Germany’s top court rules in favor of OMT

Germany’s constitutional court has ruled in favor of European Central Bank’s (ECB) most effective tool Outright Monetary Transactions (OMT). The tool was introduced at the heights of European sovereign debt crisis by ECB president Mario Draghi in his famous “whatever it takes” speech. OMT, though never been used is credited with stabilizing the crisis.

A ruling that would have declared OMT as unconstitutional would have raised doubts over ECB’s ability to add further stimulus and the bank would have been subjected to fierce German criticism. Practically it may not have made a difference since OMT is not in use but would definitely have dented confidence and posed major doubts on quantitative easing, which is subjected to another litigation in Germany. Chances are higher now that QE litigation will also go in favor of the European Union.

That is likely to push back the German criticism of ECB actions and provide the central bank more room to maneuver.  

The euro is currently trading at 1.134 against the dollar.