The President of the European Central Bank (ECB), Christine Lagarde, attempted to justify, on Monday 8 June, the merits of the PEPP massive repurchase of essentially public securities, as well as the recent extension of the scope and duration of this operation (see EUROPE 12499/1), launched in mid-March in response to the Covid-19 pandemic.
“Extraordinary circumstances call for extraordinary measures. PEPP is definitely an extraordinary measure. It is temporary, it is targeted, it is proportionate”, said Mrs Lagarde in a monetary dialogue with the competent committee of the European Parliament.
Contrary to questions from several MEPs, she avoided making explicit reference to the ruling of the German Constitutional Court in Karlsruhe, which calls into question the proportionate nature of Quantitative Easing, a similar operation, but with even less flexible arrangements than the PEPP launched in 2015 (see EUROPE 12480/17).
Markus Ferber (EPP, Germany) would have preferred the ECB to wait to see the effects of the PEPP before increasing its scale. Mrs Lagarde assured him that the Governing Council had analysed the situation “carefully” and that, in order to avoid financial turmoil and to ensure an adequate transmission of monetary policy, the PEPP “is the right response”.
In her keynote speech, Mrs Lagarde assured MEPs that the ECB stands ready to do more to fulfil its mandate, which is not only to ensure price stability but also to support the EU's economic policies. “That is beyond question”, she said.
Welcoming the ECB’s action to deal with the pandemic, Marek Belka (S&D, Poland) asked what Parliament as an institution could do to support the Frankfurt Institute in the face of the Karlsruhe Court challenge. In particular, the President of the ECB considered that the evaluation of the monetary policy strategy, which will be reactivated shortly, will provide an appropriate forum for the voice of Parliament to be heard.
Luis Garicano (Renew Europe, Spain) approved the autonomy of action of the Monetary Institute, which, contrary to what it had done through Quantitative Easing, does not repurchase sovereign securities of euro area countries in accordance with the ECB’s capital key in the context of the PEPP. At the end of May, 33% of the sovereign securities repurchased were Italian public debt, while Italy’s share in the distribution key is 25%.
“This distribution key is a guideline, but it should not be applied at all times. There can be a deviation at any time”, considered Mrs Lagarde. Believing that “a good solution” will be found between the Karlsruhe Court and the German authorities to whom the Constitutional Court’s ruling is addressed, she expressed her readiness to assist the Bundesbank in this case, without however compromising on the “independence of the ECB” or the primacy of EU law. (Original version in French by Mathieu Bion)