Germany's Constitutional Court today rejected a challenge of the European Central Bank's emergency bond-buying scheme, clearing a never-used crisis fighting tool.
Conceived at the height of Europe's debt crisis, the Outright Monetary Transactions (OMT) programme was launched as part of ECB President Mario Draghi's pledge to do "whatever it takes" to preserve the euro.
It gave the ECB broad powers to buy the debt of financially strained members.
The European Court of Justice has already cleared OMT but a 35,000-strong German group, including politicians and academics, asked the German court to dismantle it.
They argued that it constituted illegal monetary financing, violating German law.
The German court earlier expressed reservations about OMT, arguing that it may exceed the ECB's mandate, could violated the prohibition of monetary financing and did not place necessary limits on the bank.
But it did not make a ruling at the time, referring the case instead to the European court in an unprecedented move.
Meanwhile, the European Central Bank bought €1.9 billion worth of corporate bonds in its first full week of purchases.
This was at the upper end of market expectations and signalled a strong start to the ECB's latest measure designed to revive inflation.
Unveiled in March as part of a €1.74 trillion asset-buying plan, the ECB started buying investment grade, non-bank corporate bonds on June 8.
It hopes that lowering corporate borrowing costs will induce companies to invest, boosting inflation and economic growth.
On the programme's first day, the ECB bought €348m worth of corporate debt.
This was an unexpectedly large figure that was seen by analysts as unsustainable over the long term but was considered to show its strong commitment to the scheme.
Sources with direct knowledge had earlier said the ECB was hoping to lure new issuers to the market and would buy €5 billion to €10 billion worth of corporate debt per month if new debt sales ramped up.
If it fails to prompt more borrowing by firms, however, its purchases could level off in the €2-3 billion range, the sources said.
Many analysts have argued that the limited supply of corporate debt means it would be difficult for the ECB to go above €5 billion per month without causing serious distortions to the market.
