A lot of the market is tieing the EU courts ruling to giving the green light to QE but that is not entirely the case. The one big sticking point that everyone seems to have glossed over is whether QE falls within its mandate of price stability.
The argument put forward by the Germans was thus;
The BVerfG asks, first, whether the programme, rather than being a monetary policy measure, is in fact an economic policy measure, which would fall outside the scope of the ECB’s mandate. Secondly, the German court is doubtful whether the measure complies with the prohibition of monetary financing of the Member States laid down in the TFEU.
The ECB countered;
The ECB has argued that, although the OMT programme is an “unconventional” instrument and entails some risks, it none the less falls within the Bank’s mandate. According to the ECB, the indirect aim of the OMT programme is to enable the Bank to restore the efficient use of its monetary policy instruments. Its immediate aim is to reduce the interest rates demanded for a Member State’s bonds in order to normalise the situation.
Reading through the ruling there are a couple of clear points that could still have the German’s bringing another case against QE;
The Advocate General finds that the OMT programme is an unconventional monetary policy measure. Unconventional measures of that kind must, however, comply with certain provisions of primary law (for example the prohibition of monetary financing of the Member States) and especially with the principle of proportionality.
The Advocate General considers that the OMT programme is suitable for bringing about a reduction in the interest rates on government bonds of the States concerned; such a reduction would make it possible to return to a certain degree of financial normality in those States, thus enabling the ECB to conduct its monetary policy in conditions of greater certainty and stability.
the ECB must give a proper account of the reasons for adopting an unconventional measure such as the OMT programme, identifying clearly and precisely the extraordinary circumstances that justify the measure.
With the price stability mandate it’s hard to define how QE fits in with those bold parts. While the ECB may say that QE is to help price stability they will have a hard time justifying that if they say its purely to raise inflation or a normal transition of monetary policy, after all, we have three huge examples of central banks running QE that haven’t led to a rise in inflation. They must also justify the risks involved.
As Mike pointed out earlier OMT and QE are two very different programs and while the OMT may have been given clearance, QE still faces a lot of questions and the ECB may yet face another trip to the courts.
The ECB may have jumped out of the frying pan with OMT but will they may still end up in the fire with QE.