ECB moves to defuse sting of German ruling on stimulus

The European Central Bank (ECB) has sought to take the sting out of a German court ruling, justifying its bond purchasing scheme and releasing confidential documents to fend off the threat, according to minutes from its last meeting.

In a stunning decision in May, Germany’s Constitutional Court threatened to block the Bundesbank, the central bank, from participating in the stimulus plan unless the ECB could show within three months that its government debt purchases are not “disproportionate”.

While the court made clear that its ruling did not affect the ECB’s programmes on shoring up the economy in the coronavirus pandemic, it has raised uncertainty over a key crisisfighting tool at a time when Europe is facing the worst economic storm since World War 2.

The minutes showed on Thursday that the Asset Purchase Programme is a “proportionate” measure helping to deliver the ECB’s price stability target, the bank’s governing council said during its monetary policy setting meeting on June 4.

There are “sufficient safeguards having been built into the design of these programmes to limit potential adverse side effects”, it said, describing the €2-trillion scheme in place since 2015 as an “effective tool”.

The ECB also underlined the fragile economic situation — with millions of jobs at risk, inflation at anaemic levels and deep recessions forecast for the eurozone — while stressing the measure’s efficiency in helping to stimulate growth.

Critics, however, have long argued that the bond purchases exceed the ECB’s mandate and act as subsidies for fiscally irresponsible governments, while savers are penalised because they lose out on interest income.

For ING analyst Carsten Brzeski, the minutes “are clearly an attempt to address the concerns of the German Constitutional Court without explicitly saying so”.

SAVING FACE

“It looks as if the ECB found an elegant way to come to a smooth end. Next week, when the German parliament discusses the ruling and the possible next steps, chances are high that some kind of face-saving workaround will be found. The minutes send two messages: the ECB stands ready to do more if needed and it is also trying to put the conflict with the German Constitutional Court to bed.”

Capital Economics chief Europe economist Andrew Kenningham agreed that, “helped by the Bundesbank, this should be enough to smooth things over for now”.

The night before the minutes of the June 4 talks were published, the year in which the ECB stimulus measures were put in place

the value in euros of the bank’s bond purchasing scheme central bankers of the single currency zone held talks to discuss the court ruling, sources close to the ECB said.

They decided to hand over previously confidential documents to the German government as well as parliament to prove that the bond buying was not excessive, the sources said.

Germany’s Bundesbank will be charged with passing on the documents to the relevant parties as part of the ECB’s response to the high court’s judges at Karlsruhe.

The bombshell court ruling not only targeted the ECB. It also slammed the Luxembourgbased European Court of Justice (ECJ) for rubber-stamping the asset purchases in an earlier ruling and said Germany was not bound by the ECJ decision.

The ruling drew a furious reaction from the EU, which insisted that European law trumps that of member states.

European Commission chief Ursula von der Leyen has raised the spectre of legal action against Germany.

In the bitter spat that ensued, the leading judge in the case, Peter Huber, said the ECB “should not consider itself the ‘master of the universe’.”

“All we ask of the ECB is that it accepts its responsibility in the eyes of the public and also justifies it — including towards people who are disadvantaged by its measures,” he told the Sueddeutsche Zeitung daily.

A redacted e-mail from a public servant included in the documents published on Wednesday said Jenrick had been “insistent” on issuing a decision quickly, noting the coming tax change.

Desmond made a £12,000 donation to the Conservative Party two weeks after Jenrick issued the decision. Jenrick reversed the decision after the local council sought a judicial review, conceding he had acted unlawfully.

“He rushed through the decision specifically to help the developer,” said Labour’s shadow secretary for communities and local government Steve Reed. “The public must be reassured that there is not one rule for the Conservatives and their wealthy donors and another rule for everyone else.”

In a sign of Johnson wanting affair, to move the on UKs ’from top the public Jenrick servant, Mark Sedwill, sent Reed a letter on Wednesday, saying that the prime minister considered the matter closed.

2015

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DEFENDING JENRICK

Business minister Nadhim Zahawi defended Jenrick’s actions. “There is no smoking gun here,” he told the BBC.

“The intention was to get more housing built quickly for people that really need it. But when there was a perception of bias, Robert Jenrick pulled this thing and will allow a different minister to decide.”

Asked whether Desmond had enjoyed privileged access and what he would say to voters in the north of England who thought this looked unfair, Zahawi said: “If people go to a fund-raiser in their local area, Doncaster, for the Conservative Party they’ll be sitting next to MPs, other people in their local authority.

“They can interact with different parts of the authority. The access didn’t buy this billionaire a decision.”