17 February 2014

Nowotny criticises GCC's ruling on OMT

Austrian Central Bank Governor Ewald Nowotny has criticised the German Constitutional Court's recent ruling on the ECB's bond-buying programme, saying that the Court's definition of monetary policy is "extremely restrictive and, to a degree, dangerous".

As reported by the Financial Times (subscription), Ewald Nowotny, the head of the Austrian central bank  and member of the European Central Bank’s governing council, has attacked Germany’s highest court for intruding into European-wide monetary policy. He told a London audience that the court had strayed into "very difficult waters" in its decision. 

The judges in Karlsruhe expressed serious doubts this month about the legality of the ECB’s so-called Outright Monetary Transactions (OMT) as they referred the case to the European Court of Justice. Mr Nowotny said the ruling contained a "very strange, very narrow" definition of what constitutes monetary policy which departed from economic theory and the old practice of the Bundesbank, Germany’s central bank. The definition was "extremely restrictive and to some extent dangerous", he said, raising concerns about the principle of a national court intervening in pan-European affairs and monetary policy. Wall Street Journal (subscription) also reports him as saying national courts shouldn't have veto power over European-wide issues.

Financial markets were unphased by the ruling, and Mr Nowotny himself said he did not think it had direct, practical consequences for the OMT. As reported by Reuters, "the OMT bond-buying programme is no longer of central importance because fears of a eurozone break-up have faded", Nowotny said. "(The OMT programme is) not that relevant anymore because we have a substantial improvement in the European situation and there are no expectations in the market of a break-up in the eurozone."