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14 Jan 2015
ECJ’s preliminary opinion gives extensive leeway to ECB – BBH
FXStreet (Barcelona) - Marc Chandler, Global Head of Currency Strategy at BBH, notes that today’s ECJ’s opinion indicates that ECB should be given extensive leeway in conducting monetary policy, removing any limitations on its purchases and giving them the right to buy bonds with lower credit ratings.
Key Quotes
“Today's preliminary, non-biding opinion by Advocate General of the European Court of Justice rules in favor of the Outright Market Transaction facility that had been challenged in a German court. The key element of the opinion was that the ECB should be given extensive leeway in conducting monetary policy. There should not be a pre-determined cap on its purchases. It can buy bonds with lower credit ratings.”
“The ECB does not necessarily need to be a "preferred creditor" in case of debt restructuring; thus endorsing the financial principle of pari passu.”
“The clear implication is that a sovereign bond purchase program, which the ECB is expected to launch at one of its next two meetings does not violate the controlling treaties. ECB President Draghi could have hardly hoped for a more favorable opinion. It is true that the final decision in 4-5 months may be different than the Advocate General's opinion, but this is not often the case.”
“The bottom line is that the preliminary opinion supports the ECB's authority to determine the appropriate monetary policy and tools necessary to implement it. The principles would seem recognize its right to buy sovereign bonds.”
“A sovereign bond purchase program appear to draw the most support from the debtors, not creditors, in EMU.”
“That said, the German government did not seem as opposed to OMT as was the Bundesbank. BBK President Weidmann presented before the German Constitutional Court objecting to the OMT.”
Key Quotes
“Today's preliminary, non-biding opinion by Advocate General of the European Court of Justice rules in favor of the Outright Market Transaction facility that had been challenged in a German court. The key element of the opinion was that the ECB should be given extensive leeway in conducting monetary policy. There should not be a pre-determined cap on its purchases. It can buy bonds with lower credit ratings.”
“The ECB does not necessarily need to be a "preferred creditor" in case of debt restructuring; thus endorsing the financial principle of pari passu.”
“The clear implication is that a sovereign bond purchase program, which the ECB is expected to launch at one of its next two meetings does not violate the controlling treaties. ECB President Draghi could have hardly hoped for a more favorable opinion. It is true that the final decision in 4-5 months may be different than the Advocate General's opinion, but this is not often the case.”
“The bottom line is that the preliminary opinion supports the ECB's authority to determine the appropriate monetary policy and tools necessary to implement it. The principles would seem recognize its right to buy sovereign bonds.”
“A sovereign bond purchase program appear to draw the most support from the debtors, not creditors, in EMU.”
“That said, the German government did not seem as opposed to OMT as was the Bundesbank. BBK President Weidmann presented before the German Constitutional Court objecting to the OMT.”