ECB bond purchase program: Freedom from the Bundestag in a hurry

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Dhe European Central Bank (ECB) bond purchase program from 2015 has already caused a lot of trouble. Especially since the Federal Constitutional Court urged the ECB in a sensational ruling in May to disclose how it weighed the effects of its controversial PSPP program.

In the meantime, a solution to the ongoing dispute is imminent: On Thursday, the Bundestag should decide on a cross-faction application from the Union, SPD, FDP and the Greens. In it, the parties conclude that the central bank has implemented the assessment of the proportionality of its bond purchases required by the Karlsruhe judges.

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“On the basis of the decision of the Governing Council and the documents received from the ECB, the German Bundestag comes to the conclusion that the requirements contained in the judgment of the Federal Constitutional Court of May 5, 2020 on the conduct of a proportionality test in connection with the PSPP are met”, it says in the joint application. For the bond purchases, the ECB had carried out an examination “of the suitability, necessity and appropriateness of the monetary policy measures”.

What is irritating, however, is the pace at which the highly complex topic is to be brought through the Bundestag in good time before the summer break. It was only since Monday that members of the Bundestag’s secret service had been able to see the documents that the ECB had made available to parliamentarians.

“Without a profound examination”

Including a questionnaire on the EAPP bond purchase program and presentations in English. Although costs and benefits are mentioned in the documents, the content is unlikely to be revealed to many because of the cryptic abbreviations such as ABSPP, CBPP-3, Option 2-type. The “hybrid stock-flow formulation” mentioned in the documents is also unlikely to be familiar to most people.

“Personally, I feel quite well informed and was also very happy to see how many documents the ECB then made available,” says Otto Fricke, budget policy spokesman for the FDP parliamentary group in the Bundestag. However, he admits that MPs who are not very familiar with budgetary and financial matters must rely on the expertise of their peers. “The lawyer in me, and also the parliamentarian in the context of the separation of powers, can live with this procedure.”

Source: WORLD infographic

However, this is not the case for all parliamentarians. For the members of the Bundestag Uwe Kamann, Mario Mieruch and Frauke Petry, all of them formerly at the AfD and now independent, the pace at which the application is to be brought through parliament is too fast.

“In such a far-reaching matter, without a thorough examination of the documents, once again taking a pig gallop vote is nothing more than a deliberate disregard of the parliamentary control obligations of the members of the Bundestag,” Kamann criticized in a letter to the President of the Bundestag, Wolfgang Schäuble (CDU), who is available to WELT.

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If the parliamentary groups nevertheless carry out the vote with Placet of the President of the Bundestag as planned, Kamann wants to appeal to the Federal Constitutional Court. “Especially as a non-attached member of the Bundestag, it is not possible to familiarize yourself with the subject in such a short time without such expertise, and with such a profound knowledge, in such a complex financial issue, where I am neither a specialist nor the support of a parliamentary group to examine how my parliamentary duty of control will come about, ”he complains.

In his letter to Schäuble, he not only formulates his doubts that the roughly 700 deputies were able to get a comprehensive picture in the short time. Kamann also criticized the confidentiality requirements of the documents, which made it impossible to involve external experts.

Total assets shot up

“Incidentally, I also doubt that all the other 700 or so MEPs can already get a comprehensive picture at this rate.” This was not possible because of the time available in the secret service. “The proposal by the groups mentioned for Thursday seems all the more strange to me,” he said.

In fact, the economic situation on which the ECB makes its decisions is confusing. For example, as part of the PSPP bond purchase program, the currency watchdogs bought EUR 2.3 trillion in securities. At 0.3 percent, the inflation rate is still miles away from the self-imposed target of two percent. The ECB has also intervened so strongly that the balance sheet total has skyrocketed to over six trillion euros – with no apparent success in inflation.

Source: WORLD infographic

And so, in addition to the joint group proposal, the FDP wants to make its own suggestions to improve the process in the future. In a motion by the Group, which is available to WELT, the MPs confirm that the Governing Council has dealt with the side effects of its monetary policy.

However, this does not yet meet all the requirements of the judgment. For example, the Federal Constitutional Court obliged the Bundestag to permanently fulfill its responsibility for integration by “continuously monitoring” the ECB’s monetary policy activities while fully maintaining their independence.

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Accordingly, the Bundestag must ensure that the Governing Council also makes future decisions after carrying out a “methodically verifiable proportionality test”, and that the ECB’s monetary policy is true to the ban on monetary government financing.

From the point of view of the FDP deputies, this task therefore includes not only the controversial PSPP program, “but the monetary policy of the ECB as a whole”. In their letter, the parliamentarians specifically mentioned the pandemic emergency purchase program PEPP, which the ECB had already adopted on March 18, 2020.

Price stability and purchase limit

This program should be assessed against the background of the deep economic crisis caused by the corona pandemic. However, according to the law, there are basically “no necessary and justifiable interventions in the ban on monetary state financing”, as the deputies emphasize.

The FDP parliamentarians propose a whole list of measures to monitor the ECB’s monetary policy on an ongoing basis and to check whether the limits of the mandate are being complied with. This includes, for example, a subcommittee in the Bundestag, which regularly uses experts to check compliance with the prohibited monetary government funding, as well as regular plenary debates on the ECB’s annual report and surveys by the ECB.

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Prohibited government funding

In addition, a decade after the start of large-scale government bond purchases by the ECB, a fundamental discussion about clarifying the mandate of the ECB was appropriate, the applicants continued. “Both the ECB’s objective and funds need to be reviewed.”

From the FDP Group’s point of view, this would mean two major changes: firstly, a redefinition of price stability, which makes the central bank the yardstick for its actions. Instead of the targeted inflation rate of close to, but below two percent, an inflation rate of zero to two percent could ease the pressure on monetary policy to act. And on the other hand, according to the proposal for liberal government bond purchases, “only up to an upper limit, in the medium term only in relation to the ECB capital key and as an ultima ratio”.

This is how the ECB influences the euro area

The European Central Bank is the common bank of the 19 euro countries. Its main purpose is to ensure price stability. One of their main tools is to set the key rate.

Source: WELT / Viktoria Schulte

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