Green light for controversial ECB debt-buying plan

22 Jun 16

The German Constitutional Court has given the green light to the European Central Bank’s controversial emergency bond-buying scheme – a key tool to fight financial crises.


Mario Draghi, president of the European Central Bank

Mario Draghi, president of the European Central Bank


The bank’s Outright Monetary Transactions programme gives the ECB power to buy the debt of struggling Eurozone members in the hope of preventing collapse of the single currency. German critics have objected to the programme since its conception in the midst of the bloc’s 2012 sovereign debt crisis.

A 35,000-strong group, including German politicians and academics, mounted a legal challenge in the country’s constitutional court, arguing that the OMT was tantamount to illegal financing. They said the programme made it easier for countries that should be implementing austerity measures to borrow money and violated German law. The group also claimed the ECB was overstepping its mandate.

The court rejected that challenge yesterday, with some minor limits on the German central bank’s participation. The court had previously referred the case to the European Court of Justice, which cleared the OMT.

The European Commission welcomed the court’s decision and said the ECB was operating within its mandate.

Mario Draghi, president of the ECB, launched the OMT as part of a pledge to do “whatever it takes” to prevent the collapse of the Euro.

The controversial instrument has never had to be used, however, with the ECB opting instead for negative interest rates, quantitative easing and corporate bond-buying.

Since March 2015, the ECB has brought €80bn worth of public and private debt in the hope of boosting growth and pushing interest rates down in the eurozone. 

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