Currency and Financial Markets Europe Monetary Policy

An Overwhelming Success for the European Central Bank

The decision by the European Court of Justice (ECJ) is an overwhelming success for the European Central Bank (ECB). The OMT program has been ruled to be fully consistent with European law. The ruling means that the ECB has an additional, important monetary policy instrument to fight the European crisis. It implies that the OMT program has not become superfluous with the start of the current QE program of the ECB. On the contrary, a Grexit and renewed intensification of the crisis could force the ECB to activate the OMT program for individual countries in the not too distant future.

The ECJ decision puts lot of trust in the ECB as a policy institution. It gives the ECB wide-ranging liberties to react fast and flexibly to crisis situations.

The decision by the ECJ underlines that the ECB is not engaging in monetary financing or economic policy-making with its OMT program, but that the program is a legitimate instrument to ensure a unified monetary policy.

I fear that the decision by the ECJ could trigger a serious conflict with the judges of the German constitutional court. The EC J decision contradicts in almost all points the recommendations of the German constitutional court. The judges of the constitutional court must now decide whether they want to escalate the conflict. An escalation of the conflict could have major costs for Europe and also for Germany. An open conflict would create significant legal and political uncertainties, which could have negative economic consequences.

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