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Critics sue to stop ECB bond-buying

AFP · 23 Mar 2015, 15:05

Published: 23 Mar 2015 15:05 GMT+01:00

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Christoph Degenhart, a professor in constitutional law at Leipzig University, said that entrepreneurs Heinrich Weiss, Patrick Adenauer and Juergen Heraeus are seeking to challenge the ECB's so-called Quantitative Easing or QE programme in the Germany's highest court, the Constitutional Court.

Degenhart has already taken the ECB to court over previous unconventional policy measures such as the Outright Monetary Transactions (OMT) programme, which similarly has the central bank purchase bonds, but in this case to help eurozone members forced to pay high rates to borrow in the markets.

"Our argument is that, like in the case of OMT, the ECB is overstepping its mandate," Degenhart said.

A group of eurosceptic politicians and academics in Germany argue that the OMT programme is tantamount to printing money to pay off government debt in crisis-hit countries.

The same was true of QE, Degenhart argued.

"QE is a quantum leap, which essentially means countries' debt is being financed via the printing press," he said.

On January 22nd, the ECB announced a massive €1.14-trillion bond purchase programme, which will see €60 billion in bonds per month bought for at least 18 months.

The aim is to pump liquidity into the financial system so as to kick-start lending and push up inflation, currently below zero.

In the case of OMT, the Constitutional Court partially agreed with the plaintiffs, ruling last year that "there are important reasons to suggest that it goes beyond the ECB's monetary policy mandate and infringes on the powers of the member states and contravenes the ban on monetary deficit financing."

But the Constitutional Court referred the case to the European Court of Justice (ECJ) in Luxembourg before issuing its final ruling.

The ECJ is expected to publish its own judgement later this year. But in January, one of its senior advisors, Advocate General Pedro Cruz Villalon, said in a legal opinion that the OMT programme was "in principle" in accordance with European law.

Even if the ECJ does give OMT the go-ahead, the German Constitutional Court is not obliged to follow its argument and could still rule that the programme does not comply with the German constitution.

"Our aim is that the Bundesbank (or German central bank) cannot participate in the scheme. It's about ensuring that the legal foundations of European Union are adhered to. It is about ascertaining how far the ECB's mandate can be extended," Degenhart said.

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He insisted there was no sign of deflation in the euro area -- the ECB's main reasoning behind the programme.

Deflation is a dangerous downward spiral of falling prices, which leads consumers and businesses to postpone purchases. That in turns chokes demand, throttles output, leading to job cuts.

"The current low level of inflation is due to falling oil prices," Degenhart said.

"Nobody is putting off buying a new car in the hope that the oil price will fall still further," he argued.

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