The euro lost ground this Tuesday until it reached a one-week low, which is also the lowest in May, after the decision of the German Constitutional Court on the debt purchase program of the European Central Bank (ECB) launched by Mario Draghi in 2015 and which was restarted at the end of 2019. The European currency has dealt the blow that the German justice has given to the stimuli of the central bank by forcing the Bundesbank to abandon this program within three months, unless the ECB can justify that such acquisitions are necessary and proportionate. The currency has come to leave around 0.7% to $ 1.0826, levels of April 29, from where it recovers marginally.
However, the German justice system has withdrawn any financial assistance measure launched by the coronavirus crisis from its decision, which has softened the impact, experts say. “The decision published today does not refer to any financial assistance measure taken by the European Union or the ECB in the context of the current coronavirus crisis,” the German high court has pointed out.
German judges have evaluated the ECB’s quantitative easing program, which was introduced in 2015 through 2018 and then restarted in late 2019. The idea behind this initiative was to shore up the eurozone economy by keeping borrowing costs low for all its member states. But they have found legality problems in the participation of the Bundesbank.
As they have explained, the bank of Germany will have to interrupt the purchases of sovereign debt within this program within three months. unless the ECB can justify that such acquisitions are necessary. “The Bundesbank should not participate in the implementation and execution of the decisions of the ECB in this regard, unless the Governing Council of the ECB adopts a new decision showing that the PSPP does not have disproportionate effects on fiscal policy,” he points out.
Thus, analysts stress that the step taken by the Karlsruhe Court, by 7 votes in favor and 1 against, casts doubt on the current central bank’s ability to safeguard the bond market, for which renewed tensions are expected in the risk premiums, especially peripheral ones, and in the community currency.