A top German court’s ruling that the ECB must carry out a “proportionality assessment” before purchasing government debt is “laughable” and threatens the central bank’s independence, the chairman of Societe Generale told CNBC.
Germany’s constitutional court on Tuesday threatened to block fresh purchases of German bonds through the European Central Bank’s public sector purchase program (PSPP), a stimulus package implemented by the bank to buy up government debt and keep borrowing costs low across the euro zone.
The court ruling, which ordered the German government to ensure the ECB carried out an assessment of its sovereign debt purchases, could see the German Bundesbank exempted from the scheme.
A proportionality assessment would involve proving the ECB’s PSPP was economically necessary and did not overstep the central bank’s core price stability mandate.
“The court is asking the central bank to show that it took into its decision the proportionality principal,” Lorenzo Bini Smaghi, chairman of Societe Generale and a former member of the ECB’s executive board, told CNBC’s “Squawk Box Europe” Friday.
“Frankly, to think that the ECB did not do that is laughable — there is plenty of research, of reports, of statements, that clearly show the ECB doesn’t just meet in five seconds and say ‘let’s just raise rates or cut rates’ out of the blue. There is a very deep analysis, discussions, arguments, and sometimes disagreements.”
According to Tuesday’s court ruling, the ECB had failed to “conduct the necessary balancing of the monetary policy objective against the economic policy effects arising from the program,” and the decisions the central bank had made around PSPP exceeded its monetary policy mandate.
Bini Smaghi noted that the president of the Bundesbank, Jens Weidmann, had explained several times that while the ECB’s purchase program has several economic impacts, the overall effect on price stability was consistent with its objective.
“If one takes (the ruling) more seriously it’s a bit worrying, because if the ECB really had to look into all the pros and cons … will it have to balance its price stability mandate with the impact on some people, some borrowers?” he said. “This would infringe, in the end, the independence of the ECB. So I’m not sure whether it’s laughable or it’s serious — and then dangerous for the independence of the ECB.”