The European Central Bank is being taken to the European Court of Justice to determine the legality of the ECB's Outright Monetary Transactions (OMT) program. What is interesting that the article points out is that the OMT program allows the ECB to buy unlimited amounts of a country's debt if investors pull out. However many legal experts worry that this violates the ECJ's ban on the ECB funding governments.
The piece of news that really brought me to this article is that the OMT program has not even been used yet. Simply advertising the existence of the plan and its possible implementation has been enough to help calm turbulent markets since 2012. The nature of the ECJ and how it goes about coming to its rulings is of particular interest in this case. A legal expert from the University of London said, "practically speaking, the court is not an independent organisation but is pre-disposed to interpret legal questions in the interest of the European Union."
Given that the existence of the OMT program has been used to stabilize markets and that the ECJ is expected to take up to 2 years to make a ruling, it seems that the OMT program is a case of the ECB influencing the market without direct monetary policy. The question is whether the ECJ is allowing the success the ECB has had with stabilizing markets to influence its decision in a way that will have negative consequences down the line. Should the ECJ declare the OMT program unlawful it could unsettle all the work that has been done under the assumption that OMT was a possibility. On the other hand should it be allowed it opens up a dangerous door where countries in the European Union can go to the ECB and request that the bank buy their debt when times get tough, something that isn't sustainable at all.
No comments:
Post a Comment