U.S. Markets

ECB "undeterred" by German court ruling over bond buying

FRANKFURT (Reuters) - The European Central Bank pushed back on Thursday at a German court’s attempt to curb its power to buy government bonds, saying it was “more determined than ever” to pull the euro zone out of its worst economic crisis in nearly a century.

FILE PHOTO: A woman wearing a protective mask walks past the headquarters of the European Central Bank (ECB) at sunset in Frankfurt, Germany, April 29, 2020. REUTERS/Kai Pfaffenbach

Germany’s Constitutional Court ruled this week that the ECB had overstepped its mandate with trillions of euros’ worth of bond purchases, and said the Bundesbank must quit the scheme within three months unless the ECB can prove its necessity.

But President Christine Lagarde said the ECB was “undeterred” by the ruling and would do whatever was necessary to achieve its mandated goal, which is to bring inflation back to an elusive target of just under 2%.

“We are an independent institution, accountable to the European Parliament, driven by mandate,” Lagarde told a Bloomberg webinar. “We’ll continue to do whatever is needed... to deliver on that mandate.”

“Undeterred, we will continue doing so.”

The ECB is on track to buy some 1.1 trillion euros worth of bonds this year, taking its stock to nearly 4 trillion to help governments, households and companies struggling with the coronavirus pandemic.

Speaking earlier to the European Parliament, ECB Vice President Luis de Guindos said the central bank was prepared to do even more.

“We remain more determined than ever to ensure supportive financial conditions across all sectors and countries to allow this unprecedented shock to be absorbed,” de Guindos said.

“We continue to stand ready to make further adjustments to our monetary policy measures should we see that the scale of the stimulus is falling short of what is needed.”

De Guindos rejected the claim that ECB decisions were disproportionate, arguing that a risk assessment forms the basis of every decision and proportionality is studied extensively.

He added that the central bank was under the jurisdiction of the European Court of Justice, which has cleared the ECB’s Public Sector Purchase Programme - under which the central bank has bought some 2 trillion euros worth of bonds since 2015.

Directly engaging with the German court decision would imply that the ECB accepts its jurisdiction, so the ECB will rely on the Bundesbank to address the case, sources close to the Governing Council told Reuters.

Searching for ways to implement the court decision, German lawmakers are now also debating whether to require the Bundesbank to regularly report on its activities, sources told Reuters.

Such a scheme could work if lawmakers simply seek information about the bank’s activities, but it could run into legal trouble if lawmakers wanted powers to approve or overrule the policy of an independent central bank.

Editing by Timothy Heritage, Toby Chopra and Hugh Lawson