German court rules ECB bond-buying programme as legal, wants re-assurances on cost-benefit analysis

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Germany’s top constitutional court has ruled the European Central Bank’s vast debt purchasing programme as legal, but ordered the German Government to ensure that the ECB has carried out a “proportionality assessment” in its massive debt purchasing programme, in order to ensure that the economic and fiscal policy effects were not greater than its monetary policy objectives.

While most analysts expected that the court would reach a decision confirming the legality of the bond purchasing, some still expressed concerned that the Court could rule against, triggering an even bigger crisis in the eurozone.

In the final decision published on its website, the court noted that it “did not find a violation of the prohibition of monetary financing of member state budgets”.

It also noted that “the decision published today does not concern any financial assistance measures taken by the European Union or the ECB in the context of the current coronavirus crisis.”

However, it stopped the Bundesbank, the German Central Bank from participating  in similar bond purchases if such policy was not shown by the ECB as proportionate. “On the same condition, the Bundesbank must ensure that the bonds already purchased and held in its portfolio are sold based on a — possibly long-term — strategy co-ordinated with the Eurosystem.”

The ECB has purchased a staggering €2.2tn of public sector debt since launching its programme in 2014. After a gradual easing throughout last year, this year it has vastly expanded its purchases to stop the coronavirus pandemic spiralling into a wider debt crisis.

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