LUXEMBOURG/FRANKFURT (Reuters) - The European Central Bank won crucial backing from Europe’s top court on Tuesday for its pledge to do whatever it takes to save the euro, defeating a German group’s challenge as bloc member Greece edges dangerously close to default.
A favourable ruling had been widely expected but the European Court of Justice’s judgement is a firm endorsement for the ECB, granting it leeway to take dramatic action in an emergency, albeit with some general conditions.
The case had been brought by a 35,000-strong group from Germany, including politicians and academics, who sought to dismantle the OMT bond-buying scheme the ECB created in 2012 but never used.
In a statement explaining its ruling, the court set out certain conditions, saying safeguards must be built in to ensure any such programme did not break rules that stop central banks from financing governments.
Experts said the decision would strengthen ECB President Mario Draghi hand in managing emergencies such as a possible departure of Greece from the euro zone.
“It gives the ECB wide-ranging liberties to react fast and flexibly to crisis situations,” said Marcel Fratzscher, who heads the Berlin-based DIW economic research institute.
The OMT (Outright Monetary Transactions) programme was launched at the height of the euro zone debt crisis, shortly after Draghi said in a speech that the ECB would do “whatever it takes” to prevent the collapse of the currency union.
It allows the ECB to buy bonds of a euro zone country on the open market if its government has agreed a reform programme in return for euro zone funding.
The plan could yet be dusted down if Greece were to leave the euro, Fratzscher said.
The judgement is a milestone in a long-running dispute between the ECB and sceptics in Germany, the largest of the euro zone’s 19 members, about printing money and the limits of central bank power.
It represents a victory for the ECB, which welcomed it on Tuesday. Executive Board Member Yves Mersch said it confirmed that the ECB had acted “prudently” and within its mandate.
Following the ruling, Germany’s finance ministry restated its objections to any central banking financing of states and said the European court had asked for safeguards to ensure this would not happen.
The case was a clear reminder that many in Germany have misgivings about a currency their then-chancellor Helmut Kohl helped create in the early 1990s but which they now fear has bound their nation to bail out spendthrifts such as Greece.
Judges rebuffed German critics of bond-buying, who argue that by effectively printing money the ECB is taking pressure off countries to reform. They had argued that the OMT plan broke rules stopping central banks from financing governments.
Hans-Werner Sinn, the head of Germany’s Ifo think tank and long-standing critic of the ECB, attacked the court for its “regrettable mistake”.
Others, including Lutz Goebel, president of a German association for family-owned companies, were also critical of the ruling. “Through its actions, the ECB is going far beyond its mandate,” he said.
The pro-ECB line could now set the European and German courts on a collision course.
Germany’s Constitutional Court, asked to rule on complaints
by the German group, had said there was good reason to believe the OMT broke rules forbidding the ECB from funding governments.
The Constitutional Court will now examine the European court’s ruling in detail, spokesman Bernd Odoerfer said.
Bernd Lucke, a founder of Eurosceptic party Alternative for Germany (AfD), said he saw a massive conflict ahead.
“The verdict is a provocation and humiliates the Federal Constitutional Court, whose legal opinion is being dismissed as if it were the work of an unqualified apprentice,” he said.
His party will soon launch a legal challenge to the ECB’s latest 1 trillion euro plus money printing programme, he added.
Germany’s top court had referred the case to the European Union’s highest court for its view in February but implicitly reserved the right to make a final ruling.
Peter Matuschek of polling institute Forsa said that while most Germans had thought it necessary to help Greece in the early stages of the crisis, “patience with Greece has run out”.
Last week, a poll showed over half of Germans want Greece to quit the euro zone, compared with around a third in January.
Economy Minister Sigmar Gabriel said at the weekend that more and more people in Europe felt “enough is enough” while senior conservative lawmaker Wolfgang Bosbach suggested he might resign if the German parliament agreed further aid for Greece.
Additional reporting by Gernot Heller in Berlin, Frank Siebelt in Luxembourg and Norbert Demuth in Karlsruhe; Editing by Catherine Evans