On 16 June, the Court of Justice of the European Union confirmed the legality of Mario Draghi´s monetary “bazooka”, the ECB´s Outright Monetary Transactions (OMT) program. The program was announced in 2012 when the eurozone was facing an ever-rising threat of break-up because bond yields of several big countries, namely Italy and Spain, were attacking unsustainable values. The ECB reacted by replacing its limited bond-buying program (Securities Markets Programme, SMT) with an unlimited one, the OMT. Announcing the program, ECB President Mario Draghi stated that the ECB will do “anything to save the euro”. The announcement and the new program calmed the markets somewhat, yields dropped and the euro area was stabilized. Also thanks to this the OMT was never in fact used – the current on-going quantitative easing program is a different program. However, OMT was challenged before the German Constitutional Court in Karlsruhe. In a decision widely seen as having the intention not to declare the OMT illegal under German law, the Karlsruhe court for the first time in its history referred the question to the Luxembourg-based EU court (it asked the so-called preliminary question). It made quite clear, however, what it thought of OMT – it´s unlimited nature drew it very close to monetary financing of debts and it had closer to an economic policy measure than to monetary policy measure (monetary policy is the competence of the ECB, while economic policy is not). The EU court answered Karlsruhe that OMT is indeed a monetary measure, albeit with some economic policy secondary effects, and that it includes enough safeguards not to permit monetarization of debt. The ruling was widely expected, not least because an Advocate General of the EU court issued a similar opinion earlier this year. The final ruling is therefore not surprising, but again calmed the financial markets – an important side-effect in the current situation concerning Greece. It also indicated that also the current quantitative easing scheme of the ECB, which some in Germany strongly dislike, would survive a challenge before the courts.
20th February 2019
25th January 2019