|Wolfgang Schäuble, German finance minister, at a press conference in Berlin May 22, 2014.
Wolfgang Schäuble, German finance minister, on Wednesday expressed opposition
to future ECB (European Central Bank) sovereign bond-buying that is part of the OMT
The OMT (Outright Monetary Transactions) bond-buying scheme was announced in
September 2012 to give effect to the famous July 2012 commitment in London by
Mario Draghi, ECB president, to do “whatever
it takes” to save the euro.
The July 2012 commitment is seen as having been a crucial move in
euro and bond yields of peripheral countries have plunged since, without
having to launch OMT.
The ECB in effect promised to make unlimited purchases of the sovereign debt
of governments in trouble.
However, last February the German Constitutional Court ruled
that OMT was
beyond the central bank's mandate.
While the institution to decide whether a European body is abiding by
European law is in Luxembourg at the European Court of Justice (ECJ), the court
in Karlsruhe insists on its right to examine whether the acts of a European
institution are infringing the German constitution.
The German court ruled that OMT was a form of “monetary financing” of
governments, outlawed under European treaties. However, it referred crucial
points in the case to the ECJ.
On Thursday Prof Hans-Werner Sinn,
president of the Ifo economics institute, a strident critic of bond-buying and
the banking union - - according to the Financial Times in 2012,
Wolfgang Schäuble privately refers to Prof Sinn – whose
name means “sense” – as Prof Unsinn, or “Nonsense” - - welcomed the fact that Schäuble wants to block bond purchases by the ECB via the OMT program. “This is a reaction to the German
Constitutional Court’s announcement that with the OMT the ECB is overstepping
its mandate and misusing its power. The German federal government had not
publicly responded to the Constitutional Court’s statement of 7 February prior
to Schäuble’s comments. This is one of the few indirect indications that the
government is taking the Court’s statement seriously,” said Sinn in
Munich. “This means that it seems unlikely that the OMT can ever be used to
protect the buyers of over-indebted countries’ government bonds from financial
On Wednesday the news agency Bloomberg reported that Schäuble had explained at
an event in Bielefeld that, as far as decisions over OMT bond purchases are
concerned, the ECB “cannot make these decisions because it has bound them to
conditions that are beyond its control”. Schäuble said that these conditions are
decided by the ESM (European Stability Mechanism bailout fund). The ESM is controlled by governments.
“ESM decisions are
subject to a unanimous vote and we will not approve of such a programme as
announced by the ECB,” explained Schäuble.