OMT

Outright Monetary Transactions (OMT) is a programme announced by the European Central Bank's Governing Council in September 2012, under which the ECB can purchase sovereign bonds of eurozone member states on secondary markets, in principle without a pre-set quantitative limit. The scheme was unveiled by then-President Mario Draghi following his July 2012 declaration in London that the ECB would do "whatever it takes" to preserve the euro.

OMT was designed to address what Draghi called unjustified risk premia on the sovereign debt of countries such as Spain and Italy during the eurozone crisis, premia that the ECB attributed in part to redenomination risk — investor fears that some states might exit the euro. The programme replaced the earlier Securities Markets Programme (SMP).

Key features include:

• Conditionality: a member state must first request and accept a macroeconomic adjustment or precautionary programme from the European Stability Mechanism (ESM) or EFSF.
• Focus on the short end: purchases are concentrated on sovereign bonds with maturities of one to three years.
• Pari passu treatment: the ECB accepts the same creditor status as private bondholders, unlike its senior position under the SMP.
• Sterilisation: the liquidity created was originally to be fully sterilised (though this concept became moot once the ECB launched broader asset purchases).

OMT has never been activated. Its mere announcement, however, is widely credited with calming sovereign spreads from late 2012 onward. The programme was challenged before the German Federal Constitutional Court, which referred questions to the Court of Justice of the European Union. In Gauweiler (Case C-62/14, judgment of 16 June 2015), the CJEU ruled that OMT fell within the ECB's monetary policy mandate and did not breach the prohibition on monetary financing in Article 123 TFEU. The German Constitutional Court subsequently accepted that ruling in its 2016 judgment, subject to certain conditions.