Outright Monetary Transactions (OMT) began trending on twitter the other day, so I thought I would write a post on what exactly OMT is.
OMT is the pledge from the ECB to buy unlimited amounts of bonds from struggling Eurozone countries. Alongside buying these bonds the ECB withdraws money from circulation, allowing bonds to be purchased without increasing inflation.
The key part of OMT is the ECBs assurance that they will buy an unlimited amount of bonds. This means that anyone willing to speculate on yields rising (such as Greece’s) will choose not to, as they know the ECB will be purchasing a far larger amount of bonds, which will bring yields down.
The OMT is designed to increase confidence in struggling Eurozone countries, and to ensure that their borrowing costs don’t rise to unsustainable/ridiculous levels.
Do you think it will be successful? Let me know by tweeting @Breadeconomics, or by leaving a comment below.