Skip to main content

Europe News: German court says the European Central Bank now needs to prove its bond buying is needed

Silvia Amaro

The chairman of the German constitutional court Andreas Vosskuhle speaks on May 5, 2020 at the Constitutional court in Karlsruhe, to give out the court's ruling that the European Central Bank must clarify a key bond-buying scheme to support the eurozone economy is "proportionate" or else Germany's Bundesbank central bank may no longer participate.
The chairman of the German constitutional court Andreas Vosskuhle speaks on May 5, 2020 at the Constitutional court in Karlsruhe, to give out the court’s ruling that the European Central Bank must clarify a key bond-buying scheme to support the eurozone economy is “proportionate” or else Germany’s Bundesbank central bank may no longer participate.

A top German court ruled Tuesday that the European Central Bank’s bond buying did not respect the “principle of proportionality,” suggesting the euro zone’s central bank went too far with its mandate.
German judges assessed the ECB’s quantitative easing (QE) program, or PSPP, which was introduced in 2015 until 2018 and then restarted in late 2019. The idea behind the initiative was to prop up the euro zone economy by keeping borrowing costs low across the euro zone.
However, a new ruling said the German government failed to take steps to challenge the ECB in its decision to purchase government bonds.
“The ECB fails to conduct the necessary balancing of the monetary policy objective against the economic policy effects arising from the program. Therefore, the decisions at issue...exceed the monetary policy mandate of the ECB,” the court said Tuesday in a statement.

Coronavirus stimulus

Crucially, however, the German court said: “The decision published today does not concern any financial assistance measures taken by the European Union or the ECB in the context of the current coronavirus crisis.”
The ECB stepped up government bond purchases in March in the context of the coronavirus crisis, in a stimulus packaged dubbed Pandemic Emergency Purchase Programme or PEPP. Analysts feared that the court decision on quantitative easing could raise problems to the pandemic program as well due to their similarity in nature.
Nonetheless, there are still concerns that the German constitutional court will look at the virus stimulus program in the future.
“It will take some time to fully understand the implications of the German Constitutional court’s ruling on the ECB’s quantitative easing program today ... But this could certainly become a real problem for the ECB in the recovery phase of the crisis,” Carsten Brzeski, chief economist at ING Germany said in a note.
Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics, said that “these are fighting words from the German court, and it ends with an ultimatum and a threat to the ECB, not to mention German politicians.”
The German court asked the Bundesbank, Germany’s central bank, to stop buying government bonds under the ECB’s stimulus program in the next three months.
The only way to avoid this is if the ECB proves that these Bundesbank’s purchases are needed, according to the court’s ruling.
The euro dropped 0.7% against the U.S. dollar on the back of the decision. Nomura said in a note that Tuesday’s ruling “causes uncertainty and with it we’ll likely see this move in (the) euro continue.”


Popular posts from this blog

Analysis | The Cybersecurity 202: How the shutdown could make it harder for the government to retain cybersecurity talent

By Joseph Marks 13-17 minutes THE KEY President Trump delivers an address about border security amid a partial government shutdown on Jan. 8. (Carolyn Kaster/AP) The partial government shutdown that's now in its 18th day is putting key cyber policy priorities on hold and leaving vital operations to a bare bones staff. But the far greater long-term danger may be the blow to government cyber defenders' morale, former officials warn. With the prospect of better pay and greater job security in the private sector, more government cyber operators are likely to decamp to industry, those former officials tell me, and the smartest cybersecurity graduates will look to industry rather than government to hone their skills. That’s especially dangerous, they say, considering the government’s struggle to recruit and retain skilled workers amid a nationwide shortage of cybersecurity talent. About 20 percent of staffers are furloughed at the De

Democrats call for investigation into Trump’s iPhone use after a report that China is listening:Analysis | The Daily 202 I The Washington Post. By James Hohmann _________________________________________________________________________________ President Trump and Chinese President Xi Jinping visit the Great Hall of the People in Beijing last November. (Andrew Harnik/AP) With Breanne Deppisch and Joanie Greve THE BIG IDEA: If Democrats win the House in two weeks, it’s a safe bet that one of the oversight hearings they schedule for early next year would focus on President Trump’s use of unsecured cellphones. The matter would not likely be pursued with anywhere near the gusto that congressional Republicans investigated Hillary Clinton’s use of a private email server during her time as secretary of state. Leaders of the minority party have higher priorities . But Democratic lawmakers made clear Thursday morning that they will not ignore a New York Times report that Trump has refused to stop using iPhones in the White House, despite repeated warnings from U.S. intelligence offici

RTTNews: Morning Market Briefing.-Weekly Jobless Claims Edge Down To 444,000. May 13th 2010

Morning Market Briefing Thu May 13 09:01 2010   Commentary May 13, 2010 Stocks Poised For Lackluster Open Amid Mixed Market Sentiment - U.S. Commentary Stocks are on pace for a mixed start to Thursday's session, as a mostly upbeat jobs report continued to relieve the markets while some consternation regarding the European debt crisis remained on traders' minds. The major index futures are little changed, with the Dow futures down by 4 points. Full Article Economic News May 13, 2010 Weekly Jobless Claims Edge Down To 444,000 First-time claims for unemployment benefits showed another modest decrease in the week ended May 8th, according to a report released by the Labor Department on Thursday, although the number of claims exceeded estimates due to an upward revision to the previous week's data. Full Article May 13, 2010 Malaysia's Decade High Growth Triggers Policy Tightening Malaysia's economy grew at the fastest pace in a decade in