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European Court of Justice
Image: AP

ECB's OMT scrutinized

October 14, 2014

The European Court of Justice has started looking into the legality of the European Central Bank's bond-buying program. Critics of the so-called OMT scheme have argued the plan is outside the ECB's remit.


A 2012 announcement by the European Central Bank it was ready to buy up an unlimited number of government bonds to shore up ailing economies in the 18-member eurozone is now being investigated by the European Court of Justice (ECJ) in Luxembourg.

The case had earlier been looked into by Germany's Constitutional Court, which indicated that the ECB's so-called Outright Monetary Transactions (OMT) pledge could be outside the central bank's remit.

It said OMT could constitute a way of financing sovereign debt through the back door - something the ECB is definitely not allowed to do.

The announcement of the OMT program by ECB President Mario Draghi in 2012 is now seen as the turning point in the euro area's debt crisis as it helped calm markets and stabilize the euro.

But critics of the OMT program, including German central bank chief Jens Weidmann, had argued it could jeopardize the ECB's independence from national governments. They say OMT could curb governments' willingness to implement important structural reforms as they know the ECB would help them out anyway should they fail to deliver on their promises.

The power of words

The European Court of Justice will only come up with a ruling in the second half of 2015. But many pundits already believe the outcome is a foregone conclusion.

"We expect that the ECJ will confirm the legality of the OMT program," UniCredit economist Andreas Rees told DPA news agency on Tuesday.

ECB test case in European Court of Justice

Experts argue the top European court will find nothing fundamentally wrong with the program as it is subject to strict conditions.

Struggling eurozone nations wanting to benefit from OMT would first have to agree to use the bloc's rescue fund, which in turn would be linked to strict austerity measures.

hg/sgb (dpa, Reuters)