The ECB has argued that, although the OMT programme is an “unconventional” instrument and entails some risks, it none the less falls within the Bank’s mandate. According to the ECB, the indirect aim of the OMT programme is to enable the Bank to restore the efficient use of its monetary policy instruments. Its immediate aim is to reduce the interest rates demanded for a Member State’s bonds in order to normalise the situation. The complainants in the German proceedings and the BVerfG itself consider, however, that the true purpose of the programme is to make the ECB a “lender of last resort” for the States of the euro area.

In his Opinion today, Advocate General Pedro Cruz Villalón observes that the framing and implementation of monetary policy are the exclusive competence of the ECB. In order to carry out its task, the ECB has at its disposal technical expertise and valuable information, which, together with its reputation and communications strategy, enable it to manage expectations in such a way that its monetary policy “impulses” actually reach the economy. Therefore, the ECB must have a broad discretion when framing and implementing the EU’s monetary policy, and the courts must exercise a considerable degree of caution when reviewing the ECB’s activity, since they lack the expertise and experience which the ECB has in this area.

The Advocate General finds that the OMT programme is an unconventional monetary policy measure. Unconventional measures of that kind must, however, comply with certain provisions of primary law (for example the prohibition of monetary financing of the Member States) and especially with the principle of proportionality.

The Advocate General also points out that the OMT programme is a measure that is incomplete, given that, in the press release of 6 September 2012, only its basic technical features were set out, it has not been formally adopted and it has not been implemented in any specific case. His analysis is thus carried out on that basis. 

Full press release

Reuters: EU court adviser paves way for ECB money printing

The European Central Bank won crucial backing on Wednesday for its pledge to do whatever it takes to support the euro when a top EU legal adviser removed a hurdle to the bank's plans to buy government bonds to bolster the euro zone economy.

Pedro Cruz Villalon, advocate general to the European Court of Justice, said a 2012 ECB bond-buying blueprint, designed at the height of the euro zone crisis to avert a break-up of the single currency and unused so far, did not break EU law.

The opinion was a clear rebuff to German critics of bond-buying, who argue the ECB would reward spendthrift states with cheap credit by printing fresh money and deter painful reforms.

"The OMT (Outright Monetary Transactions) programme ... falls within the monetary policy for which the (EU) Treaty makes the ECB responsible," said Cruz Villalon, in an opinion which was met by enthusiasm on financial markets. 

The euro tumbled to below its launch level for the first time in a decade after the court opinion was published, as investors took the view that the ECB had received a green light to push ahead with its plans.

The adviser's opinion, which is usually followed by the court's judges, was a milestone in a long-running dispute about printing money and the limits of central bank powers between the ECB and Germany, the largest member of the 19-country bloc.

Full article on Reuters