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Outright Monetary Infractions

The German Constitutional Court has delivered its long-awaited decision on the ECB’s “outright monetary transactions” program. The ruling fully endorses the plaintiffs’ arguments, finding that the ECB's scheme to purchase potentially unlimited volumes of eurozone governments' bonds does indeed violate EU law.

MUNICH – The German Constitutional Court has delivered its long-awaited decision on the European Central Bank’s “outright monetary transactions” program. Since its launch in 2012, the OMT program has allowed the ECB to buy, if necessary, unlimited amounts of troubled eurozone countries’ government bonds, provided the affected countries subscribe to the rules of Europe’s rescue fund, the European Stability Mechanism.

Thousands of Germans appealed to the Constitutional Court against the OMT program, arguing that it violates Article 123 of the Treaty on the Functioning of the European Union, which bars monetary financing of eurozone governments, and that it imposes substantial risks on German citizens as taxpayers. The Court has now declared that it fully endorses the plaintiffs’ arguments, and that the OMT program does indeed violate EU primary law.

But, rather than issuing a formal ruling that would constrain the Bundesbank and the German parliament, as it could have done, the Court asked the European Court of Justice for its opinion. At first sight, this might seem promising for markets, which most likely expect the ECJ to rubber-stamp the OMT program. But things are not so simple.

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