ECB Warns Against Opening Debate on Its Mandate
The European Central Bank has hit back at suggestions that its mandate should be up for discussion, after Germany's Bundesbank chief said he would welcome a clarification of its room for manoeuvre.
The debate was sparked by two days of legal scrutiny of the ECB's bond-buying plan known as outright monetary transactions (OMT) – its plan to save the euro – by Germany's constitutional court in Karlsruhe.
Any move to change the ECB's mandate, enshrined in EU law, would almost certainly involve treaty change – a tortuous process likely to provoke alarm in European capitals.
The court was specifically looking into the question of whether the ECB has enough powers to undertake OMT under article 123 of the EU treaty. It is not expected to issue a judgment for some months.
"One should be careful what you wish for," Jörg Asmussen, the ECB executive board member who represented the bank in court, told the Financial Times. "Wishes for a change to article 123 can open a Pandora's box, as there will surely be many wishes regarding the ECB."
He added that the ECB's mandate was "defined in the EU treaty through democratically elected politicians, we only carry it out".
(Read More: Will Germany's Top Court Disarm ECB's 'Big Bazooka'?)
Speaking in court, Jens Weidmann, Bundesbank president, did not directly call for treaty change but said his own definition of the mandate was narrow. Asked by presiding judge Andreas Vosskuhle if he thought it would be sensible for the court to demand that the ECB's mandate were changed to curb its scope of action in policy areas such as OMT, Mr Weidmann indicated that he would.
"The fact that I've taken this position on OMT signals that I am ready to limit this free room because I worry that the use of this free room eventually leads to credibility problems and stability risks," he said.
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The OMT plan was announced by Mario Draghi in September after the ECB president pledged to do "whatever it takes" to save the euro.
The Bundesbank chief, who sits on the ECB's governing council, also said he questioned whether the ECB's pledge to use the theoretically "unlimited firepower" that a central bank can summon was compatible with its mandate.
The court has no direct jurisdiction over the ECB, but it could issue a judgment demanding that the German government seek changes to the ECB's mandate. An attempt to revise the mandate could trigger more demands to change the way that the ECB operates, especially from other euro zone countries less wedded to the Bundesbank orthodoxy that was used as a model for the ECB when it was established.
The court hearings have highlighted the deep concern in Germany that taxpayers may eventually be forced to pay for policies designed to ease the eurozone's sovereign debt crisis.
(Read More: Mario Draghi Goes on a German Charm Offensive)
The Bundesbank believes that OMT comes too close to illegal monetary financing, an EU prohibition on countries using the ECB to finance themselves contained in article 123. Unlike the US Federal Reserve's "dual mandate" of controlling inflation and promoting low unemployment, the ECB's sole task is promoting price stability by keeping inflation below, but close to, 2 percent over the medium term.
Mr Asmussen said he believed the primacy of price stability was "the right mandate", a position that would be shared by Mr Weidmann.
Although the presiding judge said at the start of proceedings that the court could not take into account the success of a policy in deciding whether it was constitutional, Mr Asmussen tried to explain in court why the ECB had turned to a series of unorthodox monetary policy measures, noting the extreme environment in the first half of 2012.
"There was evidence that companies were preparing for a break-up of the eurozone, banks had started to build up liquidity buffers in individual member states, which does not make economic sense, and travel companies were specifying in contracts in which currencies they would be paid," he said. "We are in a situation of one size fits none, that is why we have extended these non-standard instruments."