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The lender of last resort in court

Adalbert Winkler

No 207, Frankfurt School - Working Paper Series from Frankfurt School of Finance and Management

Abstract: Is the OMT program in violation of the ECB's mandate? This paper applies the economic argumentation put forth by the OMT's opponents and supporters before the Federal German Constitutional Court [Bundesverfassungsgericht] to the full allotment policy practiced by the ECB since October 2008. The comparison shows that if the OMT violates the ECB's mandate, the same holds for the full allotment policy. Ultimately, therefore, the ECB is not in court because of monetary financing, but rather as a lender of last resort. Accordingly, a court decision against the OMT would endorse an economic reasoning which contradicts 150 years of modern central bank history and would expose the euro area to the instabilities of financial markets. Such a monetary union is neither sustainable nor desirable.

Keywords: lender of last resort; OMT program; full allotment policy (search for similar items in EconPapers)
JEL-codes: E52 E53 F33 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-sog
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