Germany could crush key coronavirus lifeline to Italy by blocking ECB rule-bending

The Karlsruhe-based court could determine how much support Italy’s debt markets can draw from the bank’s quantitive-easing programme. A “no ruling” from the court on Tuesday would take the Eurozone into legally uncharted territory at a time when the European Union’s single-currency bloc is already teetering on the edge of collapse. While the ECB is not bound by German law, the Bundesbank – the central bank’s largest shareholder – is.

The ruling, due to be published on Tuesday, will decide whether the ECB’s bond-buying programme can deviate from the so-called capital key.

The key dictates purchases according to the size and population of each country.

During the coronavirus crisis, the ECB has being buying Italian debt well above the pace set by its own rules.

A ruling against the ECB’s programme would come as a serious blow to the central bank’s efforts to support Italy and Spain through the pandemic.

The EU’s Frankfurt-based central bank was forced to loosen its rules after the outbreak to allow for additional bond-buying to contain the financial impact of the coronavirus.

Its €750 billion scheme has eclipsed any previous asset-purchasing programme ever deployed to prop up the Eurozone economy.

Christine Lagarde, the ECB’s president, said there was “no limits to our commitment to the euro” when unveiling its rescue plans last month.

In a statement, the ECB said all purchases “shall be conducted in a flexible manner allowing for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions”.

Italy, Europe’s worst-hit country by the disease, has seen its economy suffer after its government enforced a lockdown to halt the spread of the virus.

MUST READ: Coronavirus Italy: Is Italy still in lockdown?

Last week Fitch Ratings downgraded the Eurozone’s third-largest economy by a notch to BBB.

This leave’s Rome just one level above junk, meaning the country is at high risk from default.

Prime minister Giuseppe Conte’s government has forecast just an eight percent slump in GDP this year.

Germany chaos: Riots erupt on streets of Berlin [VIDEO]
EU unity disintegrates: Huge state aid row erupts as Germany benefit [INSIGHT]
Merkel crisis: Chancellor ‘clashes’ with top medic over coronavirus [INSIGHT]

However, economists at Bloomberg have predicted a more dramatic 13 percent drop in economic activity.

The ECB has focused much of its bond-buying in Italy in desperate hope of preventing a market rout.

Last month the central bank claimed its programme had a “stabilising effect on the market”.

Source: Read Full Article