Bloomberg News

ECB Case Pits Market Stability Against Democracy, Court Told (1)

June 11, 2013

Germany’s top court must halt the European Central Bank’s bond-buying plan to preserve the principles of democracy, even if it causes “uproar” in financial markets, a lawyer that opposes the plan said.

The ECB’s Outright Monetary Transactions program violates European laws and the constitutional principle of democracy, Dietrich Murswiek, a lawyer for lawmaker Peter Gauweiler, told the Federal Constitutional Court in Karlsruhe today. The court is reviewing seven cases filed over the OMT and the European Stability Mechanism at a two-day hearing.

The as-yet-unused OMT foresees potentially unlimited purchases of bonds of debt-stricken countries that sign up to adjustment programs. Conceived as yields on Spanish and Italian 10-year bonds exceeded 7 percent, the OMT has helped the cost of borrowing for nations like Spain and Italy fall to levels not seen in more than two years.

“This hearing is a historic moment,” Murswiek said in opening statements. “The ruling the judges have to make in this case could turn out to be the most significant in decades. Nothing less than the principle of democracy is at stake.”

Schaeuble Testimony

German Finance Minister Wolfgang Schaeuble defended the government’s policies, saying that Germany itself insisted on giving the ECB independence.

“The central bank’s independence needs to be respected by the court,” he said.

The hearings will feature testimony from ECB Executive Board member Joerg Asmussen and Bundesbank President Jens Weidmann, the only ECB Governing Council member to vote against the OMT.

Chancellor Angela Merkel said in a speech in Berlin that while the Constitutional Court has “always” backed German participation in euro-area financial rescues while imposing conditions for parliamentary participation in decisions.

The plaintiffs include opposition political party Die Linke and political group Mehr Demokratie e.V., German for “More Democracy.” Gauweiler is a lawmaker from Merkel’s CSU Bavarian sister party. Nearly half of Germans want the court to stop the bond-buying program, Handelsblatt reported today, citing a Forsa poll.

“Everybody knows what uproar in the financial markets it would cause if the court rules the way as it has to,” said Murswiek. “But if democracy was to capitulate to the banks, it would be lost.”

Rescue Package

The judges last year in a preliminary order allowed Germany to ratify the 500 billion-euro ($663 billion) ESM bailout facility and the EU fiscal pact while ruling the measures must include provisions that the country won’t be forced to assume higher liabilities without its consent.

“The Federal Constitutional Court does not have to judge on the utility or sense of the ECB measure or that of the rescue package the German parliament passed with a vast majority, " Chief Justice Andreas Vosskuhle said. “On the other hand, for judging the measure under the constitution, it doesn’t matter whether they have been successful in a broad sense.”

The September ESM ruling didn’t cover the bond program. In one paragraph of the written opinion dealing with securities issued by the ESM, the court mentioned rules for the ECB, saying the central bank may not buy bonds on the secondary market with the aim of financing euro member states independently of the capital markets.

The cases are BVerfG, 2 BvR 1390/12 et al.

To contact the reporter on this story: Karin Matussek in Karlsruhe via kmatussek@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@Bloomberg.net.


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