Lagarde Says ECB Is Ready to Help Solve German Court Problem

(Bloomberg) -- European Central Bank President Christine Lagarde signaled her institution is willing to play a more active role in responding to a critical ruling by Germany’s constitutional court over its monetary policy.

Speaking to lawmakers in the European Parliament on Monday, Lagarde said the ECB “will provide any support and assistance that can be helpful” in addressing charges that bond purchases conducted since 2015 to lift inflation might have disproportionate side effects.

It’s the first indication by the ECB chief that her institution will work to diffuse a crisis that could see the Bundesbank barred from participating in the program, which has injected more than 2.3 trillion euros ($2.6 trillion) into the euro-area economy and is still running.

So far, policy makers including Lagarde were reluctant to engage, noting that the European Union’s top court had already decided in 2018 that the policy was legal. That suggested the ECB would remain on the sidelines while German institutions resolve their legal issues over euro-area monetary policy.

On Monday, the Frenchwoman underscored that the German government and the country’s parliament must take the lead, but if requested, the ECB would help resolve the conflict “without ever compromising on our independence, compliance with EU law, and validity of the European Court of Justice decision.”

‘Overwhelmingly Positive’

The ECB president also defended more recent crisis-fighting initiatives, saying the net effects from last week’s expansion of an emergency bond-buying program by 600 billion euros to 1.35 trillion euros are “overwhelmingly positive.”

Lagarde Says ECB Is Ready to Help Solve German Court Problem

Measures taken in recent years “have not only prevented the economy from entering depressed and deflationary conditions, but have also contributed to supporting employment and reducing financial stability risks,” she said. “The decision to expand the pandemic emergency purchase program will prove to have been essential in avoiding an even deeper recession and in quickening our pathway to normalization.”

Temporary Tool

She said the pandemic plan is “temporary, targeted and proportionate” -- attributes Germany’s constitutional court stressed were important in determining whether ECB policy was in line with the law. She also said that it underscores the Governing Council’s “determination and readiness to adjust all of its instruments, as appropriate, to ensure that inflation moves toward its aim.”

The ECB expects an economic contraction of 8.7% in the euro area this year, with inflation in coming years staying far below the institution’s goal of just under 2%.

The president urged politicians not to delay approving a plan to jointly borrow 750 billion euros to help struggling nations rebuild their economies.

“It will be important to adopt this package quickly,” Lagarde said. “Setting a clear timeline will give more certainty and confidence to citizens, businesses and financial markets. Any delay risks generating negative spillovers and driving up the costs, and hence the financing needs, of this crisis.”

©2020 Bloomberg L.P.

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