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ECB has ‘big bazooka’ despite court: EU’s Rehn

File - European Central Bank (ECB) President Mario Draghi and European Union Economic and Monetary Affairs Commissioner Olli Rehn (R) attend an eurozone finance ministers meeting at the EU Council in Brussels January 27, 2014. (REUTERS/Francois Lenoir)

BRUSSELS: The European Central Bank still has a “big bazooka” with plenty of ammunition to preserve the euro despite a German constitutional court statement that its bond-buying plan is probably illegal, EU economics chief Olli Rehn said Monday.

Rehn also urged the ECB to act to ensure that abnormally low inflation in the eurozone rose toward the bank’s target of just below 2 percent.

Speaking at a Reuters summit on the eurozone, the European commissioner for Economic and Monetary Affairs said it was right that a European court, not a national court, should have the final say over the ECB’s actions.

The German court Friday referred a complaint by euro-skeptical lawyers against the ECB’s 2012 Outright Monetary Transactions policy, which calmed the eurozone debt crisis, to the European Court of Justice in Luxembourg for a preliminary ruling on the legality of the bank’s scheme.

However, it clearly stated that it believed the plan, which has not yet been put into use, violated the ECB’s mandate and would constitute illegal monetary financing of governments.

Asked whether the German court had emasculated the ECB’s ultimate weapon, Rehn said in an interview: “In my view, the ECB certainly has its big bazooka and plenty of ammunition for the bazooka if needed.

“I find it is both appropriate and fundamentally legitimate that the European Court of Justice scrutinizes and finally rules on the competences of another European institution,” he said via video link from Finland.

The German constitutional court has only suspended its case, reserving the final say for itself and leaving some doubt at to how this may play out.

Rehn said that “in the real world,” the ECB’s intervention had been a “crucial turning point” to stabilize financial markets, along with an agreement by eurozone governments to create a banking union and to implement stricter fiscal discipline.

“In my view the ECB has definitely worked within its mandate and has done so wisely by taking decisive action,” the Finnish commissioner said.

He said he trusted the central bank to continue to actively pursue policies that support growth and employment in line with its mandate by ensuring price stability and meeting its inflation target.

“I might remind you that inflation in the eurozone for the moment is 0.8 percent, which is quite far from the self-set inflation target of the ECB which is close to but below 2 percent,” Rehn said.

He reiterated his concern, voiced last month in Davos, that a prolonged period of low inflation would make it harder to rebalance the eurozone economy.

“I trust that the ECB and its governing council ... are wise enough to take decisions in order to ensure that the ECB will meet its inflation target and thus better support the rebalancing and recovery of the eurozone economy,” Rehn said.

The central bank decided last week to keep its record low policy rate unchanged at 0.5 percent while it gathers further data on the economic and inflation outlook.

“I’m not giving any advice to the ECB, I’m just analyzing the impact of a lengthy period of [low] inflation on the eurozone economy,” Rehn said.

 
A version of this article appeared in the print edition of The Daily Star on February 11, 2014, on page 6.

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