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This policy, known as Outright Monetary Transactions (OMT), has not yet been used, but its open-ended promise led to a rally in the government bonds of countries such as Italy and Spain. It has also set the tone for a recovery in the Eurozone.

The legality of the policy, however, has always been questioned in Germany, where it is regarded as monetrary financing for governments and is considered to be outside the ECB's mandate. The major concern was that the German Constitutional Court would rule the policy illegal and prevent the Bundesbank from participating, which would seriously hamper the policy's effectiveness. Instead, the Court has delegated the decision to the European Court of Justice (ECJ), which hopes to arrive at a conclusion in the summer. There will be a number of factors for the ECJ to consider, the most important of which will be whether the ECB may purchase bonds in unlimited amounts and whether it will be considered senior to all other bond holders, meaning the ECB would be repaid first in the event of a default.

Our view is that the OMT has been a tremendously successful policy and that in defining the decision to the ECJ, the German courts are acknowledging its importance whilst protecting their credibility. We believe that the ECJ will support the OMT policy, but probably with the caveat that the ECB must retain seniority over other bond holders and, therefore, reduce the risk of losing money. If the ECJ decides against the policy, it is likely that bond prices would fall again. The big question then would be whether the Eurozone has recovered sufficiently for OMT to no longer be needed.

We believe Europe will continue to progress from