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The PSPP Government Bond Programme: Empirical Data and Rulebook Call the BVerfG Judgment Partly into Question

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Abstract

This article analyses the sovereign bond purchases under the PSPP (Public Sector Purchase Programme) in the light of the ruling of the German Federal Constitutional Court (BVerfG) 2 BvR 859/15 of 5 May 2020. While the court cannot see any obvious circumventing of the ban on monetary financing of the state through the ‘guarantees’ it has established, their compliance is critically questioned by means of an analysis of ECB decisions and empirical data. The economic analysis therefore questions the extent and monetary policy orientation of the PSPP. The focus is on the divergence of the shares of individual countries in PSPP purchases from the ECB’s capital key, the lack of transparency and the pooling of possible losses. In addition, the examination of the ‘guarantees’ on the PEPP programme is extended and it is analysed what the consequences of unwinding the programmes would be.

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Notes

  1. 1.

    Scholz, Olaf, Brief v. 26.06.2020 persönlich/vertraulich an den Präsidenten des Deutschen Bundestages, Dr. Wolfgang Schäuble (dem Verfasser vorliegend) sowie Deutscher Bundestag, Antrag der Fraktionen CDU/CSU, SPD, FDP und BÜNDNIS 90/DIE GRÜNEN zum Urteil des Bundesverfassungsgerichts zum Anleihekaufprogramm PSPP der Europäischen Zentralbank, Drucksache 19/20621 v. 01.07.2020. Bemerkenswert ist das Tempo der deutschen Verfassungsorgane in dieser Angelegenheit. Als zentral wird der geldpolitische Beschluss des Rates der Europäischen Zentralbank v. 3.-4. Juni 2020 gewertet. Siehe Europäische Zentralbank (2020e). Er erfüllt formal die “Beschluss-Anforderung” des BVerfG. Darüber hinaus ist das zusammenfassende Protokoll mit ca. 9700 Wörtern das bislang längste und es wird an drei Stellen auf die “Verhältnismäßigkeit” verwiesen.

  2. 2.

    The monetary policy steering space results from the growth rate of the liquidity need minus the growth rate of the NFA (incl. PSPP) as part of the liquidity supply. The corresponding balance sheet positions are defined by the ECB in European Central Bank (2016a). In order to maintain this space to the same extent through the regular monetary policy instruments, the NFA (incl. PSPP) should grow at the same rate as the demand for banknotes and the minimum reserve requirements (liquidity needs). For further explanations, see Hansen and Meyer, 2019, p. 23.

  3. 3.

    With a volume of 252 billion EUR of supranational issuers (as of 31.08.2020), it is assumed that a significant proportion of the 121 billion EUR issued by the ESM falls under this. In this way, the ECB as a monetary rescue fund absorbs the fiscal rescue of the states. Indirectly, the proportion of states participating in a aid programme, such as Greece, whose original-issued government bonds are even excluded from the PSPP programme, increases. See https://www.finanzen.net/anleihen/europaeischer-stabilitaetsmechanismus-esm-anleihen?orderBy=BondList%3AMaturityDate%3Adesc&p=4 (Accessed 07.09.2020).

  4. 4.

    See also the memorandum of former central bankers on the current ECB policy and the purchase of government bonds. They assess the resumption of net asset purchases in 2019 from a monetary policy perspective as difficult to understand. Rather, it is suspected that the ECB is trying to protect highly indebted Eurozone countries from higher interest rates. In doing so, the ECB would have exceeded the limit to monetary state financing. Cf. Hannoun et al. (2019).

  5. 5.

    Slightly differently, according to the Federal Constitutional Court (2017) of 18 July 2017, point 127: “For those debt instruments of national issuers acquired by the ECB—that is, 10% of the acquired debt instruments—risk sharing takes place only through the income to be paid to national central banks (Article 32.5 of the ECB Statute). Losses of the ECB from purchases under the PSPP can thus only affect national central banks to the extent that their share of monetary income is reduced or completely eliminated (Article 33.2 of the ECB Statute). It is unclear what happens if the shares in the loss exceed the shares in the profit.” (Own translation).

  6. 6.

    Model calculation for PSPP holdings of the NCBs (31.08.2020) and returns of 10-year government bonds (07.09.2020) (https://www.boerse.de/konjunkturdaten/staatsanleihen/):

  7. 7.

    Cf. with partly divergent analyses and conclusions Scientific Service of the German Bundestag (2020). In particular, the assessment expressed there that “unlike the PSPP purchase program … the Decision (EU) 2020/440 of the ECB does not provide for any blocking periods for the purchase of bonds” (ibid., p. 12) would not be tenable in view of Art. 1 para. 2 Decision (EU) 2020/440 of the ECB. Nor is the statement that “the PEPP programme provides for a much lower purchase volume than PSPP” (ibid., p. 12) tenable in view of the much shorter period of purchases and the increase by 600 billion EUR.

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Correspondence to Dirk Meyer .

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Meyer, D. (2022). The PSPP Government Bond Programme: Empirical Data and Rulebook Call the BVerfG Judgment Partly into Question. In: European Union and Monetary Union in Permanent Crisis I. Springer, Wiesbaden. https://doi.org/10.1007/978-3-658-38643-6_13

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