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ECB Must Limit Emergency Powers to Temporary Crises
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The European Central Bank risks legal trouble if it tries to extend the “emergency powers” of its pandemic bond-buying plan to its other asset-purchase program, according to Executive Board member Yves Mersch.To get more news about WikiFX, you can visit wikifx official website.
The 1.35 trillion-euro ($1.6 trillion) measure “has been created first and foremost to be a backstop,” Mersch, the ECB‘s longest-serving policy maker, said in an interview at the institution’s Frankfurt headquarters on Monday.
“We have always said it is linked to the assessment of the Governing Council on how long this pandemic is affecting us,” he said. “So we cannot say the pandemic is over but we continue with the pandemic program, or we transfer the pandemic program features into the asset-purchase program. To my humble understanding of what the law means, this would be very curious.”
The comments offer a glimpse into potentially contentious arguments ahead. Mersch, a lawyer by training, is responsible for the ECB‘s legal services. He has also been at the center of decisions since the single currency’s birth, as head of Luxembourg‘s central bank from 1998 and then on the ECB’s six-member board from 2012. Hell step down in December.
Policy makers already had a legal scare this year when Germanys top court criticized the way they deployed their 2015 asset-purchase program, which is still running.
The pandemic tool, launched in March, is even more powerful. It can skew asset purchases toward stressed economies such as Italy because it is exempt from limits that aim to prevent monetary financing -- the funding of governments by the central bank -- which would be illegal.
Read More: Race to Join Lagardes Team at Top of ECB Officially Kicks Off
The Financial Times reported this week that a review of the emergency measure has started, and that some Governing Council members want to consider extending such flexibility to the older program.
Mersch, 70, said he was “not aware of such a development” and it could be problematic.
“Its always easier to govern if you have emergency powers and you prolong the emergency powers forever,” he added. “We have disenfranchised ourselves from a certain number of self-imposed constraints in view of the pandemic and in view of its exceptional nature and threat -- and that means it must be temporary.”
Most economists and investors expect the pandemic program to be expanded again at Decembers policy meeting, as economic growth slows and virus infections mount. Mersch -- long seen as a relatively hawkish policy maker -- said that decision will depend on the data, but so far the outlook is steady.
“Looking also at new incoming information, I think nothing is pointing to a further deterioration,” he said. “This is based on an assumption that things continue as they are right now, that there is no major deterioration on the health front.” -
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