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ECB's eurozone rescue scheme challenged in Germany

Written by  Published in Business Friday, 14 June 2013 05:45



Karlsruhe, June 14 (BBC NEWS) -- The promise by the European Central Bank to do "whatever it takes" to save the euro is being challenged in Germany's constitutional court.

The ECB's vow to buy up the bonds of eurozone countries if they come under severe pressure has been credited with arresting the eurozone crisis.

There are fears that a court ruling against it could reignite market panic.

The head of Germany's own central bank is expected to tell the court that the policy breaches Germany's constitution.

Bundesbank President Jens Weidmann believes it is illegal because there is no limit to Germany's spending liability under the scheme, and that it is effectively a back-door way of providing loans to other countries' governments.

But the court will also hear from supporters of the scheme, such as the German ECB board member Joerg Asmussen.

He told Germany's top-selling Bild newspaper on Monday that a court order to withdraw the programme would have "significant consequences".

Confidence restored

ECB President Mario Draghi has called the Outright Monetary Transactions (OMT) scheme "probably the most successful monetary policy measure undertaken in recent time".

After announcing it last year, confidence has returned, even though the ECB has not needed to put its plan into action.

The interest rates on government debt have fallen back from the unsustainable levels that forced several governments to take bailouts and threatened Italy with the same fate.

The ECB says any country that needed OMT intervention would only get help if it first signed up to a bailout from other EU countries and then abided by the conditions of that bailout.

The court in Karlsruhe will hold two days of hearings, before spending several months considering its ruling.

In a previous case, the Constitutional Court decided that the eurozone's bailout system was legal, but said the German lower house of parliament should be consulted fully on future bailouts.

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