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Bundesbank Report Is Favorable to Controversial ECB Bond-Buying Program

Germany’s central bank has published a positive report on the impact of a controversial European Central Bank bond-buying program, two weeks after a German court demanded more information about the program’s economic justification.

The report, published Friday on the Bundesbank’s website and written by two staffers, found that the ECB’s 2.7 trillion euro ($2.951 trillion) asset-purchase program had boosted economic output, bank lending and inflation in the four largest eurozone economies–Germany, France, Italy and Spain.

The findings could help to assuage the concerns of Germany’s top court, which conditionally approved the ECB program on May 5, but ordered the Bundesbank to halt its participation within three months unless the ECB could demonstrate that its actions were proportionate to its goals.

The ruling raised questions about the future of the ECB’s bond purchases, a central tool in the bank’s efforts to support the economy through the coronavirus pandemic.

The Bundesbank report found that the ECB’s bond purchases had increased economic output in Germany and Italy by about 2.5% over four years, and by 3.2% in Spain.

The purchases also pushed up inflation over the period, but by a lesser amount, according to the report: By around 2% in Spain after four years, and 1% in Germany and France. However the impact on inflation in Italy was “essentially zero,” the authors wrote.

Bundesbank officials have long expressed skepticism about the ECB’s bond purchases, which are criticized in Germany for supposedly hurting savers and subsidizing southern European governments.

ECB President Christine Lagarde has signaled in recent days that she is undeterred by the German court ruling and will continue to buy bonds. Analysts expect the bank to move soon to expand a EUR750 billion bond-buying program unveiled in March.

The ECB and its supporters say it is acting within its remit to shore up weak economic growth and inflation, relying on tools that are used by other major central banks.
Source: Dow Jones

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