Is Draghi's Bond-Buying Dream Circling The Drain As ECB/Bundesbank Lawyer Up?

Following closely on the heels of our recent (now must read) discussion of the potential illegality of Draghi's OMT, Reuters is reporting the somewhat stunning news that the ECB and Bundesbank are getting lawyers to check the legality of the new bond-buying program. Germany's Bild newspaper - via the now ubiquitous unnamed sources - said in-house lawyers were checking both what proportions the program would have to take on and how long it would have to last for it to breach EU treaties (that specifically ban direct financing of state deficits).

While Draghi - full of bravado - likely said whatever he felt was necessary at the time to stop the inversion in the Spanish yield curve, it is becoming clearer that, as usual, the premature euphoria (in the complacent belief that central banks can solve every problem with a wave of the magic CTRL-P wand) was misplaced.

Bild goes on to note that this matter could be referred to the European Court of Justice - and the ECB/Buba were preparing for such an event. Of course, since every other rumor in recent months, most of which have originated in credible media, has proven to be a lie, it is likely this is also merely leaked disinformation to push the German case, i.e. anti-Europe.


Via Reuters:


BERLIN, Sept 25 (Reuters) - The European  Central Bank and Germany's Bundesbank central bank are getting lawyers  to check the legality of the ECB's new bond-buying programme, a German  newspaper said on Tuesday.


German tabloid Bild, which did not name  its sources, said ECB and Bundesbank in-house lawyers were checking  both what proportions the programme would have to take on and how long  it would have to last for it to breach EU treaties.


The newspaper  said this meant there was a possibility that the issue could soon be  referred to the European Court of Justice and added that the ECB and  Bundesbank wanted to legally "arm" themselves for this scenario.


Bild  said the background to this was controversy over the issue of whether  the ECB bond-buying programme violates the ban in EU treaties of direct  financing of state deficits. The ECB and the Bundesbank were not immediately available for comment.


ECB  President Mario Draghi announced earlier this month that the central  bank stood ready to buy unlimited amounts of bonds issued by euro zone  member states, provided they put in a formal request for aid and  fulfilled strict domestic policy conditions.


Jens Weidmann, head of the Bundesbank, was the sole dissenting voice in the ECB's decision.The  plan is designed to lower the borrowing costs of euro zone states such  as Spain and Italy by buying their bonds, but it has stirred anxiety in  Germany where some people fear the ECB is venturing beyond its mandate  and potentially exposing taxpayers to billions of euros in risky debt.Draghi has said the plan is strictly within the ECB's mandate.