A complaint filed against the European Central Bank over its unlimited bond-buying programme known as OMT was up for debate in the European Court of Justice on Tuesday (14 October), with German Eurosceptic complainants issuing harsh criticism of the ECB’s strategy to combat the debt crisis. EurActiv Germany reports.
“Of course” the ECB claims it is doing monetary policy, but it “still openly conducts economic policy,” argued the plaintiff’s lawyer on Tuesday (14 October).
It was the first day of a trial before the European Court of Justice (ECJ) in Luxembourg over the ECB’s signature bond-buying programme.
“A body that is overstepping its bounds will never say it is overstepping its bounds,” argued Dietrich Murswiek, a counsel to Bavarian conservative Peter Gauweiler, who is the main complainant in the case and a frequent critic of the ECB.
This time, the complaint brought forward by a group of Eurosceptics around Gauweiler concerns so-called Outright Monetary Transactions (OMTs).
German constitutional judges, who dealt with the case before, ruled in early 2014 that the ECB was exceeding its mandate with the bond-buying programme. But the German court left the final decision up to the ECJ, the highest court in the European Union.
The ECJ is expected to submit a closing decision within one year.
OMTs were launched at the height of the eurozone debt crisis, so the ECB could buy up potentially unlimited amounts of sovereign debt in troubled eurozone countries. OMTs could be launched provided the country applied for help and committed itself to cutting its deficit and implementing structural reforms.
Even though the measure was never implemented, its mere approval was enough to ease pressure on heavily indebted states. Many observers saw it as a move by the ECB to draw a solid line under the debt crisis.
The council of the European Central Bank originally signed off on the OMT programme on 6 September, 2012. The primary question placed before the ECJ now, is whether or not the OMT decision is compatible with EU primary law.
According to Murswiek, the ECJ must now decide how – with regard to the OMT programme – economic policy should be separated from monetary policy.
Meanwhile ECB president Mario Draghi disclosed plans to introduce further measures to stabilise the euro, announcing the ECB will soon be able to purchase asset-back securities (so-called ABS bonds). Buying and speculation with such loan securitisations was the main cause of the 2008/2009 financial crisis.
‘Monstrous usurpation of competences‘
“The ECB could be practically uninhibited in conducting economic policy and interfere in the competences of the member states. After all, it is almost always possible to portray economic policy measures as being motivated by monetary policy,” Murswiek said.
What the ECB is hoping for from the ECJ now is “nothing less than legal confirmation for a monstrous usurpation of competences”, the conservative stated.
With its OMT programme, Murswiek is convinced the Central Bank is transferring billions in solvency risks from creditors in the crisis states to taxpayers in the eurozone.
Meanwhile, ECB representative Hans-Georg Kamann argued that Draghi already indicated his purpose clearly in the July 2012 speech in London. The intention, he said, is only to mitigate interest markups that are no longer justifiable for government bonds in crisis-ridden countries.
The ECB’s decision in September 2012 was a necessary and appropriate reaction to the euro area debt crisis, Kamann stated.
Kamann argued that bond-buying is a classical monetary policy instrument that even the German Bundesbank has made use of.
In its decision on the OMT, the ECB also did not determine which government bonds would be purchased. This is clear evidence, Kamann says, that the supervisory body was not as selective as the complainants claimed.
The representative compared the ECB’s actions in the euro debt crisis with fighting a fire: “The fire fighters do not immediately douse the entire block with water. They put out the burning house and, if necessary, the surrounding houses.”
The European Central Bank agreed on 6 September to launch a new and potentially unlimited bond-buying programme to lower struggling eurozone countries' borrowing costs and draw a line under the debt crisis.
ECB President Mario Draghi said the new plan, aimed at the secondary market, would address bond market distortions and "unfounded" fears of investors about the survival of the euro.
The German Central Bank (Bundesbank) is opposed to bond-buying, saying it is akin to bailing out states.
Draghi said the ECB would only help countries that signed up to and implemented strict policy conditions, with the eurozone's rescue fund also buying their bonds, and preferably with the IMF involved in designing and monitoring the conditions.