UPDATE 2-ECB official defends legality of buying crisis bonds
* Bild reports ECB, Bundesbank check legal limits of programme
* Nowotny says new programme in line with mandate
* ECB's legal department had checked legality carefully -sources
BERLIN/FRANKFURT, Sept 25 (Reuters) - An ally of Germany's powerful Bundesbank at the European Central Bank defended the ECB's new bond-buy programme on Tuesday after a newspaper said the German central bank was looking at the legal basis for the plan.
Ewald Nowotny, an ECB governing council member and Austria's central bank governor, said the central bank was on a firm footing with its plan to stem the euro zone crisis.
"From the ECB's and my own point of view, the ECB acts fully in line with its mandate," Nowotny wrote in an online chat with the Austrian newspaper Die Presse. "I assume that the bond purchase programme does not breach EU law."
Senior ECB sources, meanwhile, have said the bank's legal department studied the legality of bond-buying carefully before the Sept. 6 decision to launch the programme.
German tabloid Bild, which did not give details of its sources, said ECB and Bundesbank in-house lawyers were checking what scale and duration the programme could reach before breaching EU treaties.
The ECB has taken on a stronger role in fighting the euro zone's debt crisis recently and bought governments time by agreeing to buy bonds of struggling euro zone member states once they sign up to strict reform programmes from the European rescue fund.
Germany's hawkish Bundesbank, however, strongly opposes the latest ECB decision and its President Jens Weidmann was the only Governing Council member to vote against the new plan, which he regards as being tantamount to financing governments by printing banknotes.
Bild said there was a possibility that the issue could soon be referred to the European Court of Justice and added that the ECB and the Bundesbank wanted to legally "arm" themselves for this scenario.
The report alarmed financial markets, which had welcomed the bond-buying announcement this month as the sort of bold action needed to end the crisis. The euro fell in response.
The Bundesbank and the ECB declined to comment officially.
UPHOLDING EU LAW
Nowotny said that Austria generally followed the German monetary policy tradition, but views could differ from time to time. He voted in favour of the bond purchase programme.
ECB President Mario Draghi said earlier this month, when he announced the programme, that he was certain it abided by the rules.
"We are sure that we are acting within our mandate, that we are not violating Article 123," he told a news conference after the bank's monthly decision on interest rates. Article 123 prohibits the ECB financing governments.
One of the senior ECB sources also noted that Germany's constitutional court, in its ruling upholding the legality of the euro zone's permanent rescue fund (ESM), had not raised any issues that called into question the legal basis for buying bonds.
The ECB's new and potentially unlimited bond purchases of debt-stricken euro zone government, provided they signed up to bailout programme first, is designed to lower these countries' borrowing costs to buy politicians time to implement reforms.
But the move has stirred anxiety in Germany where some fear the ECB is venturing beyond its mandate and exposing taxpayers to billions of euros in risky debt or triggering inflation.
The ECB spent more than 200 billion euros in its first bond-buying programme, the Securities Markets Programme, which was launched in 2010 under previous ECB head, Jean-Claude Trichet.
Then, the 17-country bloc's central bank said that it was allowed to buy bonds in the secondary market to ensure the working of the "transmission mechanism" by which its decisions on official rates have an impact on borrowing rates across the euro zone and the economy as a whole.
Two German policymakers resigned in protest of that programme.
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