Outright Monetary Transactions (OMT) is a monetary policy instrument announced by the European Central Bank in September 2012, following ECB President Mario Draghi's July 2012 pledge to do "whatever it takes" to preserve the euro. Under OMT, the ECB can purchase sovereign bonds of eurozone member states in secondary markets, with no ex ante quantitative limit, targeting maturities of one to three years.
Crucially, OMT is conditional: a country can only benefit if it has agreed to a macroeconomic adjustment or precautionary programme with the European Stability Mechanism (ESM) or its predecessor the EFSF, including IMF involvement where appropriate. This conditionality was designed to distinguish OMT from monetary financing of governments, which is prohibited under Article 123 of the Treaty on the Functioning of the European Union (TFEU).
OMT replaced the earlier Securities Markets Programme (SMP). Although it has never been activated, its mere announcement is widely credited with sharply compressing sovereign spreads for Italy, Spain, and other periphery economies, effectively ending the acute phase of the euro area sovereign debt crisis.
The programme was challenged in the German Federal Constitutional Court, which referred questions to the Court of Justice of the European Union. In Gauweiler and Others v Deutscher Bundestag (Case C-62/14, judgment 16 June 2015), the CJEU ruled that OMT falls within the ECB's monetary policy mandate and is compatible with EU law, provided the conditions on conditionality, proportionality, and the prohibition on monetary financing are respected. The German Constitutional Court subsequently accepted the judgment in its June 2016 ruling, with caveats.
OMT remains part of the ECB's toolkit, though it has been overshadowed by later instruments such as the Public Sector Purchase Programme (PSPP), the Pandemic Emergency Purchase Programme (PEPP), and the 2022 Transmission Protection Instrument (TPI), which addresses similar fragmentation risks without requiring an ESM programme.
Example
In July 2012, Mario Draghi's "whatever it takes" speech in London preceded the ECB's September 2012 announcement of OMT, which calmed Italian and Spanish bond markets without a single bond being purchased.
Frequently asked questions
No. Since its announcement in September 2012, no eurozone country has activated OMT, but the credible commitment is widely seen as having stabilised peripheral bond markets.
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