The legality of Mario Draghi’s emergency bond buying programme, which saved the single currency from collapse in 2012, will be reviewed by the Continent’s highest legal authority.
Germany’s constitutional court, which had been asked to examine the issue, said on Friday there were grounds for believing the European Central Bank’s so-called Open Market Transactions scheme constitutes a breach of its mandate under European law.
But the court conceded there was also a chance the OMT could be legal if sufficiently circumscribed, and it will therefore refer the decision to the European Court of Justice (ECJ) in Luxembourg for a final verdict. The ECJ is expected to report next year.
The announcement was interpreted as a sign that the OMT, which has underpinned confidence in European bonds markets since the summer of 2012, will not be dismantled.
“It is widely accepted that the ECJ would look more favourably on the case,” said Peter Schaffrick of RBC Capital Markets. “It might well lead to a somewhat downsized OMT framework, but we consider it unlikely that it will fall entirely.”
“We think that this is very good news and expect that the OMT remains fully in place,” concurred Andreas Rees of UniCredit MIB in Munich.
However, Carsten Brzeski of ING Group warned it was “not a given” the European Court of Justice will rubber-stamp the OMT.
The euro initially fell against the dollar yesterday, but then rose strongly, ending up 0.2 per cent at $1.361.
In the summer of 2012 Mr Draghi pledged to do “whatever it takes” to prevent the break-up of the eurozone. Shortly after, the central bank unveiled the OMT, which outlined how it would buy up the bonds of distressed nations that came under sustained attack. Mr Draghi was credited with saving the single currency from implosion.
Italian and Spanish bond yields remained under control yesterday, declining to 3.7 per cent and 3.6 per cent.
Critics say the OMT contravenes the European treaties that limit the ECB to monetary policy and proscribe the financing of the deficits of member states.