07 February 2014 15:00 [Source: ICIS news]
LONDON (ICIS)--Germany’s constitutional court on Friday ruled that the European Central Bank’s (ECB) Outright Monetary Transaction (OMT) bond-buying programme exceeded the bank’s competence, raising questions about ECB monetary policies.
The ECB announced OMT in 2012 amid the European sovereign debt crisis. While the programme to potentially buy unlimited numbers of the bonds of eurozone crisis countries was not activated, its announcement helped stabilise markets and lift commodity prices.
The German court said that OMT was an economic policy measure that redistributed wealth between eurozone member countries, and as such was outside the ECB’s legal competence. The court referred the case to the European Court of Justice.
Economists said that the German ruling raises questions about the ECB’s ability to act. The ECB was not likely to activate OMT while the case is being heard by the European Court, creating some uncertainty in financial markets, they added.
"The ECB would be in a politically very difficult position if it pursued the programme while the European Court is hearing the case," said Marcel Fratzscher, president of economics institute DIW Berlin.
At the same time, the ruling created uncertainty over the ECB’s overall ability to act on financial markets, he added.
Fratzscher called on the European Court to issue a quick decision in order to reduce any market uncertainty.
Hans-Werner Sinn, president of Munich-based Ifo economics institute also said that the German ruling would affect ECB monetary policies. He said that OMT amounted to a fiscal measure to redistribute wealth in the eurozone.
Fratzscher and Sinn were expert witnesses in the German case.
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