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LUND UNIVERSITY LIBRARIES

Whatever it takes: ECB’s Mandate of Purchasing Government Bonds on Secondary Markets

Andersson, Christopher LU (2018) LAGF03 20182
Department of Law
Faculty of Law
Abstract
When the European debt crisis struck the eurozone in late 2009, the European Central Bank (ECB) played a vital role to mitigate the economic situation. In 2012, the ECB announced the introduction of Outright Monetary Transactions (OMT), a government bond buying programme. In 2015, the ECB introduced the Public Sector Purchase Programme (PSPP), a quantitative easing programme similar to the OMT.

In 2014 and 2017 respectively, both programmes were challenged at the Federal Constitutional Court in Germany, which referred both cases to the Court of Justice of the European Union (CJEU). The complainers argued that both programmes were, in fact, monetary financing, which is forbidden by TFEU, and ultra vires acts by the ECB. The CJEU... (More)
When the European debt crisis struck the eurozone in late 2009, the European Central Bank (ECB) played a vital role to mitigate the economic situation. In 2012, the ECB announced the introduction of Outright Monetary Transactions (OMT), a government bond buying programme. In 2015, the ECB introduced the Public Sector Purchase Programme (PSPP), a quantitative easing programme similar to the OMT.

In 2014 and 2017 respectively, both programmes were challenged at the Federal Constitutional Court in Germany, which referred both cases to the Court of Justice of the European Union (CJEU). The complainers argued that both programmes were, in fact, monetary financing, which is forbidden by TFEU, and ultra vires acts by the ECB. The CJEU concluded that neither the OMT programme nor the PSPP was monetary financing or an ultra vires act. This paper will analyse both cases in order to understand when purchases, by the ECB, of government bonds on secondary markets are not regarded as monetary financing, and where the line between monetary and economic policy goes according to the TFEU. The purpose of this is to understand which measures the ECB is permitted to take in the event of a future crisis. The methodology used is primarily the methodology of EU law: putting gravity in CJEU cases and principle when interpreting the Treaties.

The paper shows that the ECB must put up safeguards with to remove the foreseeability of which bonds the ECB will purchase, when it will purchase them, and the size of the purchase volume. Furthermore, to tell a monetary policy measure from an economic measure, the objective of the measure and the instruments used must be monetary. Lastly, the principle of proportionality plays a vital part in concluding if enough safeguards have been put up. For instance, a severe economic situation justifies fewer safeguards. (Less)
Abstract (Swedish)
När eurokrisen slog till i Europa i slutet av 2009, så fick den Europeiska centralbanken (ECB) en vital roll för att minska skadan i den dåvarande ekonomiska situationen. I slutet av sommaren 2012 kungjorde ECB Outright Monetary Transactions (OMT), ett program där ECB skulle köpa statsobligationer. År 2015 introducerade ECB Public Sector Purchase Programme (PSPP), ett kvantitativt lättnadsprogram som är likt OMT.

År 2014 och 2017 respektivt, tog personer de båda programmen till den tyska konstitutionsdomstolen, som begärda förhandsavgöranden från EU-domstolen i båda fallen. De klagande ansåg att båda programmen var dels de facto monetär finansiering (som är förbjudet enligt FEUF), dels ultra vires-handlingar av ECB. EU-domstolen... (More)
När eurokrisen slog till i Europa i slutet av 2009, så fick den Europeiska centralbanken (ECB) en vital roll för att minska skadan i den dåvarande ekonomiska situationen. I slutet av sommaren 2012 kungjorde ECB Outright Monetary Transactions (OMT), ett program där ECB skulle köpa statsobligationer. År 2015 introducerade ECB Public Sector Purchase Programme (PSPP), ett kvantitativt lättnadsprogram som är likt OMT.

År 2014 och 2017 respektivt, tog personer de båda programmen till den tyska konstitutionsdomstolen, som begärda förhandsavgöranden från EU-domstolen i båda fallen. De klagande ansåg att båda programmen var dels de facto monetär finansiering (som är förbjudet enligt FEUF), dels ultra vires-handlingar av ECB. EU-domstolen konkluderade att varken OMT eller PSPP-programmet var monetär finansiering eller ultra vires-handlingar. Denna uppsats kommer att analysera båda fallen för att förstå när förvärv av statsobligationer på sekundärmarknader av ECB ska anses som monetär finansiering, samt var gränsen mellan monetär och ekonomisk politik går enligt FEUF. Syftet med detta är att förstå vilka handlingar ECB juridiskt sett får ta vid en framtida ekonomisk kris. Metoden den här uppsatsen har använt sig av är EU-rättslig metod. Detta innebär att fokus har legat på rättsfall från EU-domstolen samt grundläggande rättsprinciper inom EU när traktaten ska tolkas.

Uppsatsen visar att ECB måste sätta upp skydd som ska ta bort förutsebarheten för vilka obligationer som ECB ska förvärva, när den kommer att förvärva dem samt storleken av förvärvet. Uppsatsen visar även vad som skiljer mellan en monetär och en ekonomisk politik är att målet med åtgärden, samt instrumentet som åtgärden använder sig av ska vara monetär. Till sist så har proportionalitetsprincipen en väsentlig betydelse vid avgörande om tillräckligt skydd har vidtagits. En allvarlig ekonomisk situation rättfärdigar exempelvis ett svagare skydd. (Less)
Please use this url to cite or link to this publication:
author
Andersson, Christopher LU
supervisor
organization
course
LAGF03 20182
year
type
M2 - Bachelor Degree
subject
keywords
European central bank, Quantitative easing, European Union, EU-law, PSPP, OMT, Monetary financing, Monetary policy
language
English
id
8965897
date added to LUP
2019-03-10 13:56:52
date last changed
2019-03-10 13:56:52
@misc{8965897,
  abstract     = {{When the European debt crisis struck the eurozone in late 2009, the European Central Bank (ECB) played a vital role to mitigate the economic situation. In 2012, the ECB announced the introduction of Outright Monetary Transactions (OMT), a government bond buying programme. In 2015, the ECB introduced the Public Sector Purchase Programme (PSPP), a quantitative easing programme similar to the OMT.

In 2014 and 2017 respectively, both programmes were challenged at the Federal Constitutional Court in Germany, which referred both cases to the Court of Justice of the European Union (CJEU). The complainers argued that both programmes were, in fact, monetary financing, which is forbidden by TFEU, and ultra vires acts by the ECB. The CJEU concluded that neither the OMT programme nor the PSPP was monetary financing or an ultra vires act. This paper will analyse both cases in order to understand when purchases, by the ECB, of government bonds on secondary markets are not regarded as monetary financing, and where the line between monetary and economic policy goes according to the TFEU. The purpose of this is to understand which measures the ECB is permitted to take in the event of a future crisis. The methodology used is primarily the methodology of EU law: putting gravity in CJEU cases and principle when interpreting the Treaties. 

The paper shows that the ECB must put up safeguards with to remove the foreseeability of which bonds the ECB will purchase, when it will purchase them, and the size of the purchase volume. Furthermore, to tell a monetary policy measure from an economic measure, the objective of the measure and the instruments used must be monetary. Lastly, the principle of proportionality plays a vital part in concluding if enough safeguards have been put up. For instance, a severe economic situation justifies fewer safeguards.}},
  author       = {{Andersson, Christopher}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Whatever it takes: ECB’s Mandate of Purchasing Government Bonds on Secondary Markets}},
  year         = {{2018}},
}