The Court had concluded from the statements of the ECB’s representatives presented in the hearings in June 2013 that the objectives of OMT could possibly be achieved within such constraints.
The trustworthiness of both courts would have problems with a conflict. The judges of both institutions know one another and meet often in a number of settings. Although courts may disagree, they certainly understand where each is via in its analysis. The German Constitutional Court, up to now, hasn’t halted a step towards more integration but has provided a voice for concerns about flaws connected with those steps, for instance, deficits in democratic legitimation, specifically in budgetary matters.
If the European Court were to totally disregard the German Court’s analysis and the arguments presented without providing substantially new arguments or evidence, the German Court could consider itself well-justified to rule that the OMT are beyond the ECB’s mandate and forbid German authorities to aid them.
Thus, the Court of Justice comes with an incentive to look at at least a few of the limitations held essential by the German Court. However, it might announce its interpretation that could incorporate only a subset of these. The German Court will dsicover it difficult to reject such a compromise.
The ECB has recently clarified that the OMT isn’t literally unlimited. Thus, even more formal limits do not need to destroy its effectiveness. In the end, the true resources at the disposal of the ECB when it comes to real income are very limited regardless.
The ECB’s decision to forego seniority status on OMT was an essential feature. If the European Court of Justice were to rule it in keeping with EU primary law, the German Constitutional Court would face a hard decision. Even so, you can imagine adjustments to keep carefully the OMT programme effective, such as for example Eurozone governments or the European Stability Mechanism guaranteeing losses on ECB holdings.
To conclude, the continued decline of sovereign premia could possibly be reconciled by an expectation of a likely compromise outcome in the judicial process relating to the European and the German Courts.
Altavilla, C, D Giannone and M Lenza (2014), “The Financial and Macroeconomic Ramifications of the OMT Announcements”, CEPR Discussion Paper 10025, June 2014.
Fratzscher, M (2014), “Germany’s Pyrrhic Victory”, Projectsyndicate.org, February 10, 2014.
Münchau, W (2014), “Germany’s Constitutional Court has Strengthened the Sceptics”, Financial Times, February 9, 2014.