ECB plans no substitute for reform: Merkel

Southern European governments shouldn't think that a European Central Bank (ECB) plan to buy up government debt lets them off the hook for critical reforms, Chancellor Angela Merkel said on Monday.

ECB plans no substitute for reform: Merkel
Chancellor Merkel was presented with a historic stock-market bell on Monday. Photo: DPA

"We have to maintain the pressure for competitiveness in Europe, otherwise nothing, I mean nothing at all will help us", she told a new year's reception held by stock market operators Deutsche Börse.

ECB director Mario Draghi is expected to announce a large-scale bond-buying programme on Thursday, which will see the bank buy up government debt from private banks in a bid to inject cash into the European economy and bring inflation back up towards the Bank's target of two percent.

The debt crisis "is not yet overcome, although we have it in hand to a certain extent", Merkel added.

"We have seen that when the need is great, Europe can decide faster than usual. That's an important signal".

Earlier in the day she had rejected the idea that the ECB's decision and upcoming elections in Greece, which could see anti-austerity party Syriza elected, represented a "fateful week for the Euro".

Some observers fear that if elected, Syriza would go back on previous Greek government's agreements with its creditors, which might lead to the country utimately being forced to leave the Euro single currency.

But the Chancellor said that "the policy of the government has always been aimed at keeping Greece inside the Eurozone".

German industry representatives have come out against the expected ECB bond buying programme.

Leader of the German Chambers of Commerce and Industry (DIHK) Martin Wansleben told the Passauer Neue Presse on Tuesday that it would be a "high-risk operation with uncertain effects on prices in Europe".

"There is a great danger that cheap money hobbles enthusiasm for competitiveness reforms", he said.  

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Court turns down AfD-led challenge to Germany’s spending in pandemic

The German Constitutional Court rejected challenges Tuesday to Berlin's participation in the European Union's coronavirus recovery fund, but expressed some reservations about the massive package.

Court turns down AfD-led challenge to Germany's spending in pandemic

Germany last year ratified the €750-billion ($790-billion) fund, which offers loans and grants to EU countries hit hardest by the pandemic.

The court in Karlsruhe ruled on two challenges, one submitted by a former founder of the far-right AfD party, and the other by a businessman.

They argued the fund could ultimately lead to Germany, Europe’s biggest economy, having to take on the debts of other EU member states on a permanent basis.

But the Constitutional Court judges ruled the EU measure does not violate Germany’s Basic Law, which forbids the government from sharing other countries’ debts.

READ ALSO: Germany plans return to debt-limit rules in 2023

The judgement noted the government had stressed that the plan was “intended to be a one-time instrument in reaction to an unprecedented crisis”.

It also noted that the German parliament retains “sufficient influence in the decision-making process as to how the funds provided will be used”.

The judges, who ruled six to one against the challenges, did however express some reservations.

They questioned whether paying out such a large amount over the planned period – until 2026 – could really be considered “an exceptional measure” to fight the pandemic.

At least 37 percent of the funds are aimed at achieving climate targets, the judges said, noting it was hard to see a link between combating global warming and the pandemic.

READ ALSO: Germany to fast-track disputed €200 billion energy fund

They also warned against any permanent mechanism that could lead to EU members taking on joint liability over the long term.

Berenberg Bank economist Holger Schmieding said the ruling had “raised serious doubts whether the joint issuance to finance the fund is in line with” EU treaties.

“The German court — once again — emphasised German limits for EU fiscal integration,” he said.

The court had already thrown out a legal challenge, in April 2021, that had initially stopped Berlin from ratifying the financial package.

Along with French President Emmanuel Macron, then chancellor Angela Merkel sketched out the fund in 2020, which eventually was agreed by the EU’s 27 members in December.

The first funds were disbursed in summer 2021, with the most given to Italy and Spain, both hit hard by the pandemic.