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The German Constitutional Court mortgages quantitative easing. With a ruling that may have important consequences for how Europe will emerge from the coronavirus crisis and manage the enormous amount of debt left on the ground: the judges give the Governing Council three months for “a new decision to show that the” Pspp ‘it is not disproportionate in its economic and budgetary effects.’ Otherwise, the Bundesbank will no longer be able to participate. In the end, the problem to be solved remains the same: if the ECB, using the expression of President Christine Lagarde, is here to “close the spread” or not. Which, read by Karlsruhe, amounts to saying whether the ECB, while battling yesterday’s deflation, and today’s closing shock, is not making monetary financing to high-debt countries .
The ECB should not have great difficulty demonstrating that it has legitimately acted with the ‘PSPP’, the public debt purchase program launched by Mario Draghi in 2015. The Governing Council, specifically convened, “takes note” of the decision of the but it is firm: the ECB “remains committed to doing what is necessary in its mandate” for price stability, but also to achieve this objective in all countries. And he reminds German judges that “the Court of Justice of the European Union, in December 2018, established that the ECB acts on its mandate.”
The ‘PSPP’ represents today only a quarter of the purchases of public securities: there is the ‘PEPP’, the pandemic emergency program, which in just over a month has acquired 118 billion debt. That is why the Minister of the Economy, Gualtieri, said that “the sentence will have no practical consequences”, given that it confirms the fundamental legitimacy of the ‘PSPP’ and “in no way refers” to the ‘Pepp’. But the verdict causes the Italian spread to jump to 244, the elephant in the room of any discussion about the ECB’s debt purchases. Focus for weeks on Italy, which has absorbed 40%, against a share that, determined by Italy’s “weight” in the ECB capital (“capital key”), would be 17%. The ruling, in fact, runs the risk of having an impact on the ECB’s operations.
Chancellor Angela Merkel, according to the DPA, said the judges clearly showed their borders to the ECB. Vitor Constancio, former ECB vice president with Draghi, sees the “great risk” that the ruling will open a wave of new appeals in Germany that end up involving the ‘Pepp’. Christine Lagarde really ensured that Pepp would keep spreads at bay by deviating from the capital key. But it is precisely these deviations, which to date represent the only brake on the spiral of debt in countries like Italy, to which the German Court is heading. The ECB, then, with the ‘PSPP’ until now, has kept in the balance sheet the approximately 2,300 billion of public debt of the countries of the Eurozone bought, renewing with new purchases the bonds that gradually matured. And it promises to do it as long as you need to. Here too the judges issued a mortgage. That runs the risk of hypothesizing that the ECB will ultimately take over the very salty account of the two crises, the one in 2008 and the current one, definitely established, keeping the debt forever or even buying perpetual bonds. .
Significant are the words of Jens Weidmann, President of the Bundesbank and adviser to the ECB: the judges point out “a sufficient margin of safety for the monetary financing of the governments”, “I will support the efforts to satisfy this requirement”. And then there are the institutional consequences. From the supervision of the ECB entrusted by the judges to the German Parliament and government, paradoxical given the German history: so much so that the Commissioner for Economic Affairs of the EU, Paolo Gentiloni, is forced to remember that “the ECB is an independent institution. Its independence is the basis of European monetary policy. “
The words of Olaf Scholz, the German finance minister, betray Berlin’s shame: “precisely these days, when due to the pandemic we face considerable effort, the single currency and the common monetary policy keep us together. Europe.” And then there is the legal humiliation inflicted on the Court of Justice of the European Union, whose 2018 ruling in favor of the ECB is considered by German colleagues as “unsustainable”. As much as to compel a spokesman for the EU Commission to reaffirm “the primacy of European law and the fact that the decisions of the European Court are binding on all national courts”.
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