Can the ECB to buy government bonds or not? On Wednesday maintain Europe’s central bankers on the response of the European Court of Justice Advocate General Villalón reads his pioneering application deadline. The controversial Euro bailout to overview.
What is in the Luxembourg process?
It revolves around an ECB decision to buy government bonds, which was never put into action. In the summer of 2012, the euro zone faced the ordeal. Central Bank President Mario Draghi was forced to a historic pledge: “The ECB is willing to do everything within its mandate, which is needed to save the euro.” A little later, the central bank decided – against the resistance of Bundesbank President Jens Weidmann – under conditions necessary unlimited bonds of euro-crisis countries to buy – the so-called OMT program (“Outright Monetary Transactions”).
Why does the EU Court dealt with the issue?
The Federal Constitutional Court came in February 2014 at the conclusion that the ECB had exceeded its powers with the OMT Decision: The ECB should operate according to the European Treaties no independent economic policy. In addition, the Constitutional Court was of the opinion of the OMT Order infringes the prohibition of co-financing of state budgets. Karlsruhe was the theme for clarification to the ECJ.
When a verdict?
It is expected this fall. On Wednesday initially sets the influential expert of the Court outlined his view of things. In most cases, the court considers the appraiser follows.
Did the ECB bought government bonds?
As part of the OMT program, the Fed did not buy a single bond. But the simple announcement of the action calmed the markets – that even critics concede. Draghi’s promise and the OMT program are considered to be the turning point in the sovereign debt crisis.
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What is the current plans of the ECB’s bond purchases?
“Grexit” debate, lowering prices for consumers and no end to the drop in oil prices in sight: the pressure to act on the ECB has recently increased again. For weeks, the monetary authorities are preparing the purchase of corporate and government bonds on a large scale. Many economists expect soon a decision of such a measure (“quantitative easing” QE). The central bank could then pump hundreds of billions into the economy. About QE decide the Luxembourg judges not – also the ECB had been creating facts to a judgment of the ECJ.
Why are government bond purchases by the ECB so controversial?
Critics say the ECB as was financing ultimately sovereign debt with the printing press. That makes the central bank depends on the respective States and jeopardize their independence from the government. It also crippling the willingness to reform when states left that it would, if necessary, direct the ECB.
How did the ECB defends
At the hearing in Luxembourg in mid-October stressed Governing lawyer Hans-Georg Kamann: “target and instrument are mandate compliant. ” The ECB proceed very carefully: “The fire department (…) deletes the burning house and possibly adjacent houses This protects the whole neighborhood Just protects the ECB by specific government bond-buying effectively throughout the euro area…”
What decision is expected?
Most experts believe that the judges in Luxembourg Draghi strengthen the back for his anti-crisis rate and wave through the OMT program. “We expect that the ECJ will explain the admissibility of the OMT purchases in the summer of 2015,” UniCredit economist Andreas Rees had agreed in the autumn. “In the past, the ECJ had a tendency to extend the influence of EU decision-makers.”
What would happen if the ECJ, the OMT program but tips?
Then, the monetary authorities would no longer be bound hands in this measure. However, the ECJ could make only certain requirements for bond purchases, as to the scope or duration. The CSU politician Peter Gauweiler, one of the plaintiffs, had pointed out last year, with a judgment of the Court was “definitely not decided the dispute”. The Federal Constitutional Court would have to re-address the issue.
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