European Central Bank faces renewed pressure in Germany

16/5/2016

Group files complaint at highest court over mass bond-buying programme

The European Central Bank has come under renewed pressure in Germany, after a group of academics and business people filed a complaint at the country’s highest court over the monetary policymakers’ mass bond-buying programme.

The ECB has faced repeated criticism from the economic and political establishment in the eurozone’s largest economy over the policies it has adopted to fight the threat of falling prices.

Senior figures in Berlin claim that the bank is expropriating money from the country’s savers and stoking the rise of rightwing nationalism with its actions. Wolfgang Schäuble, Germany’s finance minister, has claimed the ECB’s low interest rates were responsible for 50 per cent of the recent gains made in local elections by the nationalist Alternative for Germany party.

The German newspaper Welt am Sonntag reported that the complaint, the latest in a series of legal attacks on ECB policy, was about whether the bond-buying programme, dubbed quantitative easing, exceeds the central bank’s mandate to stabilise inflation.

Much of the German criticism has focused on the QE programme, under which central bankers in the single currency area are buying about €80bn of mostly government bonds each month.

All of the major central banks have unleashed quantitative easing to combat the side effects of the global economic crisis on growth and inflation. The ECB was late to deploy the policy, in part because of opposition in Germany to the central bank purchasing the bonds of more troubled eurozone member states.

The programme was launched in January 2015, but inflation has continued to fall short of the central bank’s target for price stability. In the eurozone, prices fell 0.2 per cent in the year to April, well short of the rise in prices of below but close to 2 per cent that the ECB targets.

The German Constitutional Court, the highest court in the country, is also trying to decide whether to rule against a more controversial bond-buying programme, the Outright Monetary Transactions scheme, under which the central bank can buy government bonds in potentially unlimited quantities to combat soaring borrowing costs for eurozone member states triggered by panic in financial markets.

The European Court of Justice, to which the Constitutional Court referred the earlier complaint on the OMT, ruled in favour of the ECB.

The latest complaint over the QE programme faces an even tougher challenge than the OMT. The ECB attempted to alleviate criticism of the policy in Germany by designing the programme in a way that made national central banks responsible for any losses incurred on their own government’s bonds.

While the two German members of the ECB’s governing council — Bundesbank president Jens Weidmann and ECB executive board member Sabine Lautenschläger — opposed the latest bond-buying scheme on the grounds that the risk of a prolonged bout of low inflation was small, both agreed that the programme was legal.

The business people and academics who filed the complaint argue that the programme is neither necessary nor appropriate, according to Welt am Sonntag, and say a recent expansion of the programme to include purchases of high-quality corporate debt discriminates against smaller businesses, which tend not to issue bonds.

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