FRANKFURT, Germany (AP) – The European Court of Justice has upheld a key financial backstop that helped calm Europe’s crisis over high government debt.
In a decision Tuesday in Luxembourg, the court said the European Central Bank was legally permitted to buy the bonds of countries whose governments face excessive market borrowing costs.
The ECB’s 2012 offer to carry out such purchases if needed helped reassure markets – even though no country has used it.
High borrowing costs can push a country to need a bailout package of rescue loans, as happened with Greece, Portugal and Ireland.
The ECB’s offer was challenged by a conservative German lawmaker and others who argue the ECB overstepped its legal powers and strayed into using its monetary powers to lend financial aid to governments.
The court disagreed, saying the bond-purchase offer “falls within monetary policy and within the powers” of the European system of central banks with the ECB at its head.
Blocking the program could have dented market sentiment as the eurozone struggles to overcome slow growth and figure out how to help Greece avoid defaulting on its debts. But worries over the upcoming decision largely faded after a court official in January issued a preliminary opinion upholding the program.
Under the offer, dubbed outright monetary transactions, or OMT, the ECB could buy bonds to drive down an individual country’s excessive borrowing costs, in an effort to transmit the ECB’s interest rate policy across the eurozone. Countries that got the help would have to sign written promises to reform their finances.
The OMT program, which was never used, is different from the ECB’s current bond-buying program, in which it is purchasing 1.1 trillion euros ($1.2 trillion) in government and corporate bonds through September 2016 in an effort to boost inflation from current low levels and help promote growth and employment.