Dr Holger Schmieding, chief economist at Berenberg, says Yes.
The European Central Bank (ECB) is the lender of last resort for the Eurozone. By throwing out legal challenges to the ECB’s “whatever it takes” promise, Germany’s constitutional court filled the one decisive gap in the institutional setup of the Eurozone. In mid-2011, an irrational market panic had aborted the Eurozone’s initial post-Lehman recovery. Whereas the Fed and the Bank of England had started to buy bonds long ago, the ECB waited until the summer of 2012 before it signalled its readiness to act, de facto ending the euro crisis. However, doubts whether the ECB could ever really activate the programme continued to linger. The German court has now put an end to these doubts. That is useful. Of course, outright monetary transactions (OMTs) are currently not really needed as the ECB is buying bonds under its separate quantitative easing programme anyway. But whatever the future may hold, the Eurozone now has an effective safety net that could be deployed in case of need.
Dr Brendan Brown, chief economist at MUFG, says No.
A strong Eurozone needs strong German monetary policy to maintain its economic credibility. However, the decision of the red-robed judges in Karlsruhe confirms the diminution of German monetary power, a fact underscored by the Bundesbank president’s refusal last month to join German politicians in criticising the European Central Bank for its money printing and negative interest rate policies. In its judgment, the German constitutional court has given free rein to the ECB to lend to any member government in a future debt crisis by the effecting of outright monetary transactions (OMTs). Yes, the judges list some caveats, but these are weak. In particular, the order that “the volume of purchases (of short-term bonds) is to be limited from the outset” appears unlikely in practice, given the experience of Greece last year, where the expected monitors on the flow of “emergency loan assistance” have long since gone. The Court’s decision further reduces German monetary power, reduces the provision of hard money in Europe, and serves to weaken the Eurozone.