ECB gets backing to buy government bonds

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ECB gets backing to buy government bonds

The final barrier to the European Central Bank (ECB) buying government debt looks to have been lifted this morning after a statement released by Europe’s highest court.

The European Court of Justice’s Advocate General Pedro Cruz Villalón has appeared to pave the way for ECB president Mario Draghi to buy up government bonds in a bid to stymie a renewed crisis in the bloc.

Politicians in Germany had brought a legal case against the federal German government over its failure to challenge the ECB’s Outright Monetary Transactions (OMT) policy, which Mr Draghi said he would use if necessary.

But now the European Court of Justice (ECJ) appears to have fallen on Mr Draghi’s side.

“In his Opinion today, Advocate General Pedro Cruz Villalón observes that the framing and implementation of monetary policy are the exclusive competence of the ECB,” the ECJ said.

“In order to carry out its task, the ECB has at its disposal technical expertise and valuable information, which, together with its reputation and communications strategy, enable it to manage expectations in such a way that its monetary policy ‘impulses’ actually reach the economy.

“Therefore, the ECB must have a broad discretion when framing and implementing the EU’s monetary policy, and the courts must exercise a considerable degree of caution when reviewing the ECB’s activity, since they lack the expertise and experience which the ECB has in this area.”

The ECJ did say, however, the OMT programme was “incomplete” because when it was first announced in 2012, “only its basic techincal features were set out”.

It added the measures had “not been formally adopted” and it had “not been implemented in any specific case” and so the announcement today was on that basis.

The ECJ added it viewed the OMT programme as being “in principle legitimate and consonant with monetary policy”.

“However, given the significant role which the ECB plays in financial assistance programmes (design, approval and regular monitoring), its actions might in certain circumstances be perceived as being more than mere ‘support’ for economic policy,” it added.

“Thus in the event of the OMT programme being implemented, the ECB must, if the programme is to retain its character of a monetary policy measure, refrain from any direct involvement in the financial assistance programme that applies to the State concerned.

“The Advocate General considers that the ECB must give a proper account of the reasons for adopting an unconventional measure such as the OMT programme, identifying clearly and precisely the extraordinary circumstances that justify the measure.”