It won’t be long before the market turns it’s beady eye towards Karlsruhe and the German constitutional court who will hopefully give their verdict on the legalities of the ECB OMT program. It has been reported in certain circles that if they find the program unlawful then they will have to leave the EU if it goes ahead. It could forbid the Bundesbank from participating and even constrain the German parliament. That’s probably a very unlikely situation but don’t rule out that sort of headline hitting the screens nearer the time.

There are a few likely outcomes to the ruling, but remember that the German court has no jurisdiction over the ECB.

  1. They forward the case to European Court of Justice
  2. They approve the OMT program but attach conditions to it
  3. They find nothing wrong at all and we’re all go.

If it gets referred the ECJ will almost certainly vote in the ECB’s favour. If the Germans approve it, with caveats, then that may cause some friction as they would be seen to be influencing the ECB, which goes against the mandate of ECB independence. What may happen is that it goes back to the member states for reviewing, re-jigging and re-voting and that will just add to the delays in getting the program up and running. As the Germans will be stumping up the biggest amount then the rest of Europe will likely look to make sure they’re appeased.

Draghi’s big bazzoka hasn’t fired a shot yet and it’s not even made it out of the armoury, so it’s still up in the air as far as being a tool they can use. Expect the headlines to have some effect on the Euro but otherwise the outcome should favourable.

Germany's constitutional court

German court hearings always start with the ritual song of “Heads, shoulders, knees and toes”