Court to consider legality of ECB policy that saved the eurozone

Crisis could be reignited if Germany’s highest court rules against the European Central Bank

Berlin

A feud at the heart of European fiscal policy is due to be played out in Germany’s highest court on Tuesday, to determine whether the European Central Bank acted illegally when it vowed to save the euro last year.

The ECB floated an unlimited bond-buying programme as an emergency means of rescuing stricken eurozone countries last year. Known as Outright Monetary Transactions (OMT), it envisages buying the bonds of crisis-hit countries threatened by speculation that they might leave the eurozone. As such, the scheme has been described as a “fully effective backstop” for ailing eurozone members.

The policy was unveiled at the height of the eurozone crisis last September by ECB President Mario Draghi, who promised to do “whatever it takes” to save the single currency. OMT has yet to be tried. However, at the time, its mere mention was enough to quickly restore confidence in the euro and drive down the rocketing borrowing costs of Spain and Italy. Despite this, the proposals drew strong criticism from the German Bundesbank President and ECB board member, Jens Weidmann, who described the policy as “tantamount to funding governments by printing money”. He warned that the measures risked hyperinflation and questioned their legality under German law.

Mr Weidmann has taken his case further and will today argue before Germany’s Constitutional Court judges that the ECB has overstepped its mandate by pledging to finance the deficits of bankrupt eurozone countries. He will also underline the potential risks of OMT to German taxpayers – ultimately the “backstop” of such funding. He is being backed by 37,000 plaintiffs; like-minded German citizens including a Bavarian MP, members of the country’s Left Party, and a group of Eurosceptic professors.

The judges are not expected to make a final ruling in the case until later this year. Should they agree with the Bundesbank President, the ECB will come under pressure to abandon OMT. The court has no power to influence ECB policy directly but it can forbid the Bundesbank to participate in its programme, which would have grave implications for OMT’s future.

It is widely held that a verdict which came out against OMT would quickly re-ignite the eurozone crisis. It could also have serious political consequences for Germany’s Chancellor, Angela Merkel. She faces a general election in September and to date she has managed to keep potentially explosive subjects such as the eurozone crisis off her campaign agenda.

Mr Draghi will not be in court to defend OMT. Instead he will be represented by Jörg Asmussen, a leading member of the ECB’s executive board, who happens to be a close friend of Mr Weidmann. Mr Asmussen is faced with the task of explaining to the court and an increasingly Eurosceptic German public that OMT is well within the remit of the ECB.

In an indication of how seriously the ECB is taking today’s constitutional court hearing, Mr Asmussen took the unusual step of giving an interview to Germany’s mass circulation Bild newspaper to justify the bank’s policies. “When we announced the programme, the eurozone was nearing uncontrolled decomposition,” he told the newspaper. “At this time the ECB was the only European institution capable of taking action and it had to make clear to speculators, ‘Do not mess with the ECB’”.

Mr Asmussen has warned of serious consequences if the court rules against the ECB. Mr Draghi has also leapt to the defence of his policy. Last week he went so far as to describe OMT as “probably the most successful monetary policy measure undertaken in recent times”.

Start your day with The Independent, sign up for daily news emails
Sport
England's women celebrate after their 3rd place play-off win against Germany
Women's World CupFara Williams converts penalty to secure victory and bronze medals
Arts and Entertainment
Ricardo by Edward Sutcliffe, 2014
artPortraits of LA cricketers from notorious suburb go on display
News
newsHillary Clinton comments on viral Humans of New York photo of gay teenager
Arts and Entertainment
The gang rape scene in the Royal Opera’s production of Gioachino Rossini’s Guillaume Tell has caused huge controversy
music
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Sales Administrator - Spanish Speaking

£17000 - £21000 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Sales Administrator - German Speaking

£17000 - £23000 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Sales Administrator - Japanese Speaking

£17000 - £23000 per annum: Recruitment Genius: If you are fluent in Japanese a...

Recruitment Genius: Graphic Designer - Immediate Start

£16000 - £25000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'
Compton Cricket Club

Compton Cricket Club

Portraits of LA cricketers from notorious suburb to be displayed in London
London now the global money-laundering centre for the drug trade, says crime expert

Wlecome to London, drug money-laundering centre for the world

'Mexico is its heart and London is its head'
The Buddhist temple minutes from Centre Court that helps a winner keep on winning

The Buddhist temple minutes from Centre Court

It helps a winner keep on winning
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'