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15/01 – ECB Quantitative Easing gets the Green Light?

The ECB can now launch its sovereign debt purchasing programme with the virtual blessing of European Justice. The ECJ’s advocate general, whose opinion is generally followed by the ECJ a few months later, declared yesterday that the ECB’s previous programme, 2012’s OMT, is “in principle” compatible with European law.

The European Commission, German media note, has refused to offer an opinion on the recent announcement and is awaiting an official statement from the ECJ. This highly anticipated opinion equates to a green light, with strings attached, for Mario Draghi to announce QE from January 22nd, Les Echos says in a comment echoed in other European and US media, notably The Daily Telegraph and WSJE.

Discussions about the terms of QE will thus mostly be of a political and technical nature, says Gilles Moec of Bank of America. Olivier Garnier of Societe Generale says that yesterday’s opinion, however, “does not sort out the debate about the pooling of risk between central banks.” In a commentary on ARD, Rolf-Dieter Krause is critical of the advocate general of the ECJ – as are many other observers in German media – for announcing both that judges do not possess the specialist knowledge necessary to adequately assess the work of central banks and for simultaneously permitting the ECB’s implementation of OMT measures.

It remains to be seen whether the Bundesbank will accept the ruling or will “start a legal conflict without precedence” of the highest level by resisting the ruling. The Financial Times also notes that the ECJ advocate general’s interim ruling on the legality of the European Central Bank’s 2012 bond-buying plan appears to signal the end of the troika that has overseen eurozone bailouts. The mission of the ECB has not changed, but circumstances have, hence the need for new and very different measures,

Mr Draghi stresses in an interview with Die Zeit. The ECB’s policy does not replace the need for reforms in euro area countries, he adds. The ECB’s planned quantitative easing programme, the likelihood of which was increased by Mario Draghi’s pleas for an “expansive” monetary policy in an interview in the German press on Wednesday, is one reason behind the euro’s current fall – on Wednesday the euro hit USD 1.1727, its lowest level against the dollar in nine years. © European Union, 2015

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