The European Central Bank won crucial backing from Europe’s top court today (16 June) for its pledge to do whatever it takes to save the euro, defeating a German group’s challenge, as bloc member Greece edges dangerously close to default.
A favourable ruling had been widely expected but the European Court of Justice’s judgment is a firm endorsement for the ECB, granting it leeway to take dramatic action in an emergency, albeit with some general conditions.
The case had been brought by a 35,000-strong group from Germany, including politicians and academics, who sought to dismantle the OMT bond-buying scheme the ECB created in 2012 but never used.
In a statement explaining its ruling, the court set out certain conditions, saying safeguards must be built in to ensure any such programme did not break rules that stop central banks from financing governments.
Experts said the decision would strengthen ECB President Mario Draghi hand in managing emergencies such as a possible departure of Greece from the eurozone.
“It gives the ECB wide-ranging liberties to react fast and flexibly to crisis situations,” said Marcel Fratzscher, who heads the Berlin-based DIW economic research institute.
The OMT (Outright Monetary Transactions) programme was launched at the height of the eurozone debt crisis, shortly after Draghi said in a speech that the ECB would do “whatever it takes” to prevent the collapse of the currency union.
It allows the ECB to buy bonds of a eurozone country on the open market if its government has agreed to a reform programme in return for eurozone funding.
The plan could yet be dusted down if Greece were to leave the euro, Fratzscher said.
The European Central Bank agreed on 6 September, 2012 to launch a potentially unlimited bond-buying programme to lower struggling eurozone countries' borrowing costs and draw a line under the debt crisis.
ECB President Mario Draghi said the new plan, aimed at the secondary market, would address bond market distortions and "unfounded" fears of investors about the survival of the euro.
The German Central Bank (Bundesbank) is opposed to bond-buying, saying it is akin to bailing out states.