Italy, Spain and Cyprus benefit

D.he European Central Bank (ECB) did not distribute its bond purchases evenly across all euro countries during the corona pandemic. Since March it has even deviated significantly from the so-called capital key, which stands for the participation of the various countries in the capital of the central bank and their weight in the euro zone. And not only with the crisis program PEPP, for which such flexibility is expressly provided – but even more with the long-term bond purchase program PSPP, which is actually supposed to be based on this capital key. This emerges from a study that Annika Havlik and Friedrich Heinemann from the ZEW research institute in Mannheim carried out with funding from the Strube Foundation and which the F.A.Z. exclusive in advance.

If you consider both bond purchase programs together, government bonds from Italy (plus 25 percent), Spain (plus 11 percent) and Cyprus (plus 45 percent), for example, were bought disproportionately. By contrast, the shares of government bonds from Estonia (minus 77 percent), Luxembourg (minus 61 percent) and Malta (minus 60 percent) were well below the capital key.

German government bonds were around 12 percent below what the capital key would have suggested. “Although the capital key for the PSPP is more binding than for the PEPP according to the rules set by the Governing Council, the deviations for the PSPP are even greater than for the PEPP,” says the study.

Overweight Italy

While the overweighting of Italy in the PEPP is around 17 percent, it is even 45 percent in the PSPP. For France, the separate analysis of the two programs even shows the opposite sign: While France is underweighted in the PEPP with 13 percent, the country is heavily overweighted in the PSPP with 48 percent.

In contrast, German government bonds were bought in the PEPP crisis program almost exactly in proportion to the German share of the capital key – but they were underweighted by 46 percent in the PSPP. “The differences between the two programs are remarkable,” said Heinemann. The sole consideration of the PEPP program is therefore “misleading”: “It almost gives the impression that the Eurosystem is doing balance sheet cosmetics here.” Overall, the capital key is ignored more than the PEPP figures alone suggest.

A longer-term analysis of the PSPP bond program also shows that the overweighting of the countries mentioned began long before Corona. “If the ECB and the national central banks still managed to distribute the bond purchases largely in relation to the ECB capital key in 2015, the positive deviations in the PSPP have continued to increase for some countries since then,” said Heinemann. The overweighting of Italy, Spain and France in the crisis year 2020 is ultimately only continuing a trend that has been striking since 2018.

Partly possibly also technical reasons

The authors of the study admit that some of the findings may also have technical reasons. In some of the smaller and less heavily indebted countries, for example, it could sometimes be difficult to find enough securities on the market. From her point of view, however, another point is tricky: “Our estimates show how much the financing of the euro states will be indirectly supported by the central banks this year,” emphasized co-author Havlik.

The interplay of fiscal policy and monetary policy in a crisis could be dangerous if highly indebted countries get used to the support of the central bank to finance their budget policy, explained Heinemann. Finally, both the European Court of Justice and the Federal Constitutional Court would have expressly pointed out the importance of the capital key in this context for the question of possible “monetary state financing”.

In the previous debate about the deviations from the capital key in the PEPP crisis program, there had been clear criticism at the beginning of the crisis that the central bank favored certain countries. In the summer it was said that the deviations from the capital key were on the decline again.


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