of Justice (ECJ) by a group of about 12,000 Germans who claim that the ECB’s bond-purchasing plans announced in 2012 went beyond the bank’s mandate.

Among those launching the challenge is a member of Chancellor Angela Merkel’s conservative political bloc, Peter Gauweiler, whose lawyer called on the court to stop the programme, saying it represented a “monstrous presumption of competence” by the ECB.

There are altogether five plaintiffs in the case to bloc the programme, including former Social Democratic Justice Minister Herta Daeubler-Gmelin, members of the parliamentary faction of the hard-left Linke Party and a group called Mehr Demokratie (More Democracy), which represents a large number of ECB opponents.

The Luxembourg-based court is not expected to rule on the scheme until later next year, but financial markets will follow the hearings closely for signs as to how the judges might see the legality of the programme.

“We expect that the ECJ will confirm the legality” of the programme, UniCredit economist Andreas Rees said, reflecting the views of most observers of the case.

This includes Gauweiler, who appeared sceptical that the court would rule in favour of the appeal.

“It is well known that the ECJ tends to strengthen the powers of EU institutions in relation to the member states,” Gauweiler said as proceedings got underway.

Hans-Georg Kamann, the lawyer representing the ECB in the case, defended the bank decision to act two years ago.

“The situation had reached a crisis,” he told the court. “The feared collapse scenario [of the euro] threatened to become an uncontrollable self-fulfilling prophecy.”

The ECB has never deployed the bond-buying programme, which was aimed at heading off sharply rising interest rates in nations at the centre of the euro debt crisis including Spain, Greece and Italy.

But the ECB’s threat to step into the market to buy government debt was seen as a turning point in the euro debt crisis, with bank chief Mario Draghi declaring at the time he would do “whatever it takes” to save the euro.

The scheme’s announcement was credited with helping to stabilize the 18-member eurozone and calm financial markets.

“As long as the ECB has not yet taken advantage of the program it cannot have exceeded its powers,” the government lawyer Ulrich Haede, said rejecting suggestions that the programme was a breach of the bank’s mandate.

More recently, however, the ECB has unveiled a controversial private asset-buying programme.

This was also aimed at shoring up the fragile eurozone economy, overcoming the bottlenecks in parts of the region’s financial sector and pulling the currency bloc back from the brink of deflation.

The bank announced earlier this year that it was also considering launching a quantitative easing programme, along the lines of the stimulus plans operated by the US Federal Reserve and the Bank of England.

The Frankfurt-based ECB’s quantitative programme would include both public sector and private sector asset purchases, Draghi said.

But while the ECB this month set out details of its private-asset purchasing plans, it has stopped short of announcing any public sector debt purchases.

Underlining the opposition in Germany to Draghi’s asset-buying programmes, sharp criticism has come from Germany’s influential central bank, the Bundesbank, which sees the moves as threatening the ECB’s independence.

The Frankfurt-based Bundesbank chief Jens Weidmann this week warned that under the ECB’s asset-buying schemes there was “the danger that debt securities of poor quality could be purchased.”

“Monetary policy has reached the boundaries of its mandate,” he said in a speech in Germany.

“The key to sustainably overcoming the crisis in the eurozone lies with the politicians, not with the central bankers,” said Weidmann, an ECB governing council member.

The Bundesbank president’s criticism has placed him on a collision course with Draghi resulting in a power struggle over the ECB’s strategy for ending the long-running debt crisis, analysts say.

Germany’s highest court, the constitutional court, referred the case regarding the government bond purchasing programme to Luxembourg court in February this year after it questioned the legality of the programme and said it reserved the right to review the ECJ’s ruling.

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