Economy & Finance

German court to hear case against ESM, ECB bond-buying in June

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BERLIN (Reuters) – Germany’s Constitutional Court will hold a public hearing on June 11 and 12 on complaints against the euro zone’s bailout fund, the European Stability Mechanism (ESM) and the European Central Bank’s bond-buying program.

The complaints, seven in total, reflect German unease about the mounting costs of dealing with the three-year debt crisis and fears that the ECB bond-buying program may violate the taboo against direct central bank financing of state budgets.

The court, based in Karlsruhe, southwestern Germany, ruled in a preliminary verdict last September that the ESM did not violate German law and could go ahead, though it insisted on veto rights for the German parliament.

That same month, the ECB announced plans to buy “unlimited” amounts of bonds from stricken euro zone states to reduce their borrowing costs, provided they sign up to strict reform programs from the ESM rescue fund.

The ECB has not yet activated the program as struggling euro zone states, already implementing tough austerity measures, are reluctant to accept the onerous conditions of the program, but the pledge alone has been sufficient to bring down their borrowing costs over recent months.

Speaking after the court’s statement on Friday, constitutional law expert Gunnar Beck said he did not expect Karlsruhe to uphold the complaints, given its past record on not blocking moves towards European integration, despite the legal concerns over the bond-buying program.

“There is no doubt that the EU treaties … rule out bond purchases whenever they might facilitate state financing through the printing press and allow indebted states to obtain better rates than they would otherwise,” said Beck, a German lawyer and academic now based at London University.

“There is no historic precedent where the German constitutional court has directly challenged the German government over an issue of European policy,” said Beck, a longtime critic of euro zone bailouts.

“I have no doubt the court will (submit to the government’s wishes) in one form or another when it comes to the ECB bond purchases,” he added.

Tanja Boerzel, a political scientist at Berlin’s Free University, agreed that the court would probably not challenge the ECB’s bond-buying plans, though she said it may also reaffirm the role of the German parliament in the process.

“This is about whether the ESM and the ECB’s program undermine the budgetary sovereignty of the German Bundestag (lower house). That is the essence of democracy and the judges will probably emphasize this, as they have in the past, and perhaps come up with something specific,” Boerzel said.

The court will not give a final verdict on the complaints at the June hearings.

Political analysts say a verdict is unlikely before Germany’s September election when Chancellor Angela Merkel, her popularity boosted by what voters see as her competent handling of the euro zone crisis, is expected to win a third four-year term.

(Additional reporting by Ilona Wissenbach in Stuttgart- Editing by Stephen Brown- editing by Ron Askew)

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