@GeneralTheorist provided a compelling and informed analysis of the dynamics at play and how they might affect the outcome. There was a chance that @bundesbank would play hard ball & reject the @ecb's rather confrontational approach.
But the way this weird episode ultimately ended was perhaps always more likely and indeed deeply European. Of course, the @BVerfG's open defiance of the @EUCourtPress's relaxed attitude to @ecb QE could have empowered the @bundesbank, which was never a big fan of OMT/PSPP etc 3/x
First, we should not forget that the EU (via the @EU_Commission) has been in the markets for quite some time. As this July '20 Investor Presentation (ec.europa.eu/info/sites/inf…) shows, the EU currently operates 3 funding programs: the EFSM, the BoP program & MFA. 2/x
Also, it should be noted that several "supranational" issuers exists, e.g. Euroatom, @EIB , @ESM_Press (& @ecb can purchase their bonds through PSPP & the PEPP). I will focus here on the EU/@EU_Commission, which has its own legal personality and is distinct from other issuers.3/x
The claimants essentially argued that (i) the @ecb CSPP violated the democratic principles, since the @ecb/@bundesbank conduct large-scale bond purchases without the involvement of the 🇩🇪 Parliament & (ii) the CSPP is an illegal economic policy (rather than mon pol) measure. 2/x
The @BVerfG found the challenge to be inadmissible (i.e. on procedural, not on merit grounds), since the (subject of the) complaint was inadmissible and the complaint insufficiently explained/justified why the CSPP constituted an (illegal) ultra-vires act. 3/x
The @ecb responds to the @BVerfG: “The PEPP and the APP were proportionate measures under the current conditions for pursuing the price stability objective, with sufficient safeguards having been built into the design of these programmes...”
@ecb further explains: “the proportionality assessment of any monetary policy measure had to consider, among other things, the degree to which the measure contributed to achieving the monetary policy objective [...] and possible unintended side effects [...].”
And, reiterates proportionality a third time wrt to the #PEPP: “the PEPP was a measure which was proportionate to counter the serious risks to price stability, the monetary policy transmission mechanism and the economic outlook in the euro area [...].”
The discussion on the limits of @ecb mon pol (rightly) concludes that EU Treaty change would ultimately be needed.
However, in the short-term, Art. 125(2) TFEU could prove useful, which allows the Council to "specify the prohibitions referred to in Art. 123 TFEU". 1/x
The Council has indeed "specified" the meaning of Art. 123 TFEU in Council Regulation (EC) No 3603/93 (in December 1993). But this essentially means that the definition of the monetary financing prohibition rests on a Regulation that is 27 years old: eur-lex.europa.eu/legal-content/… 2/x
What about updating the Regulation to reflect some developments in the mon pol space over the past 3 decades? For instance, one could exclude certain debt instruments from the prohibition of mon fin (as was f.i. done with the 'ways and means' facility of the @bankofengland) 3/x
- To recall, +90% of 🇬🇷 sovereign debt was governed by DOMESTIC law, allowing 🇬🇷 to retroactively change the terms of the bonds.
- 🇬🇷 retrofitted a Collective Action Clause (CAC) to facilitate a bondholder vote on the restructuring through the Bondholder Act 4050/2012. 2/x
- Bondholders argued that 🇬🇷 CAC Retrofit violated their property rights.
