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ECB

German court to probe ECB bond-buying

Germany's constitutional court will from Tuesday examine whether the ECB overstepped its mandate through a scheme to potentially buy unlimited amounts of government debt.

German court to probe ECB bond-buying
Germany's Constitutional Court is expected to find a compromise. Photo: Tobias Helfrich/Wikimedia Commons
The case begins at a time when the bank is preparing to further ramp up its bond purchase programme.
 
The OMT — or Outright Monetary Transactions — programme was unveiled in 2012, at the height of the eurozone sovereign debt crisis, as the ECB's weapon to warn off investors from speculating on government bonds.
   
The programme was never implemented, and has since been superceded by a far bigger bond purchasing programme known as QE, although that is aimed now at kickstarting inflation rather than warding off speculation.
   
The German top court's ruling would focus on the now likely defunct measure but could have a bearing over the ECB's ongoing 1.1 trillion euro bond buying programme until March 2017.
   
For critics, such measures are effectively a way of printing money to pay off a government's debt.
 
Some 37,000 eurosceptics initially took their case against the OMT to Germany's highest court in 2014.
   
The constitutional court then partially agreed with their concerns, ruling that there are “important reasons to suggest that it goes beyond the ECB's monetary policy mandate and infringes on the powers of the member states and contravenes the ban on monetary deficit financing”.
   
But it passed the case on to the European Court of Justice in Luxembourg before issuing its final ruling.
   
The ECJ however last June swiped aside the German court's misgivings, saying the scheme was compatible with EU law.
   
The court in Karlsruhe therefore now has to issue its final decision on the case, with a verdict not expected before a few months.
 
Debt-wary Germany is especially sceptical about such bond-purchasing programmes, and the head of the country's central bank Jens Weidmann had voted against both OMT and QE.
   
At the ECB's regular monetary policy meetings, Weidmann has also played a dissuading role when bank chief Mario Draghi made any suggestions of further ramping up the bond purchasing programme.
   
Commerzbank analyst Michael Schubert believes that the German court “will probably not change its previous ruling, even after” the ECJ's decision.
   
Rather, German judges “will likely try to find a compromise”, he predicted.  This could see the court accept the European court's conclusions while rejecting its reasoning, or simply reserving the right to reexamine the
situation in case of new developments, he said.
   
A group of renowned German economists including Clemens Fuest, who heads the Ifo institute, had warned that if the German court agrees with the ECJ, it would open the floodgates for other unconventional measures.
   
“From the moment that the ECB carries out an intervention in the crisis, we risk sending (the eurozone) in the wrong direction,” they added, pointing out that debt-laden countries would lose the incentive to pursue meaningful reforms of their economies, and could simply wait for the ECB to rescue them.
   
At the ECB's first monetary policy setting meet this year, bank chief Mario Draghi hinted the bank could boost stimulus measures and further slash rates to give stubbornly low inflation a nudge.

ECB

Inflation rose in Germany in December: report

Inflation in Europe's largest economy Germany clambered higher in December, official data showed Friday, but remained short of the European Central Bank's target for the 19-nation eurozone.

Inflation rose in Germany in December: report
Prices in Germany are rising, but not as fast as they should be. Photo: Jens Büttner / zb / dpa
Price growth hit 1.5 percent year-on-year last month, statistics authority Destatis said, some 0.4 percentage points higher than in November.
   
And it reached the same level when measured using the Harmonised Index of Consumer Prices (HICP) yardstick preferred by the ECB.
   
But while German price growth was headed in the right direction, it was still well short of the ECB's just-below-two-percent goal. Over the full year 2019, inflation averaged just 1.4 percent.
   
“There is little sign of sustained growing price pressure that could prompt the ECB to rethink its ultra-expansive monetary policy,” said economist Uwe Burkert of LBBW bank.
 
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Here's a graph put together by the German newswire DPA, showing how the inflation rate in Germany has fluctuated between 2008 and 2019. 
 
 
 
The ECB has set interest rates at historic lows, granted hundreds of billions of euros in cheap loans to banks, and bought more than 2.6 trillion euros ($2.9 trillion) of bonds in efforts to keep credit flowing to the economy, stoking growth and inflation.
   
But it has fallen short of its eurozone-wide price growth target for years, predicting last month it would inch up to just 1.6 percent by 2022.
   
Economists have pointed to both uncertainty over political events, like trade wars and Brexit, and long-term developments like ageing populations as possible reasons for sluggish growth and inflation.
   
Under new chief Christine Lagarde, the ECB plans to launch a wide-ranging “strategic review” this year, its first since 2003, that could adjust its tools or even reexamine the inflation target itself.
   
In the meantime, she has urged countries — like Germany — with sound government finances to lift spending in hopes of juicing the economy.
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