To the rescue of the Euro have taken Europe’s monetary guardian. Even critics attest to of the European Central Bank (ECB), under the leadership of Italian Mario Draghi, the currency area in recent years stabilized. But that the Central Bank is up today huge billions in the purchase of government bonds is controversial. Once again was the judgment of the European court of justice (ECJ).
what ECB action went Toit?
the billion-dollar bond program for the Central Bank purchase in the jargon as “Quantitative Easing” (QE). Since March 2015, the ECB will acquire in this framework, bonds of the Euro States. Since June 2016, the companies are also bonds on the shopping list. Almost 2.6 trillion Euro invested, the ECB so far in such papers. Since October 2018, the volume is a monthly sum of 15 billion euros.
How has the Supreme EU court decided?
The controversial bond purchases by the ECB, according to the ECJ-judgment legal. The ECB would be in breach of the prohibition on state financing, and not against its mandate, ruled the European court of justice (ECJ) ruled on Tuesday in Luxembourg. (Ref: ECJ, C-493/17)
A key EU expert had previously found that the purchase program was lawful. The evaluation of the ECJ advocate General Melchior Wathelet, the judge of the Supreme EU court, and that was not binding, in the majority of cases, they follow her. So also now.
Why the ECB will start buying of all securities?
the Primary objective of the ECB, stable prices and a stable currency for the 340 million people in the 19 States of the Euro area. In the medium term, the Central Bank is aiming for currency, an inflation rate of just below 2.0 percent. Because the inflation rate in previous years was very low, helped by the ECB by lowering the interest rates drastically and at the same time via the purchase of government and corporate bonds, the huge sums of fresh money in circulation brought. The theory: When more money is in circulation, prices will rise and thus also attracts the inflation rate.
What States that the Central Bank buys their bonds?
States come the cheaper of fresh money. Because you don’t have to offer high interest rates for new securities, because the ECB is buying large stocks. This also helps economies to strong economies. For older calculations of Deutsche Bank, the German state seems to have saved alone in the years 2008 through 2016 worth nearly € 260 billion in interest. In addition, the purchase program the Central Bank has a psychological effect: The ECB is not signaled to consumers and businesses so that the economy in the lurch.