Germany’s top court backs ECB crisis-fighting tool

AFP, KARLSRUHE: Germany’s constitutional court yesterdat quashed a eurosceptic lawsuit against a key crisis-fighting tool of the European Central Bank, as the ECB steeled itself for market turmoil from a possible Brexit.
Throwing out a long-running suit by a group of politicians and academics, Germany’s highest court ruled that the ECB’s 2012 bond-buying plan called Outright Monetary Transactions (OMT) were legal under the country’s constitution.
While the OMT scheme has never actually been used, it was part of ECB President Mario Draghi’s landmark promise to do “whatever it takes” to save the battered euro at the height of the crisis in 2012.
That vow, backed by the announcement of the OMT programme, helped reduce borrowing costs for the most debt-hit countries, calmed markets and brought the eurozone back from the brink.
The promise of OMT was that the ECB could, if necessary, buy up unlimited amounts of government bonds from debt-stricken countries that had pledged reforms such as Italy, Spain and Portugal.
Critics charged that the ECB is essentially printing money and lavishing it on states, leaving taxpayers with the risk of one day having to foot the bill.
The ECB has since launched a range of other policy measures aimed at kick-starting the eurozone’s moribund economy and driving inflation back up to levels more compatible with healthy growth. Few observers had expected the Constitutional Court to torpedo the ECB’s programme.  
In January 2014, it had voiced concerns about OMT but then kicked the case up to the European Court of Justice (ECJ) in Luxembourg.
The EU’s highest court has since essentially backed OMT, arguing that while the ECB’s chief purpose is price stability, it may also support EU economic policy goals. Reading out the Constitutional Court’s ruling on Tuesday, judge Andreas Vosskuehle argued that the OMT did not overstep the ECB’s mandate.  The EU Commission in Brussels expressed relief at the ruling.
“We welcome that in substance the court confirms the decision by the European Court of Justice,” it said in a short statement. “While respecting the European Central Bank’s independence, the European Commission stands fully behind the ECB in delivering its mandate,” it added.
The head of the DIW think tank, Marcel Fratzscher, hailed the ruling as “intelligent” and “wise”.But others were not so pleased.
The head of the influential Ifo think tank, Clemens Fuest, accused the judges of “doing a U-turn” and kowtowing to the ECJ.
Berenberg Bank economist
Holger Schmieding said the ruling “makes it even more likely that the German court will also reject” pending lawsuits against the ECB’s other
policy measures, including against
the ECB decision to broaden bond purchases from only sovereign to
corporate bonds.
That move is part of the ECB’s massive quantitative easing, or QE, stimulus programme that aims to boost inflation and growth in the 19-member currency bloc.
The ECB has also slashed interest rates to zero, further raising hackles in Germany because low rates hurt savers, and pumped more than one trillion euros ($1.1 trillion) into the financial system.
Cheap cash, Brexit fears
The Constitutional Court ruling came in a very busy week for the ECB, which is scheduled to launch the next round of ultra-cheap loans for banks, who are meant to pass the credit on to the real economy, meaning households and business.
The scheme is known as targeted longer-term refinancing operations, or TLTRO.
And on Thursday, all eyes will be on Britain’s referendum on whether to stay in the EU or leave.
Both the euro and pound have dipped in the lead-up to the vote, as analysts fear a Brexit would spark market panic.
On the bond market, German
10-year bonds saw their yields drop below zero last week, a sign of a run on safe investments.
Financier George Soros warned of a Black Friday plunge in sterling if Britain votes to quit the EU as new polls showed a razor-tight race 48 hours ahead of the referendum.
The Hungarian-born US billionaire, who made a fortune by betting
against the pound in the so-called Black Wednesday of September 1992, said that a rejection of the European Union would deliver a major financial shock, with “serious consequences for ordinary people”.
The ECB last week said that, if there is a Brexit vote, it will “use all instruments at its disposal” to maintain price stability.

Germanys top court backs ECB crisis-fighting tool

AFP, KARLSRUHE: Germanys constitutional court yesterdat quashed a eurosceptic lawsuit against a key crisis-fighting tool of the European Central Bank, as the ECB steeled itself for market turmoil from a possible Brexit. Throwing out a long-running suit by a group of politicians and academics, Germanys highest court ruled that the ECBs 2012 bond-buying plan called Outright Monetary Transactions (OMT) were legal under the countrys constitution. While the OMT scheme has never actually been used, it was part of ECB President Mario Draghis landmark promise to do whatever it takes to save the battered euro at the height of the crisis in 2012. That vow, backed by the announcement of the OMT programme, helped reduce borrowing costs for the most debt-hit countries, calmed markets and brought the eurozone back from the brink. The promise of OMT was that the ECB could, if necessary, buy up unlimited amounts of government bonds from debt-stricken countries that had pledged reforms such as Italy, Spain and Portugal. Critics charged that the ECB is essentially printing money and lavishing it on states, leaving taxpayers with the risk of one day having to foot the bill. The ECB has since launched a range of other policy measures aimed at kick-starting the eurozones moribund economy and driving inflation back up to levels more compatible with healthy growth. Few observers had expected the Constitutional Court to torpedo the ECBs programme. In January 2014, it had voiced concerns about OMT but then kicked the case up to the European Court of Justice (ECJ) in Luxembourg. The EUs highest court has since essentially backed OMT, arguing that while the ECBs chief purpose is price stability, it may also support EU economic policy goals. Reading out the Constitutional Courts ruling on Tuesday, judge Andreas Vosskuehle argued that the OMT did not overstep the ECBs mandate. The EU Commission in Brussels expressed relief at the ruling. We welcome that in substance the court confirms the decision by the European Court of Justice, it said in a short statement. While respecting the European Central Banks independence, the European Commission stands fully behind the ECB in delivering its mandate, it added. The head of the DIW think tank, Marcel Fratzscher, hailed the ruling as intelligent and wise.But others were not so pleased. The head of the influential Ifo think tank, Clemens Fuest, accused the judges of doing a U-turn and kowtowing to the ECJ. Berenberg Bank economist Holger Schmieding said the ruling makes it even more likely that the German court will also reject pending lawsuits against the ECBs other policy measures, including against the ECB decision to broaden bond purchases from only sovereign to corporate bonds. That move is part of the ECBs massive quantitative easing, or QE, stimulus programme that aims to boost inflation and growth in the 19-member currency bloc. The ECB has also slashed interest rates to zero, further raising hackles in Germany because low rates hurt savers, and pumped more than one trillion euros ($1.1 trillion) into the financial system. Cheap cash, Brexit fears The Constitutional Court ruling came in a very busy week for the ECB, which is scheduled to launch the next round of ultra-cheap loans for banks, who are meant to pass the credit on to the real economy, meaning households and business. The scheme is known as targeted longer-term refinancing operations, or TLTRO. And on Thursday, all eyes will be on Britains referendum on whether to stay in the EU or leave. Both the euro and pound have dipped in the lead-up to the vote, as analysts fear a Brexit would spark market panic. On the bond market, German 10-year bonds saw their yields drop below zero last week, a sign of a run on safe investments. Financier George Soros warned of a Black Friday plunge in sterling if Britain votes to quit the EU as new polls showed a razor-tight race 48 hours ahead of the referendum. The Hungarian-born US billionaire, who made a fortune by betting against the pound in the so-called Black Wednesday of September 1992, said that a rejection of the European Union would deliver a major financial shock, with serious consequences for ordinary people. The ECB last week said that, if there is a Brexit vote, it will use all instruments at its disposal to maintain price stability.