The European Central Bank (ECB) is taking another critical look at its own support package, which it launched in March against the coronavirus. This may affect the ECBs other support programmes, but politically, the bank is treading a slippery slope.
That is what two ECB board members said to the Financial Times. In March, the ECB launched a €750 billion bond buy-back programme. That was extended to €1350 billion in June.
It is not the first time that the ECB has bought bonds on a large scale; the central bank started doing so as early as 2015. One difference from the coronastune is that the ECB no longer adheres to the capital key. The bonds are therefore not bought on the basis of the size of a countrys economy. This allows the central bank to be much more flexible and focused and to buy more bonds from countries whose interest rates are in danger of rising too sharply.
Insiders say that this is so good that the ECB would like to see whether this flexibility can be applied to other buy-back programmes. However, this step is extremely sensitive politically. On the contrary, the ECB adhered to the capital key in order to prevent the central bank from engaging in monetary financing: the direct financing of governments by buying up debt.
Limits of the mandate
In May, Germanys Supreme Court ruled that the ECB did not break the law with the old buy-back programme, but that the bank did not explain well enough why this heavy instrument was needed. The ECB did so, but it was a clear signal from Germany that the ECB cannot limit itself to the limits of its mandate.