Germany versus the Euro

BERLIN – Usually, people or institutions are taken to court when things go wrong and a fight ensues about who is liable for the damage. So the German Constitutional Court’s hearing on June 11-12 to consider the legality of the European Central Bank’s so-called outright monetary transactions (OMT) program was peculiar. Here is a fight over the single most successful monetary-policy measure of recent decades – not just in Europe, but anywhere.

The announcement of the OMT scheme in July 2012 reduced interest rates for companies and governments alike and returned much-needed private capital to crisis-hit countries, thereby helping to soften the blow of the deep recession on Europe’s periphery. It also brought back that scarcest of assets: confidence in the viability of the eurozone economy and its currency, the euro.

Best of all, none of these achievements has cost a single euro. All that was required was a mere statement by ECB President Mario Draghi and its Governing Council that it would do “whatever it takes” to buy eurozone members’ sovereign debt, conditional on their fulfillment of stringent fiscal conditions. No country has come forward so far.

But, while the OMT program’s positive impact on financial markets is proof of its success, it has come under fierce attack by the German public, political parties, and economists. A recent poll shows that only one-third of Germans now favor the scheme, while a majority oppose it. And now the Constitutional Court is being asked to strike it down.