Lorenzo Codogno, Paul van den Noord, 05 April 2020

The emergency measures in place to absorb the COVID-19 shock need to be supplemented by OMT unless leaders agree to create a euro area safe asset and fiscal capacity. This column employs an empirically calibrated model to show that OMT is second-best to the creation of a safe asset and fiscal capacity at the centre, but would still be a powerful means to mitigate the economic impact of the crisis. 

Harald Benink, Harry Huizinga, 16 May 2015

QE in the Eurozone is unusual in that the risks of sovereign debt defaults are shared between the ECB and the national central banks. This column argues that if such risk sharing were applied to the Outright Monetary Transactions programme, it could potentially create insolvency problems for countries with large public debts, especially in a low-growth scenario.

Helmut Siekmann, Volker Wieland, 03 October 2014

In February 2014, the German Federal Constitutional Court declared the Outright Monetary Transactions (OMT) programme to be inconsistent with EU law. However, this did not have a negative impact on the OMT and sovereign risk premia continued to decline. This column argues that the benign response of financial markets may be due to an expectation of a likely compromise between the European and German Courts.

Helmut Siekmann, Volker Wieland, 03 October 2014

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.

Ashoka Mody, 09 September 2014

Earlier this year, the German constitutional court declared the OMT programme to be inconsistent with EU’s law. This column reviews the legal framework and economic foundation of the OMT. Without any changes in the political structure, the OMT invokes moral hazard in the actions of the member states and unfairness in the distributing the burden of distress. 

Paul De Grauwe, 13 March 2014

The German constitutional court declared the OMT program to against EU law. This column argues that the economic logic used by the German judges was flawed – based on economic theories that have been rejected empirically.

Harald Benink, Harry Huizinga, 12 July 2013

How well has OMT done? This column attempts to temper Mario Draghi’s recent plaudits that “it’s really very hard not to state that OMT has been probably the most successful monetary policy measure undertaken in recent times”. Yes, OMT should provide unlimited liquidity to troubled countries, but not at the expense of necessary structural reforms. The ECB should cover Eurozone countries’ current expenditures, but should not pay off all long-term debt holders. That way, capital markets will be disciplined and incentives for implementing economic reforms will be maintained.

Francesco Giavazzi, Richard Portes, Beatrice Weder di Mauro, Charles Wyplosz, 12 June 2013

An ongoing German Constitutional Court case threatens to make the Eurozone Crisis much worse. This column argues that a Eurozone breakup could well be self-fulfilling given the absence of large-scale fiscal backstopping. The ECB’s Outright Monetary Transactions (OMT) programme has so far blocked speculation that could lead to such a breakup. A German court ruling against the OMT would destroy the programme’s credibility. The court would be wise to dismiss the case, if it does not want to risk becoming a threat to Eurozone stability and to taxpayers in Germany and beyond.


CEPR Policy Research