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Monday, May 26, 2014

OMT --- Much Ado About Nothing?

This piece of news is making the rounds in the German media: German FM Schäuble allegedly stated, back in April, at a university discussion group, that the OMT could never become operational.

Background: the 'whatever-it-takes' of ECB President Draghi is generally being credited with having saved the Eurozone. The ECB subsequently worked out the OMT as the structural basis for implementing the purchase of sovereign bonds. One of the conditions precedent, established by the ECB itself, is that a country must have agreed with the ESM on a restructuring program with covenants for fiscal and economic policies. The key phrase of FM Schäuble is: "Decisions by the ESM must be unanimous and we would, 'of course', not approve of any such program". Well, if decisions by the ESM must be unanimous (which they have to be) and if Germany would not agree (which Schäuble says Germany won't), then there is no point in having an OMT.

On paper, this means that the OMT is dead. More than that --- it never lived.

The practice might turn out differently. FM Schäuble is not 'Germany'. There is also a German Chancellor and a German parliament. If push were to come to shove, and if Germany were the only country in opposition, Schäuble might find out that he alone cannot take such decisions. He might, once again, find out that he works for a Chancellor who has frequently in the past, when pushed against a wall, supported something which she had strongly objected to before, always on the grounds that 'there is no alternative'.

1 comment:

  1. An issue far more serious than popular....