The Strategist

Lagarde: German Bundesbank is obliged to participate in QE to bail out economy

05/20/2020 - 03:14

The European Central Bank (ECB) intends to force Germany to save the European economy by buying up government bonds of different countries of the eurozone, said ECB Head Christine Lagarde.

European Parliament via flickr
European Parliament via flickr
According to her, the Bundesbank is obliged to participate in the general program of quantitative easing (QE) and cannot express objections in this regard, even despite the decisions of the German national courts.

In early May, the German Constitutional Court banned the Bundesbank from participating in the QE program for at least the next three months - until the ECB provides evidence of its validity and security for the pan-European economy.

The judges felt that the QE program launched in 2015, aimed at eliminating the consequences of the pan-European debt crisis and calculated at €2.7 trillion, has many side effects. In particular, it negatively affects inflation and worsens the balance of banks selling government bonds to regulators. As a result, their investors may suffer, the court decided. The current program, designed to buy €750 billion in the secondary market, may have the same consequences.

According to Lagarde, the court decision has no legal force, and the Bundesbank should not obey it, because by its charter it is an independent body and submits only to the policy of the ECB. All national central banks are shareholders of the general regulator, and the Bundesbank holds the largest package of 26 percent.


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