OMT in limbo? confidencial Buba document made public

FXstreet.com (Barcelona) - Further expanding on the news uncovered by the German newspaper Handlesblatt about the Bundesbank being opposed to purchases of government bonds via Outright Monetary Transactions also known as OMT, seen as an intrusion into the independence of the ECB, more details from the Bundesbank case made in Dec 2012 and sent in a secret document to the German constitutional court are coming to the surface.

As noted by Sebastien Galy, currency strategist at Societe Generale: "The Bundesbank explains that the ECB is not the lender of last resorts to European governments. More precisely it explains how a country's fixed income market and lending system could start to price in the risk of that country leaving, without it necessarily being linked to a problem of monetary transmission, but linked to particularities of a given country. The issue lies at the political level and not that of the mandate of the ECB."

More headlines on the Buba case were provided via Bloomberg:

- Bundesbank says outright monetary transactions could undermine independence of central banks

- Bundesbank doubts that strong conditionality will be imposed on countries in exchange for aid

- Bundesbank says the Greek experience "is reason for concern that the handling of conditionality within the framework of the OMT rogram, even in questionable cases, won't protect against significant purchases and thereby against a redistribution of risks across the balance sheets of the Eurosystem"

- Bundesbank says diverging borrowing costs for companies in different countries may reflect different fiscal risks of sovereign