Why No OMT Yet??

FT Alphaville has a post today entitled “OMT is so 2013.”  In it, they discuss the usual suspects as to reasons why Spain has not yet asked for some type of Eurogroup bailout.  The list includes:

1. The amount of time it would take to get the majority of EMU parliaments to ratify Spain’s application.
2. Various political considerations restraining Rajoy.
3. Recent improvement in Spanish yields have taken the pressure off.
4. German pressure to not ask for a program just yet.  The reason often cited is here is Merkel’s desire to present a single, consolidated Spanish, Cypriot, and Slovenian bailout request to the Bundestag.

The post makes some other interesting points, and I recommend you read it.  However, one potential reason for German desire to delay a Spanish application is not mentioned, and is the subject of this brief post.

I have been conjecturing about a possible Bundesbank boycott of OMT.  My assumption has been that Jens Weidmann, the Bundesbank President, might refuse to actually participate in OMT purchases once the program is formally launched.  Obviously, the effect of such a boycott would be highly disruptive to markets.  However, what if he has taken a gentler approach?  Could he have already informed the powers that be (Draghi, Merkel, Schäuble) that the Bundesbank will not participate in OMT pending a December final ruling on the matter from the German Constitutional Court*?  If he has, you and I will never know it, and any rumor of such a drama playing out will be vehemently denied.

So, I will add a highly speculative reason number 5 to the above list.

    5.  Bundesbank participation in OMT is on hold, pending a ruling from the German Constitutional
         Court in December.

 ________________________________________________________________________________
*For those of you who are not aware, this is what the GCC had to say about OMT in its September 11, 2012 opinion on ESM:
“For an acquisition of government bonds on the secondary market by the European Central Bank aiming at financing the Members’ budgets independently of the capital markets is prohibited as well, as it would circumvent the prohibition of monetary financing (see also Recital 7 of Council Regulation (EC) No 3603/93 of 13 December 1993 (OJ L 332 of 31 December 1993, p. 1)).”

                                                 __________________________

The Council Reg the GCC cites also gives definitions as to what is and is not a “credit facility” in the context of Article 123 TFEU.

“Article 1

1. For the purposes of Article 104 of the Treaty:

(a) ‘overdraft facilities’ means any provision of funds to the public sector resulting or likely to result in a debit balance;

(b) ‘other type of credit facility’ means:

(i) any claim against the public sector existing at 1 January 1994, except for fixed-maturity claims acquired before that date;

(ii) any financing of the public sector’s obligations vis-à-vis third parties;

(iii) without prejudice to Article 104 (2) of the Treaty, any transaction with the public sector resulting or likely to result in a claim against that sector.”