German court throws out ECB OMT challenges

21 June 2016, 10:29
Sherif Hasan

German Constitutional court rules on OMT cases

  • Backs OMT program with caveats

These were some other challenges made by various parties and came after the main case was passed from the German court to the European Court of Justice, which also found no problems with the OMT program.

Here's said caveats;

e) Since, against this backdrop, the OMT programme constitutes an ultra viresact if the framework conditions defined by the Court of Justice are not met, the German Bundesbank may only participate in the programme's implementation if and to the extent that the prerequisites defined by the Court of Justice are met; i.e. if

• purchases are not announced,

• the volume of the purchases is limited from the outset,

• there is a minimum period between the issue of the government bonds and their purchase by the ESCB that is defined from the outset and prevents the issuing conditions from being distorted,

• the ESCB purchases only government bonds of Member States that have bond market access enabling the funding of such bonds,

• purchased bonds are only in exceptional cases held until maturity and

• purchases are restricted or ceased and purchased bonds are remarketed should continuing the intervention become unnecessary.

f) Their responsibility with respect to European integration does not require the Federal Government and theBundestagto take action against the OMT programme in order to protect the overall budgetary responsibility of theBundestag. If interpreted in accordance with the Court of Justice's judgment, the OMT programme does not present a constitutionally relevant threat to theBundestag'sright to decide on the budget. Therefore, it can currently also not be established that implementation of the OMT programme would pose a threat to the overall budgetary responsibility.

g) However, due to their responsibility with respect to European integration (Integrationsverantwortung), the Federal Government and the Bundestag are under a duty to closely monitor any implementation of the OMT programme. This compulsory monitoring shall determine not only whether the abovementioned conditions are met, but also whether there is a specific threat to the federal budget - deriving in particular from the volume and the risk structure of the purchased bonds, which may change even after their purchase.

The full ruling is here

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