US, WASHINGTON (ORDO NEWS) — The German Supreme Court ruled that the purchase of bonds by the European Central Bank (ECB) does not take into account the “principle of proportionality”, suggesting that the central bank of the eurozone has gone too far beyond its powers, writes CNBC.
German judges evaluated the ECB’s quantitative easing (QE) program, which lasted from 2015 to 2018, and then resumed at the end of 2019. The idea of this initiative was to support the economy of the eurozone due to the low cost of borrowing in the region.
However, the new decree notes that the German government did not take steps to challenge the ECB’s decision to purchase government bonds.
“The ECB is not able to provide the necessary balance between the goal of monetary policy and the consequences of economic policy arising from the program. Therefore, the decisions considered exceed the authority of the ECB in the field of monetary policy,” the court said in a statement.
However, it is imperative that the German court stated: “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 amid a coronavirus crisis as part of an incentive program called the “Emergency Procurement Program during a Pandemic” or PEPP.
Analysts feared that the court’s decision on quantitative easing could cause problems with the pandemic program, as well as their similarities.
However, there are still concerns that the German constitutional court will consider a stimulus program amid the spread of the virus in the future.
“It will take some time to fully understand the implications of the decision of the German Constitutional Court for the ECB quantitative easing program today … But this, of course, can be a real problem for the ECB in the recovery phase of the crisis,” said Carsten Brzeski, chief economist at ING in Germany.
A German court asked the Bundesbank, the central bank of Germany, to stop buying government bonds under the ECB’s incentive program in the next three months.
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