LUXEMBOURG -- European Central Bank President Mario Draghi helped save the euro with his pledge to do "whatever it takes" as lenders prepared for a collapse of the 18-nation currency, a central bank lawyer said Tuesday at a hearing.
The European Court of Justice, the European Union's highest court, is weighing whether the central bank overstepped its powers in 2012 with the promise to buy the debt of stressed countries if needed. The EU tribunal's 15-judge panel is examining the plan after Germany's top court earlier this year expressed doubts about its legality.
"The numerous cuts to key ECB interest rates made between late 2011 and July 2012 were having almost no effect on certain markets in the euro area," Hans-Georg Kamann, a lawyer for the central bank, said Tuesday. "Price stability in the euro area was seriously at risk" because of "increasing fears among many market participants that the euro could collapse."
The Frankfurt, Germany-based European Central Bank announced the details of its bond-purchase plan in September 2012. The calming of financial markets that the still-untapped Outright Monetary Transactions program produced helped the eurozone emerge from its longest-ever recession in the first half of last year.
Although the "ECB has a good deal of discretion in adopting monetary policy," measures that "are at heart economic policy measures are not part of the ECB's mandate," Ulrich Haede, a lawyer for the German government, told the court. "The borders between monetary policy and public finances should not be blurred. The ECB may not fund the member states."
Draghi has held out the prospect of stepping up stimulus to include sovereign-bond purchases, even though the plan already has sparked an outcry among representatives of all major political parties in Germany and drew opposition from Bundesbank President Jens Weidmann and two other European Central Bank council members.
While the EU court is unlikely to overturn the bank's decision, the central bank will likely face a number of conditions, legal scholars said.
"There is no real suspense about the way the ruling will go, but there will be suspense about the actual content of the decision," said Pierre-Henri Conac, a professor of financial-markets law at the University of Luxembourg.
Business on 10/15/2014