European Central Bank President Mario Draghi’s pledge to do “whatever it takes” with a bond-buying plan to save the euro-area goes on trial before the European Union’s top judges today.
The Court of Justice, the bloc’s highest court, will weigh whether Draghi’s ECB overstepped its powers in 2012 with the mechanism to buy the debt of stressed countries if needed.
While Germany’s own top court earlier this year expressed doubts about the plan’s legality, the EU tribunal’s 15-judge panel is unlikely to overturn it, according to legal scholars.
“A ruling that would say the ECB’s Outright Monetary Transactions mechanism isn’t in line with the EU Treaty would be the end of the euro,” said Pierre-Henri Conac, a professor of financial-markets law at the University of Luxembourg.
“Politically, they cannot do that. There is no real suspense about the way the ruling will go, but there will be suspense about the actual content of the decision.”
The Frankfurt-based ECB announced the details of its unprecedented bond-purchase plan in September 2012 as bets multiplied that the euro area would break apart and after Draghi’s promise to do whatever was needed to save the currency.
The calming of financial markets that the still-untapped OMT program produced helped the euro area emerge from its longest-ever recession in the first half of last year.
From the statements, the ECB expects wide-ranging support for its argument that it should be allowed to determine independently how to reach its goal of price stability, a spokesman for the ECB said.
Court Coup
Germany’s Federal Constitutional Court, which is handling a series of challenges to the legality of the OMT program, sought the EU tribunal’s guidance in February. “It’s questionable whether the Federal Constitutional Court can score the coup of dictating the ECJ how to rule,” Christoph Ohler, professor of law at Jena University.
“I don’t think the constitutional court will get all it wants in the end. But I also don’t think the ECB will get all it wants.”
While the OMT program averted fears of a breakup of the currency region, it did little to help the 18-nation economy out of its malaise.
Two years after its announcement, the ECB is gearing up to buy asset-backed securities and covered bonds to funnel credit to companies and households and fuel inflation running at a fraction of its target of just below 2 percent.
Draghi has held out the prospect of stepping up stimulus to include sovereign-bond purchases, even though the current plan already sparked an outcry among academics and representatives of all major political parties in Germany and drew opposition from Bundesbank President Jens Weidmann and two other council members.
Quantitative Easing
A rising number of economists in Bloomberg’s monthly survey predict the ECB will embark on the type of quantitative easing other central banks have enacted as the economic outlook deteriorates.
The German court said in its February judgment that the OMT may violate EU rules because it amounts to economic policy that is outside the ECB’s mandate.
Judges there said the plan may also be seen as monetary financing of governments, which the EU treaties ban.
The OMT program could pass the test if it were limited and placed under certain conditions, like banning debt cuts and unlimited purchases bonds of selected member states, the German court said.
“The real issue will be to see to what extent the EU court will pick up on the German court’s alternative interpretation,” Conac said by phone.
“The decision will most likely validate the OMT and at the same time take into account as much as possible” the compromise proposed. The EU court usually takes about 16 months to rule on cases once they have been referred by national judges.
The German top court in 2011 threw out cases against the bailout packages for Greece and the country’s participation in the European Financial Stability Facility, the predecessor of the ESM. The EU court case is: C-62/14, Peter Gauweiler and Others.
bloomberg.com
The Court of Justice, the bloc’s highest court, will weigh whether Draghi’s ECB overstepped its powers in 2012 with the mechanism to buy the debt of stressed countries if needed.
While Germany’s own top court earlier this year expressed doubts about the plan’s legality, the EU tribunal’s 15-judge panel is unlikely to overturn it, according to legal scholars.
“A ruling that would say the ECB’s Outright Monetary Transactions mechanism isn’t in line with the EU Treaty would be the end of the euro,” said Pierre-Henri Conac, a professor of financial-markets law at the University of Luxembourg.
“Politically, they cannot do that. There is no real suspense about the way the ruling will go, but there will be suspense about the actual content of the decision.”
The Frankfurt-based ECB announced the details of its unprecedented bond-purchase plan in September 2012 as bets multiplied that the euro area would break apart and after Draghi’s promise to do whatever was needed to save the currency.
The calming of financial markets that the still-untapped OMT program produced helped the euro area emerge from its longest-ever recession in the first half of last year.
From the statements, the ECB expects wide-ranging support for its argument that it should be allowed to determine independently how to reach its goal of price stability, a spokesman for the ECB said.
Court Coup
Germany’s Federal Constitutional Court, which is handling a series of challenges to the legality of the OMT program, sought the EU tribunal’s guidance in February. “It’s questionable whether the Federal Constitutional Court can score the coup of dictating the ECJ how to rule,” Christoph Ohler, professor of law at Jena University.
“I don’t think the constitutional court will get all it wants in the end. But I also don’t think the ECB will get all it wants.”
While the OMT program averted fears of a breakup of the currency region, it did little to help the 18-nation economy out of its malaise.
Two years after its announcement, the ECB is gearing up to buy asset-backed securities and covered bonds to funnel credit to companies and households and fuel inflation running at a fraction of its target of just below 2 percent.
Draghi has held out the prospect of stepping up stimulus to include sovereign-bond purchases, even though the current plan already sparked an outcry among academics and representatives of all major political parties in Germany and drew opposition from Bundesbank President Jens Weidmann and two other council members.
Quantitative Easing
A rising number of economists in Bloomberg’s monthly survey predict the ECB will embark on the type of quantitative easing other central banks have enacted as the economic outlook deteriorates.
The German court said in its February judgment that the OMT may violate EU rules because it amounts to economic policy that is outside the ECB’s mandate.
Judges there said the plan may also be seen as monetary financing of governments, which the EU treaties ban.
The OMT program could pass the test if it were limited and placed under certain conditions, like banning debt cuts and unlimited purchases bonds of selected member states, the German court said.
“The real issue will be to see to what extent the EU court will pick up on the German court’s alternative interpretation,” Conac said by phone.
“The decision will most likely validate the OMT and at the same time take into account as much as possible” the compromise proposed. The EU court usually takes about 16 months to rule on cases once they have been referred by national judges.
The German top court in 2011 threw out cases against the bailout packages for Greece and the country’s participation in the European Financial Stability Facility, the predecessor of the ESM. The EU court case is: C-62/14, Peter Gauweiler and Others.
bloomberg.com
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