On the eve of the Council meeting, in which bond yields put pressure on the ECB but to which Christine Lagarde attends today ready to reiterate her message of guarantee to financing, the plaintiffs remind central bankers that their mandate has limits legal. A group of German businessmen and professors led by Berlin financial scientist Markus Kerber has filed a lawsuit against the PEPP emergency aid program, designed to support the economy during the pandemic, before the German Constitutional Court. “The PEPP is a flagrant case of monetary financing of governments,” says the indictment, which recalls that this practice is “clearly prohibited by Article 123 of the EU Treaty”, which means that the ECB is leaving illegally of its area of competence. But unlike previous lawsuits, this one is not brought directly against the ECB, but against the federal government and the German parliament, for failing to fulfill their responsibility and does not put the monetary authorities in their place. In an electoral year and with the CDU still without a candidate and beginning to fall in the polls, the pressure of this demand is not negligible.
In the 140 pages of the complaint, it is explained in detail to what extent the pandemic emergency assistance program PEPP represents a substantial expansion of the ECB’s mandate compared to existing purchase programs, such as the PSPP. The PSPP bond purchase program, which was launched in 2015, aimed to avoid deflation and bring inflation in the euro zone back to its own target of slightly less than 2%. “With the PEPP, the monetary policy reference is no longer visible,” complains Kerber, who considers that the program is an economic and financial policy measure to stabilize or even rescue the euro zone. “The ECB does not even have a mandate to hold the euro zone together,” he insists, noting that the PEPP has become a matter of “serious structural transgressions by the ECB and the Eurosystem,” it says in the complaint. Because the competence of economic policy lies with the Member States, not with the monetary authority.
The lawsuit also warns that the ECB would go beyond the red lines marked by the Federal Constitutional Court itself with its emergency program, since in its ruling on the PSPP bond purchase program, for example, the maximum guardians German constitutional laws formulated clear rules that the ECB must comply with so that purchases do not incur prohibited state financing. In fact, the Karlsruhe judges had indicated that there are clear maximum purchase limits for bailout programs and that the capital key must also be taken into account, so as not to create suspicion of a unilateral preference for individual countries. Nor can the ECB have more than a third of the individual bonds in order not to have voting rights in the restructuring. Kerber insists that none of these rules apply to PEPP.
In the plaintiffs’ view, the Bundesbank, which makes purchases of bonds for Germany on behalf of the ECB, should be exempted from executing such purchases of public debt. They argue that the ECB’s authority to issue instructions under Article 130 of the EU Treaty does not apply because the ECB is acting ultra vires with the PEPP. They do not agree that Germany is buying, for example, Spanish public bonds of dubious market acceptance, assuming billions in liability risks without having any real democratic control.
Since 2015, the ECB has acquired public debt for a volume of around 3.2 trillion euros, which makes it the largest creditor in the euro zone. Almost € 900 billion was spent under the PEPP. This means that, for example, the ECB has German bonds under the PEPP worth almost € 769 billion, 32.8% of the total. Italians for 551,300 million, 21.5%. 23.4% of French bonds and 29.4% of Spanish ones, about 384,800 million euros. These percentages, according to the demand, make the ECB a hidden financier of European governments
This also includes federal bonds totaling 736 billion euros and Italian bonds totaling 530 billion euros. The monetary authorities have, for example, federal bonds worth 769 billion euros and Italian debt securities for 551 billion euros. The ECB owns about a third of the German debt and a fifth of the Italian. “The ECB is trapped when inflation increases,” Kerber warned in statements to Die Welt. The ECB has significantly expanded gross purchases of PEPP in the last two weeks. According to calculations by the financial service Bloomberg, only last week bonds with a volume of 18.2 billion euros were bought, significantly more than the 16.9 billion euros of the previous week.