- But the highest 🇬🇷 Court & the @ECHR_CEDH held that the CAC Retrofit was not expropriatory and did not violate the 🇬🇷 Constitution or the European Convention on Human Rights (see @astridiversen) 3/x
First, 🇱🇧 - like Argentina - has already been in a difficult financial situation when the #Covid pandemic hit. Yet, the context within which 🇱🇧 will restructure its debt should not be forgotten and the pandemic could give 🇱🇧 a stronger hand in negotiations. 2/x
Given the lack of debt sustainability, the 🇱🇧 government has already announced that a comprehensive debt restructuring will be part of the Economic Recovery Plan and will include both foreign currency (Eurobonds) and local currency (mainly LBP T-bills). 3/x
My main take-aways from today's 🇩🇪 #Bundestag debate re the @BVerfG judgement on the @ecb's #PSPP:
- a nuanced and high-quality discussion (both by MdBs and experts)
- #Bundestag faces dilemma (required by @BVerfG to review @ecb policies, but unclear how) - a short thread 1/x
- Majority of experts recommended #Bundestag to exercise restraint and consider ECB Annual Report/regular hearings/MEP letters @Europarl_EN the appropriate channel to discharge accountability
- Should be easy for @ecb, which has already published a lot of information 2/x
- Most experts rejected/condemned @BVerfG's decision (both wrt procedure & substance) - warn about broader implications of judgement for EU legal order
- Experts also noted that @BVerfG Second Senate has changed and @BVerfG could return to “Europe-friendly” jurisprudence 3/x
Important proposal by some of the leading sovereign debt experts. The idea is for the @WorldBank & other DBs to set up "credit facilities" that would cover Corona-related expenses. Funding would come from private contributions to the credit facilities. A short review 1/x
The Corona Credit Facility (CCF) would have preferred creditor status through the @WorldBank - i.e. it would be repaid ahead of private investors. On that basis, the CCF could make concessional loans to recipient countries without a huge credit risk for the @WorldBank. 2/x
The million dollar question is why would private investors agree to re-invest interest payments in the CCF? The authors argue that recipient countries should try to modify outstanding bonds so that payments are re-directed to the CCF (avoiding a payment default). 3/x
In my new @DelorsBerlin Policy Brief, I argue that the limitless @ecb Pandemic Emergency Purchase Programme (PEPP) is LAWFUL, since the PEPP is (i) within the @ecb's mandate, (ii) proportionate, and (iii) compliant with the monetary financing prohibition. A short thread. 1/10
(i) The PEPP is within the @ECB's mandate, as it seeks to repair monetary policy channels that were affected by the #Covid_19 pandemic. The @EUCourtPress confirmed in Gauweiler "that a programme to safeguard the appropriate transmission of monetary policy is likely to 2/10
contribute to the ECB’s price stability objective. Since the @ecb considers that the COVID-19 pandemic poses a risk to the smooth transmission of monetary policy, it may swiftly intervene in bond markets to fulfil its (price stability)
1x The PSPP issuer/issue limit (which limited purchases to 33% of a single Member State's debt instrument) will NOT apply to the PEPP: "To ensure the effectiveness of this decision, the consolidated holdings under Article 5 of the PSPP Decision should not apply to PEPP holdings."
2/x The ECB distinguishes the PEPP's objectives from those of other bond-buying programmes: "the PEPP requires a high degree of flexibility in its design and implementation compared with the APP and its monetary policy objectives are not identical to that of the APP."
2/x The announcement of the Pandemic Emergency Purchase Programme (PEPP) by the European Central Bank on March 18, 2020 marks an unprecedented step in the European history of monetary integration. But it is a commensurate response to the global public health emergency that the
3/x COVID-19 outbreak continues to pose as well as the financial and economic shock that it triggered. The legality of the PEPP can be defended in light of both these extraordinary macroeconomic circumstances as well as the European Court of Justice's assessment
1/ A restructuring of Lebanese Eurobonds poses formidable challenges, but it is not impossible. My two cents: start debt restructuring negotiations now, avoid a default, and understand the legal risks. Some of the latter I describe below (in the spirit of Buchheit's teachings).
2/ According to the Luxembourg Stock Exchange, Lebanon has 27 series of Eurobonds outstanding, all of which are governed by New York law and denominated in USD: bourse.lu/programme/Prog…. The fact that the bonds are governed by NY law is critical for their restructuring.
3/ Lebanon cannot NOT retroactively change the repayment conditions of these bonds by means of a changing its national laws - this is by the way what the Greek government did in 2012 at the advice of L. Buchheit's (ssrn.com/abstract=29143…).
Argentina currently finds itself in a vulnerable financial and fiscal situation and a sovereign debt restructuring has become a real possibility - not only for financial markets but also the new administration. ft.com/content/ec4cb3… 2/18
The Republic of Argentina’s total outstanding debts, including debts of public sector agencies, such owed to the private sector, and debts to multilateral and bilateral debt, amount to USD337 billion, or 80.7% of GDP. argentina.gob.ar/sites/default/… 3/18