05 June 2020

Politico: Lagarde rebuffs German court but hints at some answers

ECB President Christine Lagarde on Thursday rebuffed demands from the German Constitutional Court to provide a justification of its economic rationale for buying government bonds.

But Lagarde, speaking after the ECB defied the court by expanding its bond-buying, hinted at “a good solution” to the impasse — and went on to elaborate further reasons for the program while pointing to the ECB’s public records of its decisions.

Her comments came in response to questions from reporters after the ECB Governing Council agreed to pump even more money into the eurozone, as the coronavirus’ impact on the economy worsens.

Lagarde set out multiple ways in which its Pandemic Emergency Purchase Program (PEPP) was keyed not to the general economic tumult from COVID-19 but to impact on inflation — and by extension, the ECB’s treaty-enshrined mandate to safeguard price stability.

“It was clearly in the birth certificate of PEPP and it is clearly alive,” she said of the program’s link to the ECB policy of boosting inflation towards its target level.

The German judges in Karlsruhe will be able to find a full account of the reasoning behind the decision in three weeks, Lagarde added several times, when the ECB publishes the minutes of the debate from its online gathering.

But Karlsruhe won’t get more out the ECB, she suggested, saying that the May 5 judgment “is directed at the German government and at the German parliament.”

The disputed ruling came in a legal challenge to a separate ECB bond-buying program dating to 2015, not the PEPP, although policymakers see the case as a precedent for current initiatives.

In that case, the court rejected an earlier ruling by EU judges and gave the ECB three months to provide adequate economic justification for its 2015 program. Failing that, the justices in Karlsruhe said Germany’s Bundesbank would be banned from carrying out ECB bond purchases.

Pressed about the matter on Thursday, Lagarde stuck to her script. The Frenchwoman restated what the ECB has maintained since the German decision: it answers to the EU’s Court of Justice in Luxembourg, which two years ago said her Frankfurt-based institution — led at the time by Mario Draghi — had full authority to run the bond-program.

“We’re confident that a good solution will be found,” Lagarde added without elaborating on who would find the solution. “A good solution that will not compromise the ECB’s independence” or “the primacy of European law.”

In avoiding any promise of answering Karlsruhe, the 64-year-old former lawyer put more pressure on the German government and the Bundesbank to handle the court’s requests, which European policymakers and some think tankers have criticized for undermining EU law.

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