The Corner


ECB to BVG: Drop Dead

In a recent judgment, which — how to put it — raised issues (I wrote about it here), Germany’s Constitutional Court (BVG) challenged the way that the European Central Bank (ECB) has been running the PSPP (its original, now revived) asset-purchase program, raising questions that will doubtless, in time, also come into sharp focus with regard to the PEPP (the asset-purchase program the ECB is running in response to COVID-19). It also said that the European Court of Justice had failed to properly police this program. One of the issues raised by the BVG was the percentage of any one country’s bonds the bank could buy (it’s complicated, but there are limits).

And so now, Reuters reports (my emphasis added):

The European Central Bank scooped up all of Italy’s new debt in April and May but merely managed to keep borrowing costs from rising. It ditched its ruleboook and hoovered up much more Italian debt than the country’s quota would dictate, according to data which for the first time showed how the ECB’s emergency bond purchases are distributed.

It bought 51.1 billion euros worth of Italian government bonds over the last two months, compared with a net supply of 49 billion euros, according to UniCredit calculations.

Inevitably, this move revives memories of this episode a decade ago:

PARIS (Reuters) – Euro zone policymakers deliberately chose to “violate” the bloc’s rules in rescuing Greece and Ireland, closing ranks to protect the single currency area’s future, French Economy Minister Christine Lagarde was quoted as saying….

The Greek and Irish bailouts and the creation of a temporary European rescue fund had been “major transgressions” of the treaty.

“We violated all the rules because we wanted to close ranks and really rescue the euro zone,” Lagarde was quoted as saying.

“The Treaty of Lisbon was very straight-forward. No bailout.”

Lagarde is now the president of the ECB.

The EU, we are told, is a rules-based institution.


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