Investors breathed a sigh of relief after the German Constitutional Court found the ECB has not been engaged in monetary financing, but the details sent ripples through the markets as the ruling raised questions about potential constraints on European monetary policy.
Groups of German complainants have been questioning the ECB’s asset purchase programs for a while. In 2012, they brought a case in front of the German Constitutional Court arguing that the Outright Monetary Transaction (OMT) program, in which the ECB could buy euro area government bonds in the secondary market, was monetary financing, which is prohibited by the EU Treaty. In 2015, the European Court of Justice (ECJ) ruled OMT’s secondary market purchases not to be monetary financing and closed the case. The German Constitutional Court went along with this ruling.