After two and a half years of wrangling, the European Court of Justice has decided Wednesday morning that the announcement that did more to end the euro crisis than any other was legal.
“Outright Monetary Transactions”, known as OMT, just mean that the European Central Bank would buy a country’s government bonds from investors, if it found itself in financial distress. The mechanism was announced in the summer of 2012, after ECB boss Mario Draghi’s “whatever it takes” speech.
OMT has never actually been used, but it is credited by the ECB with slamming the brakes on Europe’s sovereign debt crisis. Effectively, the guarantee that the central bank would not allow individual countries to default made their bonds seem much less risky.
It’s been the subject of intense debate and scepticism ever since. German politicians took legal action against the move, and the highest German court decided that it was probably all illegal, but agreed to refer it up to the ECJ.
However, the court is insisting on a number of conditions, listed here. Here are some the the most relevant sections:
The Advocate General considers that the OMT programme is suitable for bringing about a reduction in the interest rates on government bonds of the States concerned; such a reduction would make it possible to return to a certain degree of financial normality in those States, thus enabling the ECB to conduct its monetary policy in conditions of greater certainty and stability…
The OMT programme is compatible with the TFEU, provided that, in the event of the programme being implemented, the timing of its implementation is such as to permit the actual formation of a market price in respect of the government bonds.