After the announcement of Mario Draghi, the ECB president, to do “whatever it takes” to preserve the integrity of the European Monetary Union (EMU) in July 2012 and the establishment of the Outright Monetary Transactions (OMT) program in September 2012, the crisis of EMU is far from being resolved.
The recent developments after the Italian elections and the troubles around Cyprus have shown that each negative surprise calls into question the measures hitherto adopted. Still, investors appear to view the OMT program as credible such that no turmoil followed the Italian and Cypriotic surprises.
A more severe problem might emerge, however, if the German Constitutional Court’s decision on the European Stability Mechanism (ESM), the Fiscal Compact and the OMT turns out to be negative. The ESM and the Fiscal Compact have already passed as constitutional in September 2012 in an urgency decision. No surprises should be expected in this regard. But the Court has not yet decided on the OMT. The main decision will be expected in autumn 2013 and it is possible that the Constitutional Court states a violation of the ECB’s mandate by the OMT – with uncertain consequences as to what the German government would then have to do.