BERLIN (Reuters) - Eurosceptical German media said on Thursday the country’s top court had cast doubt on the legality of European Central Bank bond-buying in a ruling upholding the euro zone’s bailout fund widely seen as political victory for Chancellor Angela Merkel.
The Federal Constitutional Court gave the green light on Wednesday to the European Stability Mechanism (ESM) in a verdict that brought relief to anxious financial markets.
The respected judges insisted the German parliament must have a veto right over any increase in Berlin’s contribution to the 500 billion euro (400 billion pounds) ESM.
But conservative newspapers opposed to bailouts of troubled euro zone member states highlighted a passage of the ruling which said that ECB bond-buying or leveraging the ESM at the central bank could be illegal.
The judges said that for the ESM to deposit government bonds at the ECB as a security for loans would violate an EU treaty ban on direct financing of governments, effectively ruling out giving the rescue fund a bank licence as France has proposed.
They also said ECB bond-buying on the secondary market “aiming at financing the members’ budgets independently of the capital markets is prohibited as well, as it would circumvent the prohibition of monetary financing”.
Some German legal experts saw this as a veiled threat to the ECB, especially since court president Andreas Vosskuhle promised to look more closely at a complaint against the bond-buying plan by one of the plaintiffs in the ESM case when the court issues a detailed ruling on substance in December.
The ECB justified last week’s decision to buy short-term debt of vulnerable states implementing a rescue programme as a way to repair the broken transmission of monetary policy, not a substitute for market funding.
Germany’s central bank, the Bundesbank, was alone in voting against the plan, arguing that it comes dangerously close to breaching the taboo on central bank financing of state deficits and will eventually fuel inflation.
The conservative Frankfurter Allgemeine Zeitung said the court’s warning could open the way for further German legal challenges to the euro zone’s survival strategy, which could end up in the European Court of Justice.
“JUDGES SAVE MERKEL”
Most German papers focused on the boost to the Berlin government’s crisis-management strategy.
“The judges save Merkel,” read the headline of the business daily Handelsblatt above pictures of the red-robed judges in Karlsruhe and of a relieved-looking chancellor. Germany will be the last country in the 17-member euro zone to approve the ESM.
While the ruling has increased hopes that the euro zone may have turned a corner in its crisis, many in Germany are fretting over the price tag of the rescue.
“Merkel’s expensive victory,” read the headline of a commentary in the top-selling Bild tabloid, a persistent critic of bailouts for countries such as Greece.
The court ruling and the ECB plan allowed for the rescue of every indebted euro state “whether they deserve it or not”, the paper grumbled.
“Herein lies the danger. The ESM/ECB duo can easily be misused to avoid painful reforms - and above all the Germans are liable... Now it depends on the federal government alone whether the rescue of the euro runs completely out of control or not.”
A snap poll by ZDF television channel showed more than three quarters of Germans believe the launch of the ESM will not solve the euro crisis and barely a quarter believe the ruling was in Germany’s own national interest.
However, the poll also showed 49 percent believed the ruling was “correct” against 39 percent who thought it wrong.
Handelsblatt said that, by capping Germany’s contribution to the ESM, the Karlsruhe-based court had increased the central role of the ECB in tackling the crisis by buying bonds.
“The ECB will then be not a continuation of the Bundesbank but rather a south European model of a politicised and politicising central bank,” it said.
Echoing such worries, Die Welt, another conservative daily, said: “Saving the monetary union has become a race against time for reasons that no one can overlook. The pace is set by the ECB, not Karlsruhe or Berlin or Paris or Rome.”
Josef Joffe, publisher of the weekly Die Zeit, evoked traditional German fears of hyperinflation rooted in the chaotic years of the Weimar Republic in the early 1920s.
“(With Wednesday’s ruling) the last hope of the plaintiffs for fending off the disaster of a debt union, of Germany becoming the paymaster of Europe, has vanished,” he wrote.
He attacked the “moral hazard” implicit in ECB President Mario Draghi’s pledge to “save the euro whatever the cost” - a stance that relieves pressure on fiscally irresponsible countries to put their public finances in order.
“We are in an economic situation that is similar to 1914,” he wrote, conjuring up another historic parallel, that of the outbreak of World War One, to press his fears of the inflation he sees on the horizon.
“None then (in 1914), rushing unconcerned into war, could foresee how nightmarish the world would look in 1918.”
Reporting by Gareth Jones