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The lender of last resort in court

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  • Winkler, Adalbert

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.

Suggested Citation

  • Winkler, Adalbert, 2014. "The lender of last resort in court," Frankfurt School - Working Paper Series 207, Frankfurt School of Finance and Management.
    • Handle: RePEc:zbw:fsfmwp:207
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    1. Adalbert Winkler, 2014. "Finance, growth and crisis: a European perspective," Chapters, in: Ewald Nowotny & Doris Ritzberger-Grünwald & Peter Backé (ed.), Financial Cycles and the Real Economy, chapter 12, pages 199-216, Edward Elgar Publishing.

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    More about this item

    Keywords

    lender of last resort; OMT program; full allotment policy;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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