These comments are seen to refer to the Outright Monetary Transactions Programme (OMT), which was part of former ECB President Mario Draghi’s pledge to do ‘whatever it takes’ to save the Eurozone. Under the #OMT, it was possible to purchase debt securities on the market. 2/
OMT would involve outright transactions in secondary sovereign bond markets aiming at “safeguarding an appropriate monetary policy transmission and the singleness of the monetary policy”. “Strict and effective conditionality” was required. 3/
This pledge helped immensely to save the euro. The trouble is, OMT -even if it was never activated- was hugely controversial and was in fact legally challenged before German and EU Courts. The CJEU eventually gave the green light to it in its Gauweiler judgment. 4/
The ECB has to tread very carefully: it cannot be seen as doing something that lies outside its monetary policy mandate, and/or as violating any rules in the EU Treaties (such as Article 123 TFEU on the prohibition of monetary financing). 5/
Fiscal and economic policy remains with the Member States, subject to the limits set out in EU law. The trouble is, the ECB has already used most of the tools it has at its disposal, and the OMT is one of the last tools left. 6/
Lagarde was quick to note in a CNBC interview that she is “fully committed to avoid any fragmentation in a difficult moment for the euro area. High spreads due to the coronavirus impair the transmission of monetary policy”. This hints to the conditions for OMT. 7/
For Yes Minister fans, Lagarde may have pulled a Sir Humphrey Appleby: the ECB cannot be seen as conducting economic policy hence she denied it, therefore even if the ECB does engage in economic policy, it didn’t. 8/
For me, an important issue is that the Eurozone architecture is not yet complete. There are no “other actors to deal with these issues” at EU level. This renders the Eurozone vulnerable in case of another crisis. 9/
