On 14 January, Advocate-General Pedro Cruz Villalón published his opinion on the outright monetary transactions (OMT) case before the Court of Justice of the EU. The Advocates-General are a consultative body of the EU court and although their opinions are not binding for the court, the court´s decisions seldom differ too much from the opinions. The OMT case is a very important one. Following a steep raise in bonds´ yields of some eurozone countries, the ECB announced in September 2012 via a press release a non-conventional monetary measure, the so-called Outright Monetary Transactions program, a bond-buying program aimed at reducing some countries´ bonds yields. Together with the famous “whatever it takes” announcement of ECB President Mario Draghi, the announcement of the program calmed the financial markets and yields dropped. As a result, the program was never implemented and not a single bond was bought. The program was designed to allow the ECB to buy on the secondary market a non-limited number of bonds of a state in trouble, provided that such state agrees to a reform and budget cuts program and a bailout from either the EFSF or the ESM. Furthermore, the equal amount of money spent to buy the bonds was to be withdrawn from the market in order not to increase inflation.
The OMT program caused controversy mainly in Germany, where several academics and politicians brought the case before the German Federal Constitutional Court. The German Constitutional Court for the first time in its history did not directly resolve the cause, but asked the EU Court of Justice several questions. However, their wording revealed the opinion of the German court quite clearly and the decision not to declare the OMT program illegal was widely regarded as a goodwill gesture towards the troubled eurozone. The court did not like that the OMT program resembled more an economic policy tool, rather than a monetary policy tool. Furthermore, the court regarded the program as a possibility enabling the monetization of the debt, which is illegal under EU law.
According to the Advocate-General, the OMT program is in principle legal. However, in all the responses to the German court´s questions, the Advocate-General states that it is difficult to judge the program as such, since it has never been put to use. No legislative act of the ECB codifying the program exists, either. All the information on the program comes from a press release and oral explanations given by the ECB´s executive board members. Therefore, the program looks legal, but were it to be used one day, the concrete legislative acts, the explanation why it is used in a specific case and the modalities of its usage would need to fulfill certain criteria in order for the program to remain legal – mainly to remain strictly monetary in nature and assure the non-monetization of the debt.
The opinion comes at a time when an open quantitative easing program is expected to be announced by the ECB after the next Governing Council meeting. Provided that the Court of Justice sticks to the Advocate-General´s opinion, its responses to the German court´s questions would not at least be bad news for the once again troubled eurozone.
25th January 2019
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25th January 2019