The ruling by the European Court of Justice will contribute to further controversy on the limits of ECBs mandate because its economic arguments ignore market reality.
The unsurprising legal clearance of ECB‘s OMT programme by the ECJ goes hand in hand with a strong conditionality: the Eurosystem is not allowed to circumvent the general prohibition of monetary state financing through unlimited purchases on the secondary market. Therefore ECB has to make sure that the underwriting on the primary market is not purely transitional but leaves time for a market adequate price formation. (Read more …)