ECB "QE" is not neutral for the Swiss franc

• The Advocate General of the ECJ validates OMT 
• Probability of a QE is reinforced
• SNB acts in consequence

On Wednesday, the Advocate General of the European Court of Justice (ECJ) published his opinion on Outright Monetary Transactions (OMT), the ECB’s bond-buying programme. This opinion has been given after the German Constitutional Court referred to the ECJ about the legality of the OMT programme. In essence, the Advocate General concludes that the OMT programme is compatible with the Treaty on the Functioning of the European Union on condition that, if effectively implemented, the ECB gives a proper account of its reasons and refrains from any direct involvement in the conditional adjustment programme. Less specifically, but of no less importance, the Advocate General underlines that the framing and implementation of monetary policy are the exclusive competence of the ECB. Although the Advocate General’s opinion is not binding on the ECJ, and the later does not decide the national case (whether OMT is legal from the perspective of German Basic Law), it lifts an obstacle to the implementation of quantitative easing (QE) in the eurozone. QE seems to be increasingly imminent, an impression reinforced by the Swiss National Bank’s decision to end its floor rate of EUR1 for CHF1.20, which it implemented in September 2011 to stop the currency’s appreciation. Defending the exchange rate led the SNB to accumulate massive euro-denominated reserves (see chart), a policy that would become unsustainable if QE is launched in the eurozone.