Government bond purchases: The ECB has all the restrictions fall

ammunition for further legal and political dispute over government bond purchases by the European Central Bank (ECB) delivers a new study by the Mannheim-based economic research Institute ZEW. They documented that the ECB has weakened its original rules for an important purchase programs in the past five years. Even these watered-down rules has not adhered to the last, however, as an analysis of the quantity and the distribution of the purchases in the individual Euro-area countries shows. The finding may be legally significant, because the rules to limit bond purchases in the lawsuits against the ECB have played a Central role in the assessment of the question of whether the Central Bank has not exceeded the intervention limit of the prohibited monetary state financing.

Heike Göbel

Responsible editor for economic policy, responsible for “The regulation of the economy”.

F. A. Z.

The Economist Annika Havlik and her colleague, Friedrich Heinemann, point in the as yet unpublished study on a controversial point: The ECB have at least left with their new emergency program “PEP” with the pandemic, is helping the Euro countries in the fight against the Corona, in fact, all of the restrictions the case. Here also the upper boundaries of the Emission and the Issuer had been abandoned. “That means in plain text, the Eurosystem will soon receive a blocking minority for all of the rescheduling negotiations with the over-indebted Euro States. Against the governing Council, no debt restructuring is possible,” said Heinemann, the F. A. Z.

the study is mainly based on PSPP

Clearly can’t be from his point of view, the Eurosystem – i.e. the ECB together with the national Central banks of the Euro area is now “a key role for the state in Finance”. In the acute crisis this, however, was barely acceptable, my Havlik and Heinemann. In these dramatic months, the ECB has to respond flexibly, a new market panic is the last thing that could use Europe now. But after the Waning of the recession, the bond purchases with these volumes and the consequent national imbalances are not likely to go further, to urge you. Because in the meantime, even when the criteria are violated, which have formulated the governing friendly European court of justice in December 2018 in a judgment.

The study is based mainly on the analysis of government bond purchases in the framework of the 2015-launched “Public Sector Purchase programs,” short-PSPP, as the pandemic program PEPP was only decided in March. For the PSPP, a strict orientation on the capital was initially key to the ECB’s bond purchases should be done proportionally to the shares of the national Central banks of the Euro system of the ECB, the authors write. This condition has been relaxed in favor of the purchases of government bonds of highly indebted Euro countries. Belgium, Italy, France and Spain are overweight this strong Germany under-weighted.

Trend to Overweight highly indebted countries

Further relaxations were made through a reduction in the minimum requirements for the credit rating of the debtor, the remaining term to maturity and yields. The attempt of the Eurosystem, the purchases on the basis of the capital key, it had not been successful, judging from the authors. The deviations from the key are not to be observed only temporarily, but showed in the bond portfolio. The Trend to Overweight highly indebted countries, there was also clear before the outbreak of the pandemic.