The European Central Bank's (ECB) massive public sector asset purchase programme or quantitative easing does not infringe EU law, the EU Court of Justice ruled in a judgment delivered on Tuesday 11 December (Case C-493/17).
Several groups of individuals had brought actions before the German Constitutional Court concerning the launch by the ECB, in March 2015 (see EUROPE 11236), of the ‘quantitative easing' in order to address the risk of deflation in the euro area. They consider that the ECB violates the ban on monetary financing for euro area countries, encourages states to renounce sound fiscal policy and undermines German constitutional identity.
In its judgement, the Court endorses the reasoning of the Advocate General (see EUROPE 12110). In its view, the examination of the questions submitted by the Karlsruhe Court did not reveal any element affecting the validity of QE.
The European judge noted first of all that the operation of repurchasing essentially public securities is a monetary policy matter and respects the principle of proportionality.
In his view, QE, which aims to promote a return to lower inflation rates in the medium term, but close to 2%, is a monetary policy measure that cannot be assimilated to an economic policy measure simply because it produces indirect effects that can be pursued as part of economic policy. In addition, the European Treaty allows the ECB and the national central banks to repurchase and dispose of securities on the capital markets.
Nor does the quantitative easing operation go beyond what is strictly necessary, since the key rates were already at a level close to the possible lows and the European System of Central Banks was already implementing a massive private securities purchase programme.
The Court also finds that QE does not infringe the prohibition on monetary financing nor has the effect of removing the incentive for euro area countries to conduct a sound budgetary policy.
It gives several reasons: - a credit quality assessment prevents high-risk sovereign securities from being repurchased; - strict purchase limits exist per issue and per issuer; - the total monthly volume of securities purchased is monitored; - acquisitions are allocated among the national central banks in accordance with the ECB's capital subscription key; - QE is a subsidiary operation in relation to other securities repurchase programmes.
The ECB is expected to confirm on Thursday 13 December that the quantitative easing operation will end on 31 December 2018 (see EUROPE 12125). (Original version in French by Mathieu Bion)