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ECB defends stimulus scheme from German court challenge

Claimants say that the programme violates a ban on monetary financing

The ECB has said last month that it expects to end its bond purchases at the end of the year.


THE European Central Bank (ECB) defended its 2.6 trillion euro (S$4.1 trillion) bond-buying programme before the European Union's top court on Tuesday from accusations that 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 that 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.

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"The ECB lacks democratic legitimacy," Dietrich Murswiek, the lawyer of one of the claimants, told a hearing at the EU court.

Hans-Detlef Horn, another lawyer for some of the claimants, told a 15-judge panel that the programme "puts market participants in a position to buy without risk and de facto as intermediaries of the euro system on the primary market" and "removes the incentive of issuing states to pursue a sound fiscal policy".

"Something that began as an extraordinary, unusual monetary policy measure is now going to be continued in the context of completely normal monetary policy instrument, as if the European Central Bank can simply act like your average commercial bank on the markets," said Christoph Degenhart, another lawyer for one of the four groups of claimants opposed to the policy.

Germany's Bundesbank was outspoken against the measure even before it began, arguing that it reduces incentives for governments to make their economies more competitive.

"Experience shows that independent central banks are best at ensuring price stability and therefore primary law provides for far-reaching independence of the euro system in the performance of its tasks," Ulrich Soltesz, a lawyer representing the Bundesbank, told the EU court. "Bond purchases by the euro system should remain reserved to exceptional situations and subject to clear restrictions."

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 that 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 can be used to help governments that got a bailout.

The ECB said last month that 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 that 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. BLOOMBERG, REUTERS

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