KARLSRUHE, Germany (Reuters) – The head of Germany’s Constitutional Court said on Tuesday that the success of the European Central Bank’s bond-buying program in restoring calm to the euro zone would have no impact on its ruling of whether the scheme is constitutional or not.
In a two-day hearing, the court is looking into complaints by over 35,000 Germans that the ECB scheme, dubbed Outright Monetary Transactions (OMT), is really a vehicle to fund euro zone members through the back door, in violation of German law.
ECB President Mario Draghi, who unveiled the program last year as fears of a catastrophic euro breakup flared, has called it “probably the most successful monetary policy measure undertaken in recent time”.
But Jens Weidmann, head of the Bundesbank and a member of the ECB’s governing council, is testifying against OMT at the hearing in the southern city of Karlsruhe, setting up a rare public clash with his German colleague Joerg Asmussen, a member of the ECB board.
At the outset of the hearing on Tuesday morning, court President Andreas Vosskuhle said the success of the bond program would play “no role” in the assessment of its constitutionality.
The court cannot revoke the ECB bond-buying scheme but, in considering whether it violates the German parliament’s sovereign right to control the budget, it could challenge certain aspects of the program, such as its “unlimited” nature.
This would hamper the effectiveness of the OMT, which has worked largely by giving investors the confidence to buy bonds issued by troubled countries such as Spain and Italy, assured the ECB would intervene on the secondary market if any government were at serious risk of defaulting on its debt.
“WHATEVER IT TAKES”
The crisis has subsided significantly since Draghi promised to do “whatever it takes” to save the euro last July, before unveiling details of the bond scheme two months later.
Even though the ECB has not bought a single bond of any distressed government under OMT, yields on 10-year Spanish bonds have fallen from 7.6 to 4.6 percent, while their Italian equivalents have dipped from 6.6 to 4.3 percent.
Speaking at an industry conference in Berlin, Chancellor Angela Merkel said her government would make the case in Karlsruhe that the ECB was acting appropriately to stabilize the euro. She also stressed the importance of the currency bloc’s permanent rescue mechanism, on which the court still has to deliver a final verdict.
Her Finance Minister Wolfgang Schaeuble, attending the court hearing, said: “The German government sees no signs that the measures taken by the ECB so far violate its mandate.”
The complaints against the OMT reflect fatigue in Europe’s largest economy at funding the lion’s share of the bailouts. On Tuesday, about 20 members of the new anti-euro “Alternative for Germany” party demonstrated outside the court.
For Weidmann, the OMT is tantamount to printing money to finance struggling euro states. The ECB maintains the OMT fits within its mandate of securing price stability.
The eight red-robed judges are not expected to reach a final ruling until after a German parliamentary election in September.
But they are expected to signal what they think of the OMT and will also have to decide whether it falls within their jurisdiction. If they decide it does not, the court could refer the issue to the European Court of Justice in Luxembourg.
“This raises the most difficult legal question,” Vosskuhle said, noting that the ECB, though based in Frankfurt, is bound European Union and not German law.
In earlier rulings the court has approved euro zone bailout schemes while insisting the German parliament be consulted more fully. For plaintiffs like Peter Gauweiler, on the eurosceptic fringe of Merkel’s conservatives, this is not clear enough.
“A ‘yes, but’ does not help anymore. A clear ‘no’ is what is needed,” his lawyer Dietrich Murswiek told the court.
(Additional reporting by Ilona Wissenbach- Writing by Stephen Brown- Editing by Noah Barkin)