By Francesco Canepa and Balazs Koranyi
FRANKFURT (Reuters) – The European Central Bank’s new plans to buy massive amounts of government bonds with near total discretion may break a legal ban on bankrolling governments, Markus Kerber, the German academic behind the ECB’s biggest court setback, said on Friday.
The ECB on Thursday extended its Pandemic Emergency Purchase Programme (PEPP) until at least June 2021 and said it would focus its 1.35 trillion euros ($1.53 trillion) firepower on the countries that need it the most to prevent the euro zone’s bond market from tearing apart.
This has seen it buy more Italian bonds than Italy’s quota would suggest, and ditch a cap on owning more than a third of any one country’s bonds. [nL8N2DF498] [nL8N2BJ0QB]
Kerber said the ECB may have crossed a legal red line by easing those two safeguards, which have allowed it to buy 2.2 trillion euros’ worth of government bonds since 2015 with the blessing of the European Court of Justice (ECJ).
“The programme raises a number of questions,” Kerber said. “Is this still a temporary programme? Is it compatible with the European Court of Justice’s definition of monetary financing?”
He added the new scheme had “nothing to do with inflation” but rather with keeping debt manageable for Italy and other countries.
The ECB is already under legal scrutiny in Germany, whose Constitutional Court has given it three months to justify a separate bond-buying programme, known as Public Sector Purchase Programme (PSPP), or lose the Bundesbank as the main buyer in the scheme. [nL8N2CN2VW]
Kerber, professor of public finance at Berlin’s Technical University [nL8N2CN5PH] and one of the plaintiffs behind that case, declined to say if he planned legal action against PEPP.
The ECJ had deemed the PSPP purchases were legal because of the safeguards, which were either relaxed or cut in case of the pandemic purchases, raising the risk that the ECB would lose its biggest legal backers if Kerber or others filed another challenge.
An ECB spokesman declined to comment.
“The European Central Bank is subject to the jurisdiction of the European Court of Justice and the European Court of Justice back in December 2018 has judged that the PSPP – which was also the object of the German constitutional court – was in line with our policy mandate,” ECB President Christine Lagarde said on Thursday.
(Editing by Toby Chopra)
