BERLIN (Reuters) - The Bundesbank has sharply criticized the European Central Bank’s plan to buy the bonds of highly indebted states in a report to Germany’s top court but EU officials said the program was outside the court’s remit.
The German central bank, a stern opponent of the program announced by ECB President Mario Draghi last year, sent a 29-page report to the court in December, which was published in a German newspaper on Friday, outlining the dangers of the plan.
The report warned that the ECB’s purchase of such debt could “compromise the independence of the central bank” and be difficult to stop. The paper was dated December 21, 2012, when the euro zone crisis was in a more acute phase than it is now.
In September’s preliminary ruling, which gave a green light for Germany to ratify Europe’s new permanent bailout fund, the court in Karlsruhe said it would look at the ECB’s role in the rescue when it delivers a final verdict after hearings in June.
Several euro zone officials said the court had no jurisdiction over the ECB, a European Union institution.
“The OMT program is not a German piece of legislation, so it cannot be reviewed by the German court,” one official said.
The head of one of Germany’s leading economic institutes said any ruling by the Karlsruhe court should be in favor of ECB bond-buying, dubbed OMT, which it will consider in public hearing on June 11-12.
“There have been decisions in the past that have dealt precisely with this issue and again and again the Constitutional Court has confirmed that what the ECB is doing is consistent with its mandate,” said Marcel Fratzscher, president of DIW Berlin and a former head of research at the ECB.
But Karlsruhe could find that the Outright Monetary Transactions (OMT) programme takes more sovereignty out of the hands of a democratically legitimate body than Germany’s constitution allows. It could also refer that part of the case to the European Court of Justice instead of ruling on it.
Bundesbank chief Jens Weidmann, the most outspoken critic of OMT, will travel to Karlsruhe for the court hearing in June.
A German finance ministry spokesman said the court should confirm its initial decision supporting the new euro zone rescue fund but did not assess how it might view ECB bond-buying.
“The government ... is confident the Constitutional Court will completely confirm its decision from September 12, 2012, which was made on the basis of an extensive oral hearing and on the basis of which Germany was able to legally agree to the ESM (European Stability Mechanism),” the spokesman said.
OMT, a cornerstone of the policy response to the euro zone debt crisis, was unveiled in September and has calmed financial markets, but it has not been activated so far.
The ECB argues that it is not disguised financing of governments, does not compromise the independence of the central bank, will not lead to inflation and does not create excessive risks for euro zone taxpayers.
Economists took the Bundesbank’s attack in their stride.
“We share the ECB’s view that the OMT falls squarely into the category of permissible tools of monetary policy ... the OMT was and is needed to repair the transmission mechanism of monetary policy,” said Holger Schmieding of Berenberg Bank.
Government spokesman Steffen Seibert said Chancellor Angela Merkel had not intended to infringe on the ECB’s independence by remarking on Thursday that, if the central bank were to look at Germany alone, it would actually have to raise interest rates.
“There is no reason to assume that the chancellor meant to give any kind of warning or suggestion to the ECB in her speech,” Seibert told a regular news conference, adding her comments fully respected the independence of the ECB.
It is unusual for a head of government to comment on monetary policy. Merkel’s statement came as the ECB’s appears to be closer to lowering interest rates than at any time since it last cut them in July 2012.
Additional reporting by Jan Strupczewski in Brussels, Michelle Martin in Berlin. Editing by Mike Peacock