The European Central Bank’s pledge to buy unlimited quantities of government bonds if necessary to save the euro is economically dangerous and may come under scrutiny at the nation’s top court, a German government adviser said.
Germany’s Federal Constitutional Court backed a sensible approach to tackling the euro-area debt crisis in a ruling last year on the European Stability Mechanism, Lars Feld, a member of the panel of economic advisers to Chancellor Angela Merkel, said at a conference in Berlin today. The ECB’s bond-buying pledge comes close to financing governments, which the court called unlawful in its judgment, he said.
“Central banks need to be able to buy bonds if there are short-term malfunctions of the markets,” Feld said. “Buying bonds of particular member states without limitation would be very problematic.”
Germany’s top constitutional court in September rejected efforts to block the 500 billion-euro ($679 billion) permanent euro-area rescue fund, while ruling the country’s 190 billion-euro contribution can’t be increased without legislative approval. That ruling is technically preliminary and the judges are continuing the review -- to which challenges against the ECB’s bond-buying activities were added. The court hasn’t scheduled the next hearing.
The euro gained for sixth straight month against the dollar, the longest winning streak in almost a decade, as risk appetite improved amid speculation the worst is over in the currency bloc’s sovereign-debt crisis. The 17-nation currency reached the highest level since November 2011 today.
The court will have to decide whether it can review the ECB’s action itself or whether it must ask the European Court of Justice for guidance, Hanno Kube, a law professor at Mainz University, said at the conference, hosted by the foundation Konrad-Adenauer-Stiftung.
If the German court finds the bond-buying program violates European Union treaties, the judges may need to find a way to state that in a ruling even if the ECJ clears it, Kube said.
Shortly before the September ruling, ECB President Mario Draghi said the central bank was ready to buy unlimited quantities of short-dated government bonds of nations that signed up for rescues. While rejecting a last-minute request for an emergency injunction over the Draghi announcement, the court said at the time it would review the challenge to the ECB bond-buying programs in the remainder of the cases.