But, there are two important ways in which the final ruling can be in favour of the OMT. The first is that the ECJ is likely to rule much more favourably. The second is that the German Court left the door wide open to a favourable ruling. In particular, it said that OMT could be intra vires (i.e. within the ECB's mandate) if it could be interpreted or limited in a way that did not undermine the conditionality of an ESM programme and would only be supportive of the economic policies of member states (rather than taking the lead). This could be achieved through three conditions. First, that the ECB must exclude the "acceptance of debt cuts". Second, that OMT purchases should not be unlimited. And, third, that "interference with price formation on the markets is to be avoided where possible."
We do not think that such limitations would undermine the OMT. First, that the ECB must have senior status in the case of default would be new. But, the ECB would only hold bonds in the 1-3 year maturity segment, limiting the additional default burden that would be placed on private investors. Second, the ECB has not set a quantitative limit on OMT, but a limit is effectively set by the size of the bond market (in the 1-3 year maturity segment) and because issuance behaviour would be closely monitored. In practice, governments could limit bond issuance as part of the ESM conditionality and the ECB could amend the OMT language, saying something like: "no quantitative limit is set on OMT but we take note of the limits implied by the ESM programme." Finally, the Court's condition about interfering with price formation is vague, but we would note that OMT only targets the convertibility risk premium. Hence, bond yields would still differ by country and exert pressure on governments to put their houses in order.
Overall, it is unclear what the Court's final ruling will be, but it has given itself a clear path toward making a "yes, but" ruling that does not block OMT. This remains our expectation. In the meantime, the ECB can activate OMT given that the Court has not placed an injunction on it.
) sotto i miei post : avessi saputo alle 13 quello che Marietto avrebbe detto mi sarei giocato altro che un panino alla mortazza...
