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Free AccessMNI INTERVIEW: German Wise Man Says Court May Aim At ECB Again
--German Council Of Economic Experts Chairman Sees "Pragmatic" Way Round Court
Ruling
--But Constitutional Court Could Issue Further Rulings Against ECB
--Second Part Of Interview With Lars Feld
By Luke Heighton
FRANKFURT(MNI) - The European Central Bank could find a "pragmatic"
solution to the to the challenge posed by the German Constitutional Court's
ruling calling for it to justify its government debt buying, but the judges have
fired a shot at the European Union's legal foundations and could take aim even
more damagingly at other ECB programmes, the chairman of the German Council of
Economic Experts told MNI.
Lars Feld, who appeared before the judicial panel in Karlsruhe during its
deliberations, said the ECB, which has responded to the ruling by stating that
it is answerable to the European Court of Justice, could draft a document
demonstrating that the scale of its purchases is proportionate but have it
delivered to the German judges via the Bundesbank. This would allow it to avoid
any public concession that it was doing the court's bidding, while averting the
danger that the judges would order the Bundesbank to pull out of the public
sector purchasing programme.
But the German court's ruling is effectively an attack on the ECB's mandate
to maintain price stability, as well as a challenge to the primacy of the ECJ
which may lend encouragement to other jurisdictions to undermine the European
Union as legal entity, Feld said in a video interview on May 12.
--PANDORA'S BOX
"There is a clear hierarchy saying that price stability is most important,
and the support of the economic policies of member states comes second. What the
GCC has done is to open the Pandora's box of giving all these other policy goals
much more emphasis in monetary policy decision-making," Feld said. "At least
there is a danger that we will end up there. It's important that this does not
happen; that the ECB sticks to its mandate as laid down in the Treaty."
While Feld saw little probability that the Bundesbank would actually be
forced to stop bond buying, there is a risk that the German Constitutional Court
could issue a second ruling casting doubt over the legality of the ECB's much
larger Pandemic Emergency Purchasing Programme, which lacks restrictions on bond
buying applied for the PSPP.
"Then it will be much more difficult to avoid a crisis in the European
Monetary Union," Feld said.
--EXPAND PEPP?
In the meantime, in the unlikely event the Bundesbank were to be forced out
of PSPP, "the ECB could also say well, in that case we'll stop the PSPP
programme and expand PEPP, then wait until the next ruling comes up."
Following Feld's dealings with the judges, he had expected them to impose
"some boundaries on the monetary policy of the ECB, such that it cannot do
whatever it wants or 'whatever it takes," but "did not expect the court to be so
heavily criticising the European Court of Justice as it did."
Feld characterised the efforts of the ECB to offset the economic effects of
the Covid-19 pandemic on Europe's economy as "well taken" and "sufficient" for
the time being. "We have to wait and see what the economic effects of the corona
pandemic look like when the situation is normalised - in the sense that the
lockdowns are finished and we're slowly getting back to normal activity. Then,
perhaps, the ECB needs to do more."
But he expressed concern that Italy may not be able to be able to reduce
the substantial increase in its debt-to-GDP ratio caused by the crisis "by
normal consolidation measures and additionally to boost economic growth.
"Productivity growth in Italy ever since it entered monetary union has been
very low, even negative" Feld said, "and it was so even before the financial
crisis. I can't see at the moment how Italy can change that now without the will
to endeavour bold reforms."
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: M$E$$$,M$G$$$,M$X$$$,MC$$$$,MT$$$$,MX$$$$,M$$EC$,MFG$$$,MFX$$$,MGX$$$]
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.