Tags: EU | Europe | Economy

German Court Upholds ECB Bond Offer That Calmed Crisis

Tuesday, 21 June 2016 05:59 AM

FRANKFURT, Germany (AP) — Germany's constitutional court has rejected a challenge to a European Central Bank bond-buying program credited with helping keep the euro currency union from breaking up in 2012.

The court in Karlsruhe said Tuesday that the ECB had not exceeded its legal powers and rejected a challenge from legislators and a citizen's group to the bond-buying program.

ECB President Mario Draghi announced the program in 2012 as bond market turmoil threatened the finances of several euro countries. The ECB offered to buy bonds of countries facing high sovereign borrowing costs, as long as they submitted to financial reforms.

The program was never used, but the mere existence of an unlimited monetary backstop from the central bank helped lower the borrowing rates for governments struggling with excessive debt, easing the financial crisis.

Opponents had argued that it violated the European Union treaty's ban on the central bank using its powers to print money to finance governments. The German court had passed the decision to the European Court of Justice, which last year upheld the bond purchase program but imposed some conditions, and then returned the case to the German court.

In Tuesday's ruling, the court said that the German central bank, the Bundesbank, could take part in the bond purchases so long as the conditions specified by the European Court were upheld. Participation by the Bundesbank would be significant, because the ECB relies on national central banks to carry out the bond purchases.

The conditions include a requirement that the ECB let enough time lapse between the issuance of a government bond and the ECB's purchase in the secondary market, so as not to in effect participate in primary issuance. The ECB is forbidden to buy bonds directly from governments, but can acquire them from other investors in pursuit of its interest rate policies.

Bond purchases are a way of affecting market interest rates; if a central bank drives bond prices up, the bond yields — which reflect the interest costs — fall.

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Germany's constitutional court has rejected a challenge to a European Central Bank bond-buying program credited with helping keep the euro currency union from breaking up in 2012.The court in Karlsruhe said Tuesday that the ECB had not exceeded its legal powers and rejected...
EU,Europe,Economy
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2016-59-21
Tuesday, 21 June 2016 05:59 AM
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