European Central Bank President Mario Draghi said he trusts Germany’s constitutional court, which will consider a case against the central bank’s bond-buying plan starting today.
“I have full confidence in the constitutional court’s independence, also in its ability to examine with thoroughness and with fairness all the advice it is getting from all sides,” Draghi said in an interview on German ZDF television yesterday. “It would be presumptuous of me to say what the conclusion could be.”
The ECB’s Outright Monetary Transactions program, introduced last year as concerns peaked that the euro would break apart, will be reviewed by the court in Karlsruhe at hearings this week after plaintiffs including a lawmaker allied to Chancellor Angela Merkel brought a case against it. The as-yet-unused OMT foresees potentially unlimited purchases of bonds of debt-stricken countries that sign up to adjustment programs.
“If you look back to a year ago, there has been significant progress in these countries,” Draghi said, adding that not a single euro has since been spent under the plan. “It is probably the most successful monetary policy measure that has been taken.”
Conceived as yields on Spanish and Italian 10-year bonds neared 7 percent, OMT has helped the cost of borrowing for nations like Spain and Italy fall to levels not seen in more than two years.
The euro traded little changed before today’s hearing at $1.3264 at 9:24 a.m. in Frankfurt. The Stoxx Europe 600 Index fell 0.8 percent to 292.77.
Draghi said that in the event OMT is ever used, it will only target the parts of the yield curve that aren’t in line with fundamentals.
“You don’t need spreads that are so high that the rest of the world loses any confidence in the sustainability of the euro itself, and therefore of the single countries,” he said.
The case will see ECB Executive Board member Joerg Asmussen give contrary testimony to Bundesbank President Jens Weidmann, who has strongly opposed the plan and voted against its introduction last year. Weidmann has said OMT comes too close to the financing of governments by the central bank.
“We will not intervene to ensure the solvency of countries that can’t” deal with money, Draghi said.
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