The European Central Bank did not place any limit on its
program in which the bank purchases bonds of heavily indebted states so as to
keep their borrowing costs (i.e., the bonds’ interest rates) from increasing.
The program, called Outright Monetary Transactions, had already accomplished
that even before spending a euro. Anticipation that the ECB would enter a state bond market if its
interest rate rose high enough was enough to keep the rates from
skyrocketing. So, the announcement that the ECB would spend what
“would be adequate to meet [the] objectives” is perhaps more important than how
much the central bank actually spends.[1] According to Joerg Asmussen, an executive
board member of the ECB, the OMT was “economically necessary, legally
permissible and effective.”[2] He made the comment as a court in the state
of Germany was preparing to consider whether the OMT “infringes on the
constitution’s insistence on sovereign parliamentary control over budget
matters.”[3] Hence, a tension between “legally permissible”
and “infringes on . . . sovereign parliamentary control” threatened to kill a
program that had already succeeded before buying one bond. Fortunately, legal
experts were saying that the German court might defer to the European Court of
Justice, the E.U.’s supreme court.
The full essay is at Essays on the E.U. Political Economy, available at Amazon.
