Blog Post

Overview of the Karlsruhe Hearing on OMT – Day 1

The German Federal Constitutional Court (FCC) has begun to hear the case against the ECB’s OMT program. The two day-long hearing is unusually long and signifies the importance of the subject matter. According to the FAZ, this is one of the most important cases in history.

By: Date: June 13, 2013 Topic: Macroeconomic policy

The German Federal Constitutional Court (FCC) has begun to hear the case against the ECB’s OMT program. The two day-long hearing is unusually long and signifies the importance of the subject matter. According to the FAZ, this is one of the most important cases in history.

At the heart of the hearing is the ECB’s controversial OMT program. In essence, two views prevail over how to interpret the OMT program and reconcile it with the ECB’s mandate and existing EU law. Proponents of the program argue that it is yet another instrument in the arsenal of monetary policy tools that is geared towards stabilizing interest rates across the euro zone. By contrast, critics like Peter Gauweiler, a CSU backbencher, the interest group “Mehr Demokratie”, and Jens Weidmann, President of the Bundesbank, argue that the program is rather an instrument of fiscal policy because it essentially provides funding to ailing governments through the purchase of government bonds.

Before the hearing started, the FCC’s President, Andreas Voßkuhle, reminded the audience that the court shall not consider the purpose and significance of the rescue policies and the ECB’s policies. This remains the task of policymakers. Nor shall the Court use the success of the instrument as guiding benchmark to judge the legality of the instrument. Otherwise the goal would justify the means. In a democracy, Voßkuhle argues, policymaking has to be guided by commonly agreed basic rules instead of daily politicking. Rather, the question is whether the ECB has, through the OMT program, overstretched its mandated judged by the German basic law. The predicament of course is that the ECB is only subject to EU law. Voßkuhle concludes by suggesting that the Court will have to decided to what extent the ECB is assuming powers that it has never has been granted or it should never have been granted in the first place by the German Bundestag. In turn, the question then becomes whether (national) citizens can accuse the ECB of unlawful action on these grounds through a constitutional complaint.  

Two issues were debated in the public that bear importance for the hearing. First, the selection of the expert witnesses by the Court was considered by some commentators (for example Mark Schieritz here) as unbalanced because most of the experts, which include Hans-Werner Sinn (Ifo), Kai Konrad (Max Planck Institute), Harald Uhlig (HU Berlin), Franz-Christoph Zeitler (former board member of the Bundesbank), Clemens Fuest (ZEW), and Marcel Fratzscher (DIW), have a critical view on the ECB’s OMT program. Only Fratzscher’s views allegedly side more with the ECB.

Second, in an interview with the German channel ZDF Draghi affirmed yesterday that the ECB will not intervene in order to safeguard a government’s solvency in general. In principle, a government could become insolvent. This is an important statement in line of newspaper interpretations of the ECB’s statement before the FCC. According to that statement, which was drafted by the German law professor Frank Schorkopf (German version here), the OMT program contains a natural cap because it is limited to the purchase of short-term bonds with a maturity of less than three years. For example, the total value of those outstanding bonds for Portugal, Italy, Spain, and Ireland amounts to 524 bn EUR, says the FAZ. In practice, however, the ECB will have to buy much less because the overarching aim of the program is to safeguard the transmission mechanism, not deficit financing. The ECB immediately issued a denial of this interpretation. 


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read about event More on this topic
 

Upcoming Event

May
25
14:30

How can we support and restructure firms hit by the COVID-19 crisis?

What are the vulnerabilities and risks in the enterprise sector and how prepared are countries to handle a large-scale restructuring of businesses?

Speakers: Ceyla Pazarbasioglu and Guntram B. Wolff Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic
 

Upcoming Event

May - Jun
31-1
10:30

MICROPROD Final Event

Final conference of the MICROPROD project

Speakers: Carlo Altomonte, Eric Bartelsman, Marta Bisztray, Italo Colantone, Maria Demertzis, Wolfhard Kaus, Javier Miranda, Steffen Müller, Verena Plümpe, Niclas Poitiers, Andrea Roventini, Gianluca Santoni, Valerie Smeets, Nicola Viegi and Markus Zimmermann Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event
 

Past Event

Past Event

[Cancelled] Shifting taxes in order to achieve green goals

[This event is cancelled until further notice] How could shifting the tax burden from labour to pollution and resources help the EU reach its climate goals?

Speakers: Niclas Poitiers and Femke Groothuis Topic: Green economy, Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 12, 2022
Read about event More on this topic
 

Past Event

Past Event

How are crises changing central bank doctrines?

How is monetary policy evolving in the face of recent crises? With central banks taking on new roles, how accountable are they to democratic institutions?

Speakers: Maria Demertzis, Benoît Coeuré, Pervenche Berès, Hans-Helmut Kotz and Athanasios Orphanides Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 11, 2022
Read article Download PDF More by this author
 

Book/Special report

European governanceInclusive growth

Bruegel annual report 2021

The Bruegel annual report provides a broad overview of the organisation's work in the previous year.

By: Bruegel Topic: Banking and capital markets, Digital economy and innovation, European governance, Global economy and trade, Green economy, Inclusive growth, Macroeconomic policy Date: May 6, 2022
Read article Download PDF
 

Policy Contribution

European governance

Fiscal support and monetary vigilance: economic policy implications of the Russia-Ukraine war for the European Union

Policymakers must think coherently about the joint implications of their actions, from sanctions on Russia to subsidies and transfers to their own citizens, and avoid taking measures that contradict each other. This is what we try to do in this Policy Contribution, focusing on the macroeconomic aspects of relevance for Europe.

By: Olivier Blanchard and Jean Pisani-Ferry Topic: European governance, Macroeconomic policy Date: April 29, 2022
Read article Download PDF More on this topic
 

Working Paper

The low productivity of European firms: how can policies enhance the allocation of resources?

A summary of the most important policy lessons from research undertaken in the MICROPROD project work package 4, related to the allocation of the factors of production, with a special focus on the weak dynamism of European small and medium-sized enterprises (SMEs).

By: Grégory Claeys, Marie Le Mouel and Giovanni Sgaravatti Topic: Macroeconomic policy Date: April 25, 2022
Read article More on this topic
 

External Publication

What drives implementation of the European Union’s policy recommendations to its member countries?

Article published in the Journal of Economic Policy Reform.

By: Konstantinos Efstathiou and Guntram B. Wolff Topic: Macroeconomic policy Date: April 13, 2022
Read article Download PDF More on this topic More by this author
 

Working Paper

Measuring the intangible economy to address policy challenges

The purpose of the first work package of the MICROPROD project was to improve the firm-level data infrastructure, expand the measurement of intangible assets and enable cross-country analyses of these productivity trends.

By: Marie Le Mouel Topic: Macroeconomic policy Date: April 11, 2022
Read about event More on this topic
 

Past Event

Past Event

Macroeconomic and financial stability in changing times: conversation with Andrew Bailey

Guntram Wolff will be joined in conversation by Andrew Bailey, Governor of the Bank of England.

Speakers: Andrew Bailey and Guntram B. Wolff Topic: Macroeconomic policy Date: March 28, 2022
Read article
 

Opinion

European governance

How to reconcile increased green public investment needs with fiscal consolidation

The EU’s ambitious emissions reduction targets will require a major increase in green investments. This column considers options for increasing public green investment when major consolidations are needed after the fiscal support provided during the pandemic. The authors make the case for a green golden rule allowing green investment to be funded by deficits that would not count in the fiscal rules. Concerns about ‘greenwashing’ could be addressed through a narrow definition of green investments and strong institutional scrutiny, while countries with debt sustainability concerns could initially rely only on NGEU for their green investment.

By: Zsolt Darvas and Guntram B. Wolff Topic: European governance, Green economy, Macroeconomic policy Date: March 8, 2022
Read article More on this topic More by this author
 

Opinion

The week inflation became entrenched

The events that have unfolded since 24 February have solved one dispute: inflation is no longer temporary.

By: Maria Demertzis Topic: Macroeconomic policy Date: March 8, 2022
Load more posts