By Tom Fairless
FRANKFURT--A Berlin-based law professor has filed a
cease-and-desist request aimed at quickly ending Germany's
involvement in bond purchases by the European Central Bank, a
surprise legal move that underlines mounting German anger over the
ECB's easy-money policies.
The request for a legal injunction, sent to Germany's top court,
shows the lengths to which some Germans are prepared to go to
derail a EUR2.3 trillion ($2.57 trillion) stimulus program they
accuse of subsidizing southern European governments and hurting
German savers, pensioners and smaller companies.
The move reflects concerns that the German constitutional court
won't rule on the legality of the ECB's bond-buying program until
it is too late to stop it, said Markus Kerber, an attorney and
professor of public finance at Berlin's Technical University, who
filed the injunction. The ECB's recent moves to expand the program
heighten the risks for the Bundesbank and the German government,
Mr. Kerber said.
German courts can't stop the ECB's stimulus programs directly,
but they can prevent the involvement of Germany's Bundesbank, which
holds around a quarter of the ECB's share capital.
"We simply want the ECB to dispense from continuing to implement
the program," Mr. Kerber said. "The risk to the Bundesbank is
unbearable."
The constitutional court on Monday received a request for a
temporary injunction against the ECB's bond-purchase program, a
spokesman said. It isn't yet clear when the court might make a
decision, he added.
The move comes at a sensitive time for the world's second most
powerful central bank, which is considering how quickly to wind
down its EUR60 billion-a-month bond-buying program as the region's
economy recovers. ECB officials are eager to avoid any abrupt move
that could prompt a repeat of the so-called taper tantrum in the
U.S., when bond yields surged after the Federal Reserve announced
it would wind down its own bond purchases.
The lawsuit is the latest in a series of German legal attacks on
the ECB's bond-purchase programs, which are viewed with deep
suspicion by the nation's conservative central bank and political
establishment. These cases haven't yet stopped the ECB, but
Germany's top court has imposed constraints on the Bundesbank that
helped to shape the ECB's most recent bond-purchase program, known
as quantitative easing or QE.
The constitutional court last June ruled in the ECB's favor over
a legal challenge to a separate ECB bond-buying program, known as
Outright Monetary Transactions. But the court's ruling was nuanced,
insisting that the scope of bond purchases must be limited and
other conditions met.
That ruling was issued four years after the OMT program was
announced. QE was announced almost 2 1/2 years ago.
Mr. Kerber said he is acting on behalf of several leading German
entrepreneurs, including Reinhold von Eben-Worlée, president of
Germany's association of family-owned businesses.
Germany's Mittelstand firms--midsize companies that often
dominate niche global markets--worry that the ECB's purchases of
corporate bonds under QE support the region's biggest companies but
put smaller firms at a competitive disadvantage, Mr. Kerber
said.
The lawsuit argues that a relatively small level of losses from
the ECB's massive bond portfolio could harm the Bundesbank's
ability to carry out its functions. That could force the German
government to recapitalize the central bank, violating the
constitutional principle that it should be the German people who
decide how to spend public funds, it says.
"Each additional day that the program is carried out perpetuates
the risks and so the damage potential for the Bundesbank and the
[German] parliament's budgetary autonomy," the suit says.
In practice, central banks can function with negative capital
and have done so effectively, for instance in the Czech Republic.
But a large capital hole could undermine investor confidence in the
central bank's ability to operate, thereby weakening its ability to
hit its inflation target.
Mr. Kerber's lawsuit also argues that the ECB hasn't yet
signaled when QE will end, even though inflation in the eurozone
has risen to 1.9%, in line with the central bank's target of just
below 2%.
Given the economic rebound in the currency bloc, most economists
expect the ECB to start winding down QE next year. But top ECB
officials have yet to send any signal to that effect.
Testifying in the European Parliament on Monday, ECB President
Mario Draghi said it is too soon for the bank to change course. ECB
officials will gather in Estonia next week to reconsider their
policy mix.
"We share the ECB's view that the European economy is not yet at
'escape velocity' and that in the short term it still requires a
loose monetary policy," said Vincent Juvyns, global market
strategist with J.P. Morgan Asset Management in London.
Still, German pressure on the ECB continues to build. Speaking
in Berlin on Monday evening, Bundesbank President Jens Weidmann--a
longtime critic of the ECB's bond purchases--suggested it may soon
be time to start winding down QE.
"It is completely legitimate to ask when the ECB Governing
Council should consider a normalization of monetary policy," Mr.
Weidmann said.
Anton Troianovski in Berlin contributed to this article.
Write to Tom Fairless at tom.fairless@wsj.com
(END) Dow Jones Newswires
May 30, 2017 05:04 ET (09:04 GMT)
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