AFP, Frankfurt :
The European Union’s highest court ruled Tuesday that the European Central Bank’s “quantitative easing” (QE) bond-buying programme is not illegal, rejecting a case by German plaintiffs.
“The PSPP (public sector purchase programme) does not exceed the ECB’s mandate,” the Court of Justice of the European Union (CJEU) said in a press release.
Neither does it “infringe the prohibition of monetary financing”, or direct funding of government spending by the central bank, the judges also found.
While the judgement is a relief for the ECB, it is economically almost moot as the 2.6-trillion euro ($3.0 trillion) scheme is set to end this month in any case.
Both questions had been referred to the CJEU by Germany’s Federal Constitutional Court, which said that if either ruling went against the ECB it would have to judge the asset purchase programme illegal.
The plaintiffs, mostly well-known sceptics of the euro single currency, argued that the ECB overstepped its mandate when it launched mass purchases of government bonds in 2015 to fight the threat of deflation.
Central bank bosses wanted to push money belonging to investors – mainly banks – out of bonds and into lending to the real economy of firms and households, aiming to power growth and indirectly boost inflation.
But German critics have long argued that bond-buying spares spendthrift governments from the discipline of the markets by lowering their borrowing costs.
“To exert an influence on inflation rates, the ESCB (European System of Central Banks) necessarily has to adopt measures that have certain effects on the real economy,” the court said.
Preventing the ECB and national central banks from buying bonds “might – in particular in the context of an economic crisis entailing a risk of deflation – represent an insurmountable obstacle to its accomplishing the task assigned to it” of maintaining price stability, it added.
“It is clear… that it was not possible to counter the risk of deflation by means of the other instruments available” like adjusting interest rates.
Meanwhile the fact that the ESCB only bought bonds on secondary markets – not direct from governments – meant it did not conduct so-called monetary financing, the judges found.
“Safeguards are built into the PSPP which ensure that a private operator cannot be certain, when it purchases bonds issued by a Member State, that those bonds will actually be bought by the ESCB,” the court said.
What’s more, “continuity in the implementation of the PSPP is in no way guaranteed,” the statement continued – meaning national capitals cannot rely on the ECB buying bonds indefinitely and must heed signals from debt markets.
The European Union’s highest court ruled Tuesday that the European Central Bank’s “quantitative easing” (QE) bond-buying programme is not illegal, rejecting a case by German plaintiffs.
“The PSPP (public sector purchase programme) does not exceed the ECB’s mandate,” the Court of Justice of the European Union (CJEU) said in a press release.
Neither does it “infringe the prohibition of monetary financing”, or direct funding of government spending by the central bank, the judges also found.
While the judgement is a relief for the ECB, it is economically almost moot as the 2.6-trillion euro ($3.0 trillion) scheme is set to end this month in any case.
Both questions had been referred to the CJEU by Germany’s Federal Constitutional Court, which said that if either ruling went against the ECB it would have to judge the asset purchase programme illegal.
The plaintiffs, mostly well-known sceptics of the euro single currency, argued that the ECB overstepped its mandate when it launched mass purchases of government bonds in 2015 to fight the threat of deflation.
Central bank bosses wanted to push money belonging to investors – mainly banks – out of bonds and into lending to the real economy of firms and households, aiming to power growth and indirectly boost inflation.
But German critics have long argued that bond-buying spares spendthrift governments from the discipline of the markets by lowering their borrowing costs.
“To exert an influence on inflation rates, the ESCB (European System of Central Banks) necessarily has to adopt measures that have certain effects on the real economy,” the court said.
Preventing the ECB and national central banks from buying bonds “might – in particular in the context of an economic crisis entailing a risk of deflation – represent an insurmountable obstacle to its accomplishing the task assigned to it” of maintaining price stability, it added.
“It is clear… that it was not possible to counter the risk of deflation by means of the other instruments available” like adjusting interest rates.
Meanwhile the fact that the ESCB only bought bonds on secondary markets – not direct from governments – meant it did not conduct so-called monetary financing, the judges found.
“Safeguards are built into the PSPP which ensure that a private operator cannot be certain, when it purchases bonds issued by a Member State, that those bonds will actually be bought by the ESCB,” the court said.
What’s more, “continuity in the implementation of the PSPP is in no way guaranteed,” the statement continued – meaning national capitals cannot rely on the ECB buying bonds indefinitely and must heed signals from debt markets.
