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ECB defends stimulus scheme from German court challenge
[LUXEMBOURG] The European Central Bank defended its 2.6 trillion-euro(S$4.13 trillion) bond-buying programme before the European Union's top court on Tuesday from accusations it was bankrolling governments and endangering taxpayer money.
The case, brought by a group of eurosceptic politicians and academics from Germany, aims to stop the ECB's current stimulus programme, which is nearing its end, and is likely to set a precedent for any future scheme.
It was referred to the Luxembourg-based General Court of the European Union by Germany's constitutional court last year, with a number of questions about whether the ECB broke EU rules with its debt purchases.
The people who brought the case claim the programme violates a ban on monetary financing and make the Bundesbank, and with it the German taxpayer, liable for losses suffered by other national central banks under the programme.
"The ECB lacks democratic legitimacy," Dietrich Murswiek, the lawyer of one of the claimants, told a hearing at the EU court.
But the ECB said in its own written response that it was respecting the treaties by only buying from investors, rather than directly from governments, and that risks for central banks were limited.
"The examination of the questions referred did not reveal anything that could affect the validity of the decision," the ECB's lawyers wrote.
A spokesman for the EU court said the case was being treated with priority but declined to comment on the timing of a verdict.
The court, whose rulings cannot be appealed, has approved a separate ECB bond-buying scheme, which that can be used to help governments that got a bailout.
The ECB said last month it expected to end its bond purchases at the end of the year, but it would keep re-investing for a long time the cash it gets from bonds that mature.
The German government and central bank, which expressed their scepticism when the programme began in 2015 and for a long time after that, stood behind the ECB on Tuesday. But Berlin made its support conditional on imposing a cap on the potential exposure of its central bank to losses elsewhere.
"The provision should be interpreted as not allowing an unlimited liability on a central bank for the losses of another central bank," the German government's lawyer Ulrich Haede told the court.
The ECB's own lawyer said such "restrictive interpretation" didn't affect the legality of the scheme, under which only 20 per cent of the bonds are "risk-shared", meaning any loss from them would be spread across the euro zone.
But the German provision might tie the ECB's hands when designing any future programme.
"The Court should set strict limits to the bond-buying programme for the future, so that the ECB does not completely become a plaything for fiscal policy," Friedrich Heinemann, an economist at Germany's ZEW institute, said.
Generally, hearings are followed by an opinion from the court's advocate general two to four months later. The court's ruling tends to come three to six months after the opinion and usually corresponds it.