Spain debt

ECB nemesis Kerber weighs in on new debt shield

A symphony of light made up of bars, lines and circles in blue and yellow, the colors of the European Union, illuminates the south facade of the headquarters of the European Central Bank (ECB) in Frankfurt, Germany, on December 30, 2021 .REUTERS/Wolfgang Rattay //File Photo

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  • Markus Kerber targets new bond buying program
  • Says TPI illegal, weighs legal action
  • ECB says scheme has necessary safeguards

FRANKFURT, July 29 (Reuters) – The German academic behind the European Central Bank’s biggest legal setback is considering legal action against the ECB’s new bond shield, which he sees as “blatant” aid to Italy and other indebted States.

Markus Kerber is targeting the Transmission Protection Instrument (TPI), which will allow the ECB to buy bonds from countries that are under market pressure it deems unjustified, provided they meet EU economic requirements.

The professor of public finance at the Technical University of Berlin said these potentially unlimited debt purchases were mainly aimed at helping Italy, the biggest debtor in the euro zone, and that they violated European Union rules prohibiting the ECB from financing States. Read more

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“The ECB will openly become the underwriter of public debt,” Kerber told Reuters in an interview. “This is a blatant case of state funding.

He added that any purchase made under the TPI could be declared “null and void” and that he was discussing with his customers whether to file a complaint against the scheme.

An ECB spokesperson said the TPI was designed with particular attention to legal safeguards and unanimously approved by the Governing Council.

Italy is widely seen as “too big to save” by means such as the eurozone bailout fund, which would not be able to meet the costs of supporting its government in a crisis. debt like the one that rocked the bloc a decade ago. Then the ECB ended the speculation by pledging to buy unlimited amounts of bonds from any member country that received an official bailout. Read more

Kerber has brought several lawsuits against the ECB’s government bond purchases over the years – in one case forcing the Bundesbank, as the ECB’s German agent, to vindicate itself in the country’s highest court .

But most of his attempts failed.

German judges last year upheld the ECB’s massive purchases of government debt during the coronavirus pandemic. In an earlier case, the European Court of Justice found it was acceptable for the ECB not to set a cap on how much it could buy as long as appropriate safeguards were in place. Read more

The ECB has attached several conditions to any purchase made under the TPI, including that a country respects EU fiscal rules and that its debt is deemed sustainable.

ECB President Christine Lagarde said TPI had “the necessary guarantees” and Bundesbank chief Joachim Nagel said he was confident the program would hold up in court.

But Kerber argued that the ECB’s stipulation that it must intervene whenever it considers excessive divergence in borrowing costs between different countries runs counter to EU support for free competition. .

He also criticized the ECB’s decision to buy bonds from Italy, Spain, Portugal and Greece with part of the proceeds it receives from maturing German, French and Dutch debt, in the purpose of limiting these differences. Read more

“If the ECB says that a yield gap of more than 2 percentage points between Italy and Germany is unjustified, it replaces the markets,” he said in an interview.

“How would the ECB know?”

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Additional reporting and writing by Francesco Canepa; Editing by Catherine Evans

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