7 Feb 2014
Flash: German Court passes OMT decision on to European Court - ING
FXStreet (Barcelona) - Carsten Brzeski, Senior Economist at ING notes that the German Constitutional Court just decided that it will pass the decision on the ECB’s OMT programme on to the European Court of Justice.
Key Quotes
“In a press release, the Court just said that there were “important reasons to assume that it [the OMT programme] exceeds the European Central Bank’s monetary policy mandate and thus infringes the powers of the Member States”. In short, the Court gives a long explanation why it thinks that the OMT programme is illegal.”
“However, there is one passage in the press statement which indicates that the Court is not totally convinced by its own assessment. According to the Court, OMT would be legal if it would not undermine the conditionality of the EFSF and ESM bailout programmes. This, however, in the eyes of the Court would require that the haircut option, which is part of the ESM treaty, should be excluded and that bond purchases are not unlimited. Particularly the issue of conditionality has frequently been emphasised by the ECB.”
“It does not happen a lot that the German Constitutional Court passes sensitive decisions on to the European level. Today’s announcement therefore could either be a sign that the Court has reached its legal limits on European issues or that the issue is so tricky and touchy that it is better to pass it on. As regards the short-term outlook, the announcement should clearly reduce the Karlsruhe fear factor for the ECB. But not entirely. It is not a given that the European Court of Justice will only rubber-stamp the OMT programme.”
Key Quotes
“In a press release, the Court just said that there were “important reasons to assume that it [the OMT programme] exceeds the European Central Bank’s monetary policy mandate and thus infringes the powers of the Member States”. In short, the Court gives a long explanation why it thinks that the OMT programme is illegal.”
“However, there is one passage in the press statement which indicates that the Court is not totally convinced by its own assessment. According to the Court, OMT would be legal if it would not undermine the conditionality of the EFSF and ESM bailout programmes. This, however, in the eyes of the Court would require that the haircut option, which is part of the ESM treaty, should be excluded and that bond purchases are not unlimited. Particularly the issue of conditionality has frequently been emphasised by the ECB.”
“It does not happen a lot that the German Constitutional Court passes sensitive decisions on to the European level. Today’s announcement therefore could either be a sign that the Court has reached its legal limits on European issues or that the issue is so tricky and touchy that it is better to pass it on. As regards the short-term outlook, the announcement should clearly reduce the Karlsruhe fear factor for the ECB. But not entirely. It is not a given that the European Court of Justice will only rubber-stamp the OMT programme.”