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ECB to defend its bond-buying programme

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The European Central Bank will defend its bond-buying programme in a German court this week against charges it is really an illegal scheme to fund euro zone members through the back door.

ECB President Mario Draghi has called the scheme "probably the most successful monetary policy measure undertaken in recent time", and it is widely credited with restoring calm to the euro zone by easing fears of a breakup of the currency bloc.

Yet two German ECB policymakers, Bundesbank chief Jens Weidmann and ECB Board member Joerg Asmussen, will take opposing sides in arguing over its legality at the Constitutional Court hearing on Tuesday and Wednesday.

The court in the southern city of Karlsruhe, which has delivered several high profile verdicts on euro zone bailouts in recent years, is not expected to reach a final ruling on OMT until after a German parliamentary election in September.

But the judges could signal what they think of the programme and whether they feel the case falls within their jurisdiction.

The court cannot order the ECB to revoke its bond-buying programme. But in considering whether OMT violates the German parliament's sovereign right to control the budget, it could decide to challenge certain aspects of the programme, such as its "unlimited" nature.

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The programme has worked largely by giving investors the confidence to buy bonds issued by troubled countries such as Spain and Italy, assured that the ECB would intervene if any government were at serious risk of defaulting on its debt.

German media reported at the weekend that the ECB could tell the court that OMT was effectively limited to 524 billion euros, equivalent to the amount of short-term debt issued by Ireland, Italy, Portugal and Spain. But an ECB spokesman responded that it had "no ex-ante limits".

In earlier rulings the court has approved other euro zone bailout schemes while insisting the Bundestag lower house of parliament be consulted more fully.

For the first time since the currency was launched in 1999, an anti-euro party, the Alternative for Germany, is competing in the federal election, though it looks unlikely to win any seats.

 

Anna van Densky

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