Draghi: OMT necessary, effective and legal

Mario Draghi has said his decision on the outright monetary transactions (OMT) bond-buying programme was necessary, effective and in line with the ECB mandate. He pointed to benefits across Europe, in particular, falling bond yields in Italy and Spain.

Draghi added that all decision-makers need to take their responsibilities in order for the eurozone to move forward.

The German Constitutional Court yesterday concluded its hearing on the OMT, and the judgement when released will define the border between German and European law. Deutsche Bank analysts say they see three potential outcomes:

1. Unconditional dismissal of the complaints: unlikely. It took the GCC more than nine months to convene the hearing. The hearing itself was scheduled for two days and not one day. That suggests that the Court will come to a differentiated judgment.

2. Preliminary ruling from the European Court of Justice (ECJ): Not very likely. There has been some speculation that the GCC could also ask the ECJ for a preliminary ruling on whether the ECB had acted beyond the competences assigned by the European treaties. The GCC is fully aware of the fact that the ECJ would most likely judge in favour of the ECB and that this would imply subsequent constitutional complaints that would assert that the ECJ had ruled beyond its competences. That Achilles heel is known by the Court and could motivate it not to forward the case to the ECJ for a preliminary ruling in order to prevent another cascade of complaints.

3. Involve Bundesbank in Bundestag decisions: Conceivable. In order to prevent OMT from ultimately leaving the Bundesbank’s balance sheet and thus indirectly the German taxpayer with higher liabilities than formally decided under the ESM the GCC could decide to provide for some formal involvement of the Bundesbank into the decision making process on new ESM programmes. However, the Bundesbank’s new role would at best be constrained to an advisory role but without a veto as the Parliament is a democratic institution that cannot be bound to an independent institution that is not subject to democratic control such as the Bundesbank.