The program to purchase bonds issued by the euro zone, announced in 2012, is compatible, under certain conditions estimated the Advocate General at the European Court of Justice.
The program to purchase bonds issued by the States of the euro zone, announced in 2012 by the European Central Bank (ECB) is consistent under certain conditions, with European law, estimated Wednesday attorney general European Court of Justice.
In most cases, the Advocate-General are followed by the court . This finding was expected especially at a time when the ECB is preparing to expand its support for the single currency by buying massive public debt.
In his conclusions, Advocate General Pedro Cruz Villalon, considered the OMT (“Outright Monetary Transactions”) program “is compatible” with European law “provided that, if it applied (…) is strictly the obligation to state reasons and requirements of the principle of proportionality fulfilled” in Regarding the ECB’s mission and objective.
The OMT program was launched in the summer (boreal) 2012, just after the global financial crisis from turning Europe into a debt crisis and when “investor doubts about the viability of the single currency caused seemingly unstoppable increases risk premiums” State “drawing a critical financial outlook,” says the lawyer.
Then President ECB, Mario Draghi, had declared its readiness to do everything possible to stabilize the monetary union.
The program consisted of buying government debt in some countries of the euro area in the secondary market, where bonds that were already issued are exchanged. With its promise, Draghi able to provide reassurance to the markets and the program was not used.
But in Germany, policy makers and NGOs appealed against the federal government before the German Constitutional Court, based Karlsruhe (southwest), which in turn referred to the Court of Justice of the EU questioning the legality of the OMT program.
First, the court of Karlsruhe question if instead of a policy measure ECB monetary program “does not constitute rather a measure of economic policy”, which fall outside the mandate of the institution based in Frankfurt.
Second, “the German court doubts that the that measure respects the prohibition of monetary financing of the Member States “, registered in European law. From a more general point of view, the German court questions the limits of competence of the ECB “when dealing with exceptional situations, such as the summer of 2012″.
In its conclusions The attorney general believes that the ECB “should provide adequate justification for adopting an unconventional measure, such as OMT program, identifying clearly and precisely the extraordinary circumstance that justifies” and believes that the program is “appropriate to achieve a reduction of interest rates (…) that will recover some financial normality in the States concerned “allowing the ECB to” develop its monetary policy in conditions of greater certainty and stability. “
It adds that the OMT program is “necessary and proportionate” and that the ECB “assumes a risk that necessarily leads to a scenario of insolvency”.
Cruz Villalon further explains that European law does not prohibit the ECB “the operations on the secondary market “because if it would not prohibit the use of an” indispensable tool “to perform monetary policy, although he concedes that the OMT program” may inevitably lead to some extent investors to buy debt in the market primary “so the ECB will” act with caution “secondary market” in order to avoid speculative behavior. “
Therefore, Cruz Villalon” considers the OMT program is compatible with European law provided that, if it applied, it takes effect on temporary circumstances that effectively allow a market price of government bonds to form. “
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