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Germany's Bundesbank refuses to support ECB's stimulus decision
Germany's Bundesbank refuses to support ECB's stimulus decision

As the coronavirus outbreak has rocketed the eurozone economy, the strongest EC member states have to provide financial aid for the economically weakest ones. However, some countries in the bloc are not willing to cooperate on such terms anymore. They are tired of being the EU moneybags. Recently, the German central bank has refused to participate in the new ECB quantitative easing program worth of €750 billion. As a result, the European Central Bank is at risk of losing the support of Germany, Europe's largest economy. The German court has already ordered the Bundesbank to stop participating in the ECB’s stimulus scheme. The Bundesbank also called the new stimulus program controversial and illegal. Notably, the ECB is unlikely to launch its bond-buying program without financial aid from Germany. "By unconditionally pursuing the PSPP’s monetary policy objective….while ignoring its economic policy effects, the ECB manifestly disregards the principle of proportionality," the Federal Constitutional Court said. Besides, the ECB's stimulus program is suspiciously similar to the usual injection of funds into the economy through the bonds issue. If so, it will inevitably lead to inflation. Therefore, such economic tools are prohibited in the eurozone. The Bundesbank also doubts the efficiency of the ECB's strategy to deal with the consequences of the current crisis. Buying up junk bonds of zombie companies, as well as national debt of countries with lower ratings, may help them stay afloat for a while but it will affect the balance sheets of banks. The conflict between the ECB and the Bundesbank may turn into a legal battle, the first in EU history. Some experts fear that the EU may lose another EU member state.

 


Published: 2020-06-02 14:46:40 UTC
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