August 24, 2011 / 9:51 AM / 7 years ago

German president questions legality of ECB bond buys

LINDAU, Germany, Aug 24 (Reuters) - German President Christian Wulff questioned the legality of the European Central Bank’s bond-buying programme on Wednesday, highlighting the strength of opposition in Germany to the controversial plan.

The ECB reactivated the programme earlier this month after Italy and Spain nearly succumbed to a fierce market attack which threatened to overwhelm euro zone governments’ efforts to resolve the bloc’s debt crisis.

The central bank resumed and expanded its purchases following a 19-week pause and despite opposition from a four-man group on its policymaking Governing Council, led by Germans Jens Weidmann and Juergen Stark.

Wulff added his voice to the German opposition.

“I regard the massive acquisition of the bonds of individual states via the European Central Bank as legally questionable,” he said in the opening speech at an economists’ conference in Lindau, Germany.

Wulff cited an article in the European Union’s fundamental treaty, which prohibits the ECB from buying bonds directly from governments.

“This ban only makes sense if those responsible don’t circumvent it with comprehensive purchases on the secondary market,” he added.

The ECB buys the bonds on the secondary market.

“The indirect purchase of government bonds is more expensive than the direct (purchase),” Wulff said. “Again, financial market actors are earning commission without any risk.”

The German president has a largely ceremonial function and has little direct influence on government policy but his comments reflect the strength of concern in Germany about policy compromises being made to tackle the debt crisis.

The Bundesbank renewed its attack on secondary market bond purchases on Monday, saying they reduce incentives for “appropriate fiscal policy.”

Critics of the purchases say they push the ECB into the fiscal policy arena, overstepping its mandate and threatening its independence. (Reporting by Eva Kuehnen, writing by Paul Carrel; Editing by Toby Chopra)

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