The Legal Implications of the Incompleteness of the Economic and Monetary Union
| Author | Phedon Nicolaides |
| Published date | 01 August 2015 |
| Date | 01 August 2015 |
| DOI | http://doi.org/10.1177/1023263X1502200401 |
| Subject Matter | Editorial |
22 MJ 4 (2015) 479
EDITORIAL
THE LEGAL IMPLICATIONS
OF THE INCOMPLETENESS OF
THEECONOMIC AND MONETARY UNION
P N*
On 16June 2015, the Court of Justice of t he European Union delivered its eagerly awaited
from the fact that it ca rried serious implications for the fu nctioning and perhaps surv ival
of the EU’s monetary union, it als o made legal history because it was t he rst ever request
for a preliminary r uling by the German constitut ional court (Bundesverfassungsgericht).
At the heart of the ca se were the so-cal led ‘Outright Monetary Transactions’
(OMT) of the European Central Bank (ECB). Peter Gauweiler and the other applicants
claimed that t he OMT violated several provisions of the Treaty on the Functioning of
the European Union (TFEU) and in pa rticula r Article 123 TFEU, which prohibits the
ECB from buying bonds direc tly issued by Member States. is is what is o en called
the prohibition of monetizing sovereign debt. eir arg ument was that even though the
ECB intended to buy bonds on the secondary ma rket, and not directly from the issuing
governments, i n e ect it helped governments to borrow more. is was tanta mount to
economic policy which is reser ved for the Council. e ECB, they contended, was act ing
outside its own policy area. Moreover, by buying government bonds not wanted by the
market, the ECB put its own capital at risk and in case it incur red any losses, it would
have to be recapitalized. is would e ectively transfer those losses to ot her Member
States which would have to inject fresh c apital.
e ECB’s view was t hat the purchasing of sovereign bonds on the secondary market
was, rst, necessary to carry out its monetar y policy which lost its e ectiveness as a
result of the nancial and economic crisis. Sec ond, the purchasing of bonds from market
operators meant that their price a lready incorporated the risk of default of any issuing
government (that is, the higher the risk, t he lower the price).
* Professor at the Col lege of Europe and the Universit y of Maastricht.
1 Case C-62/14 Peter Gauw eiler and others v. Deutsch er Bundestag, EU:C:2015:400.
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