Top EU court gives all-clear for ECB bond-buying

FRANKFURT: The European Union’s highest court ruled yesterday that the European Central Bank’s “quantitative easing” (QE) bond-buying program is not illegal, rejecting a case by German plaintiffs.

“The PSPP (public sector purchase program) does not exceed the ECB’s mandate,” the Court of Justice of the European Union (CJEU) said in a press release.

Neither does it constitute “monetary financing”, or direct funding of government spending by the central bank, the judges also found. While the judgment 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. Both questions had been referred to the CJEU by Germany’s Federal Constitutional Court, which said if either ruling went against the ECB it would have to judge the asset purchase program illegal.

The plaintiffs, mostly well-known skeptics of the euro single currency, argued 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 bondbuying spares spendthrift governments from the discipline of the markets by lowering their borrowing costs.

‘No monetary financing’ 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, the court said.

“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, it added. Meanwhile the fact that the European System of Central Banks (ESCB) only bought bonds on secondary markets-not direct from governments-meant it did not conduct 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. Co-plaintiff Bernd Lucke, a European Parliament lawmaker who co-founded the anti-euro, anti-immigrant Alternative for Germany (AfD) party but has since been pushed out, called the judgement “terrifying”.

“The European treaties fundamentally forbid monetary financing. There’s no talk of it being allowed in some circumstances,” he said in a statement. In its own statement, the ECB said simply that it “takes note” of the judgement. —AFP