ECB back in court as Ger­man group seeks to curb its power

The Pak Banker - - COMPANIES/BOSS -

The Euro­pean Cen­tral Bank re­turned to Ger­many's con­sti­tu­tional court to de­fend an emer­gency plan made at the height of the eco­nomic cri­sis in a long-run­ning le­gal bat­tle with a group of Ger­mans who want to curb its power to act. In the court hear­ing, Yves Mer­sch, who sits on the ECB's ex­ec­u­tive board at the cen­tre of pol­i­cy­mak­ing, re­asserted the bank's au­ton­omy, de­fend­ing the OMT bond-buy­ing scheme cre­ated in 2012 but never used.

"The Euro­pean Cen­tral Bank's Gov­ern­ing Coun­cil must be able to de­cide in­de­pen­dently on fu­ture mon­e­tary pol­icy, in or­der to ful­fil its duty of main­tain­ing price sta­bil­ity in the euro area," Mer­sch told the court. Judges in the court will make a fi­nal rul­ing later this year. Any out­right re­jec­tion of Mer­sch's ar­gu­ment, which is not likely, could, for in­stance, make it hard for Ger­many's Bun­des­bank to par­tic­i­pate in ECB bond buy­ing - a ma­jor part of the cen­tral bank's pol­icy arse­nal.

Mer­sch played down Ger­man fears that there was a risk of Ber­lin hav­ing to re­cap­i­talise the Bun­des­bank if it were to suf­fer losses.

He con­ceded, how­ever, that there could be need for such an injection if a cen­tral bank's cap­i­tal was too thin for too long.

Such a step would also prompt a con­flict be­tween Europe's top court, which has ear­lier backed the ECB, and the judges of its most pow­er­ful coun­try.

The Ger­man judges had been lean­ing in favour of an 11,000-strong group from Ger­many, in­clud­ing politi­cians and academics, who sought to dis­man­tle the OMT pro­gramme. But the Euro­pean Court of Jus­tice - the EU's top le­gal au­thor­ity - re­jected the Ger­man group's chal­lenge to the ECB's free­dom to buy govern­ment bonds in an emer­gency.

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