Sliding down the slippery slope? Trends in the rules and country allocations of the Eurosystem's PSPP and PEPP

Over the last decade, the Eurosystem has become one of the crucial players in the market for euro area government bonds. After first substantive purchases through the Securities Market Programme (SMP) in 2010, the Eurosystem's involvement has reached a new breadth and magnitude with the establishment of the Public Sector Purchase Programme (PSPP) in 2015. On top of this, the ECB Council has set up the Pandemic Emergency Purchase Programme (PEPP) in March 2020 in order to stabilize the euro area economy in the crisis and to contain the rise of sovereign risk premia. This study analyzes trends in the rules, volumes and country allocations of the two active sovereign purchase programmes, the PSPP and the PEPP. Programme rules and the effective country allocations are of legal and economic relevance. In their PSPP rulings, both the European Court of Justice and the German Federal Constitutional Court have emphasized the importance of initial programme constraints. Both Courts agree that that rules like issuer limits or the orientation of country allocations to the country shares in the ECB capital key are important safeguards against a possible infringement of Art. 123 TFEU with its ban of monetary financing of governments. For the economic assessment, it is of importance to which extent the purchase programmes are of an asymmetric nature and whether the Eurosystem increasingly accepts the role of a strategic creditor who has veto power in debt negotiations.