German Central Bank Could Opt Out of OMT Even if Court Agrees

A German court decision criticizing the European Central Bank’s government bond buying program could threaten the bank’s ability to activate the program, as the Bundesbank is unlikely to participate, the president of the German IFO Institute for Economic Research has said.
German economist, Hans-Werner Sinn, who also serves on German economy ministry’s Advisory Council said he doubted whether Germany’s central bank would back the program, known as Outright Monetary Transactions (OMT).

Germany’s highest constitutional court shocked markets earlier this month by criticizing the OMT, which has been credited with calming financial markets and bringing down borrowing costs for troubled euro zone countries.

“The Court considers the OMT decision incompatible with primary law,” it said.

The court did not issue a final ruling on the legality of the plan, but instead referred the case to the European Court of Justice (ECJ). The ECJ is expected to issue its verdict in March. The decision dealt a blow to the ECB’s president Mario Draghi, who unveiled the OMT in July 2012 with his pledge to do “whatever it takes” to save monetary union.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza