Date: 14/01/2015 05:07 clock
The euro rescue is on trial. Before the Court today falls a preliminary decision whether the unlimited purchase of government bonds by the ECB is legal. In the fight against the return of the crisis, the central bank could lose their last resort.
Determine Three events in eleven days, if the euro debt crisis returns with vehemence: It starts with today’s preliminary decision of the European Court of whether the European Central Bank (ECB) may, if necessary, unlimited buy government bonds of crisis countries
On 22 January, the Governing Council who wants to start a huge program to buy government bonds session follows. And on January 25 vote by the Greeks in early elections also on whether they want a government that will stop the austerity renegotiate the terms of the billions of aid granted and would like to repay the debt only partially.
OMT decision
Greece benefited as well as other indebted euro zone countries in recent years, not only of the parachutes, but also on the support by the ECB. Between 2010 and 2012, the central bank collected under the SMP program government bonds of crisis countries worth 220 billion euros a – of which the ECB has today papers worth 144.3 billion euros in their collections
The SMP program 2012 has been replaced by the OMT decision. OMT is the introduction of “Outright Monetary Transactions”. The central bank agreed to indefinitely to buy government bonds from countries take the help of the bailout EFSF or ESM to complete and are committed to reform. The ECB buys these papers governments not direct, but buys government bonds that are already being traded among investors.
Three-saving words for the euro
The missing limit for a possible bond purchase not only calmed the markets. The OMT program was also the practical implementation of the three famous words “whatever it takes” ECB President Mario Draghi. He had declared in July of 2012, the central bank was ready to “do what will always be necessary to protect the euro”. Draghi signaled so that the financial markets that no one should have more fear for his money if he borrows States of the euro zone. If necessary, the ECB would investors buy the securities.
The words unfolded tremendous effect, even if the central bank has bought any single bond within the OMT program to date. In the weeks before Draghi’s announcement that interest rates on ten-year Spanish bonds were increased to up to 7.5 percent, from Italian papers with this term there were nearly 6.5 percent.
After Draghi’s speech and the OMT decision sacked from the interest. Today there are two states at between 1.5 and 2.0 percent
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questions of law and power
Whether the European Central Bank has exceeded its powers with Draghi’s announcement and the OMT decision, currently the European Court of Justice must be clarified. The process has been running since October 2014. Today, Advocate General Cruz Villalón will be with the submission of its report Important clues as to whether the ECB’s approach is covered by the European Treaties. Because in most cases the ECJ judges follow the legal opinion of the Advocate General. Whether that will this time be the case, but is considered uncertain: It is assumed that the judges incline rather the position of the plaintiff from northern European countries and could rely more judges from southern Europe, the ECB policy
The proceedings were proceedings in Germany before the Federal Constitutional Court. The judges did indeed clear that the ECB from their point of view with the OMT program overstepping their powers. However, they submitted the case to the ECJ in Luxembourg – and at the same time retain the right to final decision. The European judges have to decide on the one hand, against this background, on the interpretation of European treaties that prohibit a State funding from the ECB and its responsibilities are defined as the monetary policy and the objective of price stability. Influenced the judgment of the ECJ but on the other hand, the balance of power within the EU
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escalation of the crisis threatens
If the Court approves the OMT program, there is a risk that the Federal Constitutional Court prohibits the German institutions to participate therein. This could for the situation in the euro zone have serious consequences, as the Federal Republic is the largest contributor of all EU countries to the capital of the ECB, the Bundesbank.
But if the judges in Luxembourg, the stop OMT program, the existing signaling effect could be eliminated to the markets from one day to the next. There was a danger that the interest rates on bonds of heavily indebted countries skyrocket suddenly. A strong indication that the ECJ rules for a position between the two extremes, when he received his sentence in a few months
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signal to new plans the ECB
But even the Opinion of the Advocate General would send a strong signal to current plans go out the ECB. There are strong indications that the Governing Council will decide on a program on 22 January, already under the heading of “quantitative easing” the other central banks – quantatitative easing – practice. . The idea is to buy up bonds in a big way and thus pumping money into the markets
The ECB would buy government bonds of many or even all euro countries – and not only papers Crisis States. Reforms of the countries concerned were not a prerequisite for this step as opposed to the OMT program. For the quantitative easing is to prevent especially the risk of deflation, postpone investments in companies and consumers in the expectation of further falling prices and thereby curtail the economy. The ECB always strives for stable prices – from the perspective of the central bank means an annual inflation close to two percent. For months, the inflation rate is significantly lower and in December, consumer prices fell as much as 0.2 percent.
Marcel Fratzscher, president of the Institute of Economic Research, DIW Berlin, is convinced that the ECB early must act to prevent a slide into a spiral of deflation and recession. The purchase of government bonds is the last remaining option that has the ECB, he said SWR. Today’s plea of the Advocate General at the ECJ proceedings will show in this context also important framework for the planned further bond purchases, even if it’s just the OMT program is formally in court.
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