ECB "Quantitative Easing Effects Greater Than Side Effects"... Germany Directly Refutes

Published 25 Jun.2020 21:24(KST)

ECB Policy Committee Minutes

European Central Bank (ECB) <br>[Image source=Reuters News Agency]

European Central Bank (ECB)
[Image source=Reuters News Agency]

[Asia Economy Reporter Eunbyeol Kim] The European Central Bank (ECB) stated that the effects of quantitative easing (QE) outweigh its side effects, and that bond purchases remain the most effective tool in the current situation. This was a rebuttal to last month's decision by the German Constitutional Court, which halted QE on the grounds that it might be unconstitutional.

According to the ECB Governing Council minutes released on the 25th (local time), Philip Lane, the ECB's Chief Economist, said, "Previous and recent asset purchase programs have been conducted with the aim of stabilizing prices," adding, "There are sufficient safeguards in place to minimize side effects."

He explained that QE measures through bond purchases, such as the Pandemic Emergency Purchase Programme (PEPP) and the Asset Purchase Programme (APP), were not carried out indiscriminately but were operated according to market conditions.

Chief Economist Lane added, "These asset purchase programs have achieved the intended effects on the European economy," and "There are thoroughly documented evidences supporting this."

He also stated that low interest rate policies, along with bond purchases, do not necessarily lead to negative outcomes. Low interest rates reflect structural factors and do not solely produce 'zombie loans' that keep insolvent companies afloat.

Last month, the German Constitutional Court ruled some aspects of the bond purchase program as "measures beyond the ECB's authority," declaring them partially unconstitutional. It also ordered that if legitimacy is not proven within three months, the Bundesbank (Germany's central bank) must cease participation in the program.

On the 24th, the Governing Council agreed to provide confidential documents to German authorities to prove legitimacy. However, the procedure for providing the documents will be led by the Bundesbank, not the ECB. Meanwhile, the ECB warned that it is preparing for the possibility of the Bundesbank withdrawing and is ready to take legal action if necessary.