The German Constitutional Court’s decision on OMT: Have markets misunderstood?

CEPR Policy Insight No 74

Helmut Siekmann, Volker Wieland

The European Central Bank’s announcement of the Outright Monetary Transactions (OMT) program in summer 2012 is widely credited, not least by the ECB itself, as a key factor in the subsequent decline of sovereign risk premia in the Eurozone. Following the February 2014 decision by the German Constitutional Court on the OMT commentators have declared the program “effectively dead”. Nevertheless, financial markets seemingly ignored the decision and sovereign risk premia of Eurozone crisis countries have continued to decline. Policy Insight 74 reviews the legal issues underlying the German Court’s decision and the respective responsibilities of the European Court of Justice. It explores whether likely outcomes of the judicial process would support the benign market reaction to the German Court’s announcement.