14 January 2015
Last updated at 10:15
Eurozone bond buying is legal according to a top EU lawyer
A top European Union lawyer has said that the European Central Bank’s planned bond buying programme is legal.
Advocate General Cruz Villalon said the ECB’s Outright Monetary Transactions programme is compatible, in principle, with EU law.
But he said that if the programme is implemented, its compatibility will depend on certain conditions being met.
The bond buying is aimed at stimulating the eurozone economy, but faced a legal challenge from Germany.
Announced in 2012, the OMT has never been put into practice, although it helped restore confidence in eurozone markets.
However, with the eurozone facing the threat of deflation and recession, there is increasing pressure on the ECB to start quantitative easing, which would involve starting an OMT bond-buying operation.
Jonathan Loynes chief European economist at Capital Economics said: “Overall, then, the final hurdle to quantitative easing appears to have been cleared.
“But given the ECB’s natural caution, Germany’s objections and the limited effects of QE in other countries, it would be hopeful to expect it to transform the eurozone’s economic outlook.”
Germany’s Federal Court challenged the OMT’s legality in the European Constitutional Court of Justice, arguing the ECB was acting beyond its mandate, effectively financing government deficits.
In his opinion, published on Wednesday, Advocate General Villalon argued that the ECB must have a broad discretion when framing and implementing the EU’s monetary policy.
He said it would first have to spell out its justification for any bond buying programme and not be involved in any direct aid programme to a eurozone member state.
He also warned that the courts must exercise caution when reviewing the ECB’s activity, since he said they lack the expertise and experience which the ECB has in this area.
The Advocate General’s opinion is an influential legal proposal to the Court of Justice, but is not binding.