ECB shines its shoes and presses its suit ahead of its OMT date in the European Court of Justice
Tuesday sees the matter of the legalities over the ECB's OMT settled once and for all
What is the OMT?
The Outright Monetary Transactions program was unveiled back in 2012 as part of Mario Draghi's famous "do whatever it takes" announcement, when the Eurozone looked in danger of disappearing up its own behind.
The program was designed to let the ECB buy bonds of a distressed member state in the secondary market, for the purpose of "safeguarding an appropriate monetary policy transmission and the singleness of the monetary policy". Countries would have to ask for assistance and accept certain economic measures for the program to go online. The main basic aim of the program was to keep problem state bond yields from blowing up in the event of another crisis
Who was complaining?
The Germans initially took up the legal challenge saying it breached the ECB's mandate and broke both German and EU law. The case was brought to the German constitutional court. The courts initial view was that it was illegal and incompatible with German and EU law but as it could only rule on German domestic law, they passed the case on to the European Court of Justice
How long did we have to watch paint dry?
After the German legal wheels stopped turning for months, the constitutional court finally referred the case to the ECJ in early 2014. We then had to wait until April 2014 before the ECJ issued an "opinion" on the case
The EU Advocate General Pero Cruz Villalon announced that the OMT program could be in line with EU law if certain conditions were met and set the June 15th 2015 ruling date
How will the ECJ rule in its judgement?
While the message from the Advocate General was not an actual legal decision it is suggested that this will be the basis for the ruling from the ECJ. As such it's likely that the court will rule that the OMT program is legal as long as certain conditions are in place.
What will happen to the euro on the decision?
Obviously the biggest risk to the euro is if they do find problems with its compatibility with EU law and rule against it. That's probably a slim risk though and the market is looking for confirmation that the OMT is ok to be run by the ECB, even if it needs to tinkered with around the edges
I shouldn't think there's much to trade on the announcement but be prepared for a small dose of relief buying if the ECB gets the thumbs up. The fact that the OMT program has never seen the light of day, nor is the Eurozone anywhere near those dark days when it may have been needed, means that this should be a low risk event. The main positive to take will be that the program will be free to remain in the ECB tool box for use another time
Draghi pulled out his big one August 2012