ECB reloads tremendously and walks on the “traces of the Reichsbank”

The stock marketers were enthusiastic about the prospect of additional money. Italian securities in particular benefited. Yields on ten-year government bonds fell 16 basis points to 1.39 percent. The Italian stock market index FTSE MIB rose by more than half a percent.

The euro also rose strongly. The common currency rose to just under $ 1.13 – the highest level since March. The reaction in Germany was less positive. Bund yields rose significantly. The German share index Dax remained at the previous day’s level.

Pointing in the direction of the Federal Constitutional Court

The different reactions are due to the fact that investors expect Italy to benefit from the additional billions. That was also revealed by the first detailed figures on the PEPP. After that, the ECB had purchased significantly more Italian securities than it should have been according to the capital key.

Many experts assessed the increase as a statement in the direction of the Federal Constitutional Court in Karlsruhe. At the beginning of May, the company decided that the ECB’s regular bond purchase program, APP, might exceed its mandate because it did not adequately highlight the proportionality of the purchases.

Lagarde, who was referred to the judgment several times, always responded with the same answer: The ECB is subject to jurisdiction by the European Court of Justice. The Karlsruhe government and the Bundestag are addressees of the Karlsruhe judgment. “We are confident that a good solution will be found that in no way endangers the independence of the European Central Bank and the primacy of European law,” said Lagarde.

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The ECB President pointed out that the ECB is continuously reviewing the appropriateness of its policies, which can also be found in the minutes of the meetings. At this meeting, the Governing Council also reviewed the effectiveness, efficiency and adequacy of the new measures.

“The ECB shows very clearly that it is independent and cannot be prevented by the Federal Constitutional Court from fulfilling its mandate,” said Holger Schmieding, chief economist at Berenberg.

But there are also clearly more critical voices. “It is more than unfortunate that the ECB is expanding the program with the fewest guard rails. If the ECB deviates systematically from the ECB’s capital key in the long term and does not set any upper limits, it must accept the accusation of monetary government funding, ”complains the CSU MEP and economic policy spokesman for the EPP Group in the European Parliament, Markus Ferber. “With this decision, the ECB is moving ever further away from the requirements of the European Court of Justice.”

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Chief economist Thorsten Polleit from Degussa Goldhandel formulates his criticism of the ECB even more sharply. Their monetary policy was on the “traces of the Reichsbank”, he judged, alluding to the enormous expansion of the money supply in Germany in the 1920s. The PEPP program alone corresponds to an amount that makes up around ten percent of the M3 money supply, Polleit predicts.

Added to this would be the ongoing bond purchases, which would correspond to around ten percent of the M3 money supply. “This is a huge monetary expansion,” says Polleit. “In essence, this means that the ECB monetary policy finances the new indebtedness of the euro countries with the electronic banknote press.” The expansion of the money supply would result in colossal redistributions of income and wealth, from which some would benefit and many would be disadvantaged.

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While concerns about the possible consequences of the significantly increased bond purchase program are growing in Germany, concerns in Italy obviously go in a completely different direction. During the press conference, the journalist from an Italian business newspaper wanted to know why the ECB bought German government bonds as part of its emergency program. Lagarde then emphasized that the central bank naturally adheres to the capital key of the European central bank system when making its purchases. Italy has a share of 17 percent, Germany a share of more than 26 percent.

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