The ECB is bending the rules as it goes all out to deal with the economic fallout from the virus outbreak
The ECB released a legal text for its new pandemic emergency purchase program (PEPP), and it has certainly raised a few eyebrows - notably how the central bank will not apply its self-imposed purchase limits on the €750 billion program.
Essentially, what the Eurozone debt crisis failed to bring out in the ECB, the economic fallout from the coronavirus outbreak just did.
For some context, the ECB has previously capped bond purchases at 33% of each country's debt i.e. so-called self-imposed purchase limits. However, this time around:
"On 18 March 2020, the Governing Council also decided that to the extent some self-imposed limits might hamper action that the Eurosystem is required to take in order to fulfil its mandate, the Governing Council will consider revising them to the extent necessary to make its action proportionate to the risks faced. To ensure the effectiveness of this decision, the consolidated holdings under Article 5 of Decision (EU) 2020/188 of the European Central Bank (ECB/2020/9) (1) should not apply to PEPP holdings. The Eurosystem will not tolerate any risks to the smooth transmission of its monetary policy in all jurisdictions of the euro area."
During the PEPP announcement on 18 March, the central bank did say that they will consider revising the purchase limits but the legal text published now says that those limits do not apply to their latest QE venture.
In essence, this opens up the ECB to potential legal and political complications.
Just to jolt your memory, the Germans have long challenged the ECB in the ECJ in saying that the ECB has been overstepping with its bond purchases since 2015.
I don't think this will be a big issue for now and if the program is indeed temporary (again, a subjective definition), perhaps there won't be much backlash. But if this lets on for a prolonged period of time, expect there to be scrutiny once again on the ECB.