Last year, with the very future of the Eurozone at sake, the European Central Bank outlined its Outright Monetary Transactions scheme. The programme, which would allow the central bank to purchase potentially unlimited amounts of a struggling nation’s debt, has been cited as turning the Eurozone crisis around by restoring confidence in the currency bloc.
However, while the as-yet untried scheme has staunch supporters it has equally vocal opponents, and as the German constitutional court debates the legality of the scheme the two factions have already started to clash.
At the opening of the proceedings Andreas Vosskuhle declared that whether or not the ECB’s measures were effective would not be a consideration when deciding if they are constitutional. He noted: ‘We will have to decide to what extent the ECB makes use of competences which have not been given to it and were not allowed to be given to it as far as the constitution is concerned, and to what extent the normal citizen is affected by this.’
German central bank chief, Jens Weidmann, has never held back when it comes to voicing his own view of the scheme and yesterday he told that court that this policy went against the ECB’s specified role of controlling inflation.
He was quoted as saying: ‘Secondary market bond purchases should not be used in my understanding in a European currency union to lower the solvency risk premiums of individual countries. Because that, among other things, threatens to annul the disciplining role of market interest rates and undermine financial responsibility.’
But executive ECB board member Joerg Asmussen fought back, arguing that the OMT scheme fell within the jurisdiction of the ECB, as nation’s receiving aid would have to adhere to tight rules.
He stated: ‘We have no doubt this strong signal was required to convince market participants of our seriousness and decisiveness in pursing the objective of price stability.’
Asmussen went on to assert that Germany’s liability under the programme was far from unlimited.
The debate is set to rumble on for some time yet, with many industry experts believing that a definitive decision will not be reached until after the German general election.
Eurozone news to watch out for today includes the publication of the ECB’s monthly report and the outcome of an Italian bond sale.
Euro (EUR) Exchange Rates
As of 08:55
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