The European Court of Justice was the last major institution to confirm that the European Central Bank (ECB) is within its mandate to use the Outright Monetary Transactions (OMT) program it devised to prevent a collapse of some peripheral bond markets in 2011.
OMT gives the central bank the power to buy government bonds of European countries in proportion to their share in the capitalization of the ECB. Since the program was announced in 2011 it has never been used, due to the relative stabilization of the sovereign debt markets at the time.
The ECB is indeed overstepping its mandate and implementing economic policy
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With Greek default fears and increased bond markets volatility, the OMT may yet have a role to play in ECB’s arsenal of measures designed to foster financial markets stability across the Eurozone.
With the latest legal defeat, those criticizing the ECB have lost the highest court battle yet. Before the European Court of Justice, legal battles also involved a case filed with the German Federal Constitutional Court. The case has not been put to a vote there yet. After this latest court decision there are no E.U. institutions left to turn to for questioning the legality of the program.
The President of German Ifo Institute and economic think tank, Hans-Werner Sinn, criticised the court decision, “That is a regrettable mistake on the part of the Court. The ECB is indeed overstepping its mandate and implementing economic policy, which it is not allowed to do.”
“The German Constitutional Court, which is soon to pronounce its judgment, should not let itself be misled by this outcome,” he concluded.