Coronavirus: ECB suspends limits on sovereign debt buyouts

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CORONAVIRUS: THE ECB SUSPENDS ITS LIMITS ON REDEMPTION OF SOVEREIGN DEBT

FRANKFURT (Reuters) – The European Central Bank (ECB) has said it will not apply its own rules limiting buyouts of sovereign debt in the application of its € 750 billion program to counter the effects of coronavirus pandemic, which could lead to legal action.

The ECB has modified its own regulations by a legal provision which stipulates that it cannot buy back more than 33% of a country’s debt in the context of its asset purchases.

This flexibility will apply to its purchases of sovereign bonds under its Pandemic Emergency Purchasing Program (PEPP).

After an offensive from Germany, the 33% limit was validated at the end of 2018 by the Court of Justice of the European Union (CJEU), which then considered that the ECB was not breaking the rule prohibiting it from funding States.

By lifting this limit, the Frankfurt institution is thus exposed to new legal actions on the part of the partisans of a strict monetary orthodoxy, Germany in mind.

“The ECB is exposed to a legal risk and a political backlash but this historic decision is in cohesion with the initial announcement of the PEPP, which provided that the ECB could review its own limits”, comments Frederik Ducrozet, strategist at Pictet Wealth Management.

German opponents of quantitative easing have constantly brought the ECB to court for its buyouts of sovereign bonds, accusing the issuing institute of overstepping its powers by directly funding states.

(Balazs Koranyi, French version Patrick Vignal, edited by Blandine Henault)



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