ECB Case at High Court: The Bundesbank Is Playing a Dangerous Game

Published on Spiegel Online International, a Guest Commentary by Peter Bofinger, June 10, 2013.

The German central bank, the Bundesbank, will have a central role in this week’s Federal Constitutional Court hearing on complaints filed against the permanent European bailout fund known as the European Stability Mechanism ESM and the bond purchase program of the European Central Bank ECB. It makes clear in its written statement that the bond purchases announced by the ECB are “to be judged critically.”   

The Bundesbank concedes that the purchase of bonds by central banks is a common practice, but notes that in the case of the United States, Japan or the United Kingdom, central banks only buy bonds of high creditworthiness. The ECB, by contrast, plans to buy bonds of “poorly rated member states” in order to reduce their high-risk premiums, writes the Bundesbank … //

… Rate Cuts Haven’t Arrived in Crisis-Hit Countries:

But since the crisis broke out, this has no longer been guaranteed in the debt-plagued member states, where the ECB’s interest rate cuts haven’t arrived. Instead, interest rates have even increased in some cases, or at least have not fallen, despite the bad economic situation and the restrictive fiscal policies. As the Bundesbank refrained from citing any empirical evidence in its statement, it appears to have missed the fact that the disruption it defined in no uncertain terms clearly exists.

The Bundesbank also made the astonishing argument that it’s not the task of central banks to remove such a disruption when it occurs. This, it argued, even applies when market participants speculate on the collapse of the monetary union. The necessary support measures must be decided and shouldered by national governments and parliaments, it said. Has the Bundesbank forgotten that the national governments surrendered all their monetary policy powers to the ECB when they joined the currency union? No country would be able on its own to effectively stop capital flight triggered by speculation that it’s going to exit the monetary union.

Asymmetric Interpretation: … //

… (full text).


European Stability Mechanism ESM is an international organisation located in Luxembourg which was established on 27 September 2012 as a permanent firewall for the eurozone to safeguard and provide instant access to financial assistance programs for member states of the eurozone in financial difficulty, with a maximum lending capacity of €500 billion. It replaced two earlier temporary EU funding programmes: the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM). All new bailouts for any eurozone member state will now be covered by ESM, while the EFSF and EFSM will continue to handle money transfers and program monitoring for the previously approved bailout loans to Ireland, Portugal and Greece …;

European Central Bank ECB.

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