Germany’s finance minister says the European Central Bank has fulfilled the requirements of a controversial ruling last month by the German constitutional court that cast the bank’s flagship bond-buying programme into doubt.
The letter from Olaf Scholz will raise hopes that the stand-off between the ECB and Germany’s highest court can soon be resolved and the bank can continue with its stimulus programme.
In a shock ruling last month, the constitutional court ordered the German government and parliament to ensure that the ECB provide a “proportionality assessment” of its €2.2tn sovereign bond-buying scheme.
It gave the ECB three months to justify its bond purchases under the Public Sector Purchase Programme (PSPP). If it failed to comply, the Bundesbank, Germany’s central bank, would no longer be allowed to participate in the scheme.
The ECB moved to resolve the impasse by releasing a number of unpublished documents to the Bundesbank, which were then passed on to the German government. These included minutes of past meetings at which the bank discussed buying sovereign bonds before it launched the policy in March 2015 and before it started publishing official accounts of its meetings that year.
The ECB also published the official account of its last monetary policy meeting, which showed its council members debating the pros and cons of its actions and whether they excessively impinged on economic and financial policy.
In a letter to the president of the Bundestag, Wolfgang Schäuble, seen by the Financial Times, Mr Scholz said that he and his ministry had “numerous conversations in the last few weeks with the Bundesbank and the ECB about how to meet the needs of the constitutional court while respecting central bank independence”.
He said that the previously unpublished documents provided by the ECB showed it had indeed assessed the proportionality of the PSPP, studying its effects “on the finances of the member states, private households, savers/borrowers, the banking sector and companies”.
In that respect, Mr Scholz said, the bank’s decision to release the documents “fully meets the requirements of the constitutional court’s May 5 2020 ruling”.
He added that as a result of the ECB’s actions, it was the view of his ministry that the Bundesbank should be allowed to continue to participate in the PSPP unhindered.
German MPs are this week expected to discuss the documents provided by the ECB, another important stage in efforts to end the conflict between the bank and the constitutional court.
Meanwhile, ECB president Christine Lagarde has provided more detail about the way it assesses the proportionality of its bond-buying in a letter to a German member of the European Parliament.
In the letter to MEP Sven Simon, seen by the FT, Ms Lagarde said its evaluation was done in three ways. First, she said it assessed the effectiveness of its monetary policy measures. Second, she said it evaluated the efficiency of its policies, or “whether the objective it pursues could not be achieved by other means that would potentially have lesser unintended effects on the economy at large”.
Finally, Ms Lagarde said the ECB gauged whether the benefits of a change to its monetary policy were “outweighed by potential adverse side effects”. She added: “If this analysis indicates that the recalibration of a given instrument might generate excessive side effects, our policy stance will rely more heavily on other instruments.”
Promising to continue evaluating the “effectiveness, efficiency, and potential side effects of our monetary policy toolkit” in the ECB’s strategic review, which was recently restarted after being paused due to the pandemic, Ms Lagarde said: “We will engage in regular exchanges with the European Parliament on the progress we make in this exercise.”