Summer of Love: Karlsruhe Refers the QE Case to Luxembourg

Yesterday, on the day of ferragosto, the turning point of Summer, when people in Italy traditionally gather at the beaches, the case of Italy’s opponents in monetary policy against the European Central Bank’s policy of Quantitative Easing (QE) reached a turning point of its own. The Bundesverfassungsgericht (BVerfG) referred the case to the European Court of Justice (ECJ), staying its case while asking the ECJ for an expedited procedure. This is only the second referral of the BVerfG after the case concerning Outright Monetary Transactions (OMT), in many respects the blueprint of the present case.

While the OMT program consisted in the mere announcement that the European Central Bank (ECB) would make selective purchases of sovereign bonds of countries receiving ESM funding in case distortions on the sovereign bond market would hamper the transmission of monetary policy, QE has had far more incisive practical implications. Since late 2014, the ECB has purchased all sorts of assets to reach its inflation target of close to 2% in a period of low inflation and equally low inflation expectations. Within that framework, the ECB launched a Public Sector Purchase Program (PSPP) in early 2015. This program empowers the ECB and the National Central Banks (NCB) which are part of the European System of Central Banks (ESCB) to purchase government bonds and bonds of other public entities. The program’s dimensions are gargantuan. As of May 2017, the volume of government bonds purchased under PSPP had reached over 1.5 trillion euros. These purchases do not focus on countries with particular debt problems. Rather, the ESCB buys the bonds of eurozone members in proportion to their share of the capital of the ECB ...

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