The European Central Bank (ECB) is drafting contingency plans to carry out its multi-trillion bond-buying programme without the Bundesbank in case Germany’s top court forces the main participant in the scheme to quit, four sources told Reuters.
In this worst-case scenario, the ECB would launch an unprecedented legal action against the German central bank, its biggest shareholder, to bring it back into the programme, said the sources, who spoke on condition of anonymity.
The moves would likely mark a moment of truth for the euro, testing Germany’s commitment to a currency it played the biggest role in creating and forcing it to tackle some deep-seated reservations within the country about ECB policies.
Germany’s constitutional court has given the ECB until early August to justify its massive buying of government bonds or continue the scheme without the Bundesbank, which is supposed to carry out more than a quarter of the bond purchases.
Most of the sources expect the legal challenge from the court in Karlsruhe to be resolved by the Bundesbank itself by demonstrating that the policy was appropriate and addressing concerns about its side effects.
But staff at the ECB and the euro zone’s national central banks are preparing for what one source described as the “unbelievable”: a scenario in which the court bans the Bundesbank from taking part in the purchases.
In that case, the ECB, or less likely the other euro zone central banks, would take up the Bundesbank’s quota in the Public Sector Purchase Programme (PSPP) and buy German bonds, the sources said.
They said such plans had not been finalised or officially discussed by the ECB’s Governing Council yet.
Spokesmen for the ECB and the Bundesbank declined to comment.