ECB to hear today if bond-buying programme breaks law

The ECB will hear today if its bond-buying programme, known as Outright Monetary Transactions (OMT), is in danger of breaching EU law. The European Court of Justice will deliver an interim opinion on the legality of the programme.

An advocate general of the court will issue his opinion on the case which was referred to the EU court by the German constitutional court last year.

It concerns a case taken by a group of German citizens and the political party Die Linke against the German government for failing to take action against the ECB’s OMT plan.

Last year the German constitutional court, based in Karlsruhe, ruled the OMT should be considered illegal under European law unless restrictions were imposed, though it referred the case to the European Court of Justice (ECJ).

The OMT programme, which is widely credited with calming the euro zone debt crisis when it was announced by Mario Draghi in September 2012, involves the ECB buying the bonds of euro zone countries in a bailout programme.

Legal opinion

The timing of the legal opinion is sensitive, coming just over a week before the ECB’s next governing council meeting in Frankfurt at which it is expected the central bank may announce some form of full-scale quantitative easing.

While the OMT programme, which has never been deployed, is targeted at programme countries it is widely seen as a predecessor to a more wide-ranging quantitative easing, or bond-buying, scheme.

Today’s opinion is a non-binding decision, with a final decision expected in four to six months. The ECJ generally upholds the opinion of its advocate generals, but has in some cases disagreed with the original opinion.

Very relevant

Thomas Harjes

of

Barclays

Research said the opinion was “very relevant” for any future broad-based ECB government bond purchase programme.

With inflation in the euro zone falling below zero last month, the ECB is facing pressure to announce a fresh stimulus when its governing council meets next Thursday in Frankfurt.

The meeting also takes place three days before the Greek election at which radical left party Syriza is expected to perform strongly. The party, led by Alexis Tspiras, has vowed to seek further debt restructuring for Greece. The country's bailout programme is due to expire next month.

Germany remains opposed to a bond-buying plan.