* The Advocate General of the ECJ supports the WTO * His arguments can promote the launch of QE * The euro and European sovereign yields down John O’Donnell LUXEMBOURG January 14 (Reuters) – The European Central Bank (ECB) has been strengthened Wednesday in its efforts to prevent the risk of deflation in the euro zone by massive purchases of government bonds with the publication of the notice of Advocate General of the Court of Justice of the European Union (CJEU) validating its monetary transactions in securities program (WTO). This program, which provides unlimited purchases of government bonds by the ECB with a maturity of between one and three years issued by struggling countries that have used with their European partners and accepted the conditions attached this help, was announced in September 2012 in response to the risk of the euro zone breakup. It was never implemented but its legality has been questioned by German citizens who seized the Constitutio nal Court of the country, which forwarded the complaint to the ECJ. In the opinion issued Wednesday, the Advocate General Pedro Cruz Villalon of the ECJ said that the ECB is entitled to make purchases of sovereign bonds in the OMT program, which he describes as “necessary” and ” proportionate “. But he added that the ECB should detail the reasons in its implementation of the program. It states that the central bank should not be directly involved in an aid program that would benefit the countries concerned by UNWTO. Consequently, the ECB may have to waive participation in the supervision of some countries in the aid program such as Greece and Cyprus as part of the troika, if the situation of these countries required the activation of OMT. “MILESTONE”, SAYS ECB “The Advocate General (…) argues that the OMT program is necessary and proportionate in the strict sense, since the ECB does not assume a risk that necessarily exposed to a risk of insolvency, “the Court wrote in a statement. “The ECB takes note of the opinion of the Advocate General. This is an important step in the preliminary ruling. (The program) UNWTO is ready and available,” responded the ECB on his Twitter account. The findings of the General Counsel, which are usually followed by the ECJ, should help to determine how the massive program to purchase sovereign bonds that prepares the ECB and could announce at the end of next meeting its Board of Governors, January 22, to prevent the risks of deflation in the euro area. The opinion of the Advocate General marks a new stage in the heated debate between the ECB and some members of the euro area, led by Germany, who fear that purchases of government bonds will lead to monetary financing of states, prohibits by the Treaties. “The European Central Bank must enjoy broad discretion in the design and implementation of monetary policy of the Union, while the courts must m onitor the activities of the ECB by demonstrating a degree restraint since they do not have the specialization and experience available to the ECB on the matter, “the statement from the ECJ. THE EURO UNDER HIS LEVEL January 1999 The opinion of the Advocate General, however, could limit the room for maneuver of the ECB in the design of its quantitative easing program. His critics could indeed take advantage of the fact that the Advocate General suggests the absence of the ECB’s exposure to default risk to validate the OMT program, they argue that this requirement could not be met within a massive program to purchase sovereign bonds. One possible option would be for the national central banks, rather than the ECB itself, buy the debt of their state titles. But in fact this would eliminate the pooling of risks on a European scale and could greatly reduce the scope of quantitative easing. Asked to respond to the opinion of the Advocate General of the ECJ, Yves Mersch , a member of the ECB Executive Board, said he gave a “considerable flexibility” to the ECB in the design, definition and conduct of monetary policy. However, he stressed that this opinion was only for OMT. The euro hit a new low against the US dollar, falling below the level of the first listing of January 4, 1999 to 1.1747 dollar, after the publication of this notice, market participants whereas the ECB may launch its QE without major constraint. Yields on government bonds to ten years of major countries in the euro zone also hit new lows. “There is nothing in this opinion that blocks the ECB,” said Marc Ostwald, head of investment strategy ADM Investor Services International. * See also: – The press release of the ECJ on the advice of the Advocate General on the OMT program http://bit.ly/17H46Fp – The opinion of the Advocate General at the UNWTO program on ECJ website: http://bit.ly/1zawaMR (with Tom Körkmeier, Marc Joanny for the Fren ch service, edited by Marc Angrand)
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