The European Central Bank is the champion of the European project, not its villain, ECB rate-setter Peter Kazimir said, pushing back on a German court ruling that put years of efforts to keep the currency bloc together in jeopardy.
Germany’s Constitutional Court ruled last week that the ECB had overstepped its mandate with two trillion euros worth of government bond buying in the past five years. It ordered the Bundesbank to quit the scheme unless the ECB can prove within three months that the measures are necessary.
“The European Court of Justice has sole authority to decide on the ECB’s actions,” Kazimir, Slovakia’s central bank chief, said, pushing back on the notion that a German court has jurisdiction over its powers. “This is the rule for us, our Bible.
“…It’s important to stress that the European Central Bank is not the villain of Europe or Europeanism. On the contrary!” Kazimir, a former finance minister, told Reuters in an interview.
The German court argued that the ECB had failed to prove its moves were proportional or accounted for side effects, claims Kazimir rejected, saying that the bank had amassed ample evidence to the contrary.
Rather than scale back bond purchases after the ruling, the ECB was ready to do more to fight the ill effects of the coronavirus pandemic, if such a move became necessary, Kazimir said.
But the onus was now on euro zone leaders to act because their joint response to the crisis, including a modest 540 billion euros in assistance, had been inadequate, he said.
“The 540 billion euro package is most welcome. But it seems to me it’s not going to cut it,” Kazimir said, criticizing his former colleagues. “The Eurogroup’s pace is not matching the size and gravity of the ECB’s action or national fiscal responses.”
The euro zone economy could shrink by up to a tenth this year, with much of the continent in lockdown and entire industries mothballed amid the fight against the pandemic, he said.
The problem with the political response was not so much the size of the package but the lack of a clear signal of European solidarity.
“We need a clear political commitment without caveats,” Kazimir added. “Policymakers need to make clear that assistance is coming, they’re ready to take the measures needed, without legal obstacles or without delay.”
For its part, the ECB was willing to do more, but scaling up a 750 billion euro Pandemic Emergency Purchase Scheme (PEPP) was not yet necessary, he said, even if markets expected such a move as soon as June.
Buying up to 45 billion euros of debt a week, the ECB is on track to exhaust its bond purchase quota by autumn, raising some market doubts about its commitment to keep down borrowing costs for firms and governments.
But with some governments now easing lockdown measures, the pandemic may be entering a new phase, potentially impacting the sort of help the ECB must deliver.
“We see no urgency in increasing the size of PEPP,” Kazimir said. “We are not opposed to considering such a move if a future development warrants it.”
The ECB will next meet on June 4 although the Governing Council has met regularly since the start of the pandemic and has passed its biggest measures at extraordinary meetings.