The German Constitutional Court threatened on Tuesday to block further purchases of German bonds through the European Central Bank’s public sector purchasing program (PSPP), a stimulus package implemented by the bank to buy public debt and keep borrowing costs low in the euro area.
The court ruling, which ordered the German government to ensure that the ECB makes an assessment of its purchases of sovereign debt, could see the German Bundesbank exempt from the regime.
A proportionality assessment would involve proving that the ECB’s PSPP was economically necessary and did not go beyond the basic price stability mandate of the central bank.
“The court requests the central bank to show that it has taken into account the principle of proportionality,” Lorenzo Bini Smaghi, president of Societe Generale and former member of the ECB’s executive board, told CNBC “Squawk Box Europe” on Friday. .
“Frankly, to think that the ECB did not do this is laughable – there is a lot of research, reports, statements, which clearly show that the ECB does not meet only in five seconds and says” let’s just raise the rates or lower rates “” out of the blue. There is a very thorough analysis, discussions, arguments and sometimes disagreements. “
Bini Smaghi noted that Bundesbank President Jens Weidmann has repeatedly explained that while the ECB’s buying program has multiple economic impacts, the overall effect on price stability is in line with its objective.
“If we take (the decision) more seriously, it’s a little worrying, because if the ECB really had to examine all the pros and cons … will it have to balance its price stability mandate with the impact on certain people, certain borrowers? ” he said. “This would ultimately undermine the independence of the ECB. So I’m not sure if it is laughable or serious – and dangerous for the independence of the ECB. “