Europe Showdown: Will Germany Affirm ECB’s Super-Solution?
The Federal Constitutional Court is set to review the legality of a bond purchasing program run by the European Central Bank this week. The move will result in a showdown between the German central bank, Bundesbank, and the ECB, as Bundesbank President Jens Weidmann is expected to testify against the Outright Monetary Transactions program he voted against in the past.
The OMT allowed the ECB ‘unlimited’ access to buy short-term government bonds from countries signed up help under the European Stability Mechanism―a program also under review this week―as well as the European Financial Stability Facility.
The German plaintiffs are concerned about liability issues, as well as constitutional issues, arguing that the programs both exceed the ECB’s mandate and expose German taxpayers to large amounts of risk. The plaintiffs involved are a opposition political party in Germany, and a lawmaker from the Bavarian counterpart to Angela Merkel’s own Christian Democratic Union.
Specifically, the plaintiffs allege that the risks created for Germany by the ECB are outside the ability of German lawmakers to protect themselves from. They hold that the German parliament still has control over the country’s exposure to financial liabilities, even in the case of rescuing other European countries. Moreover, they argue that the ECB has violated the powers it possesses under European law, most notably the laws which ban government financing by the central bank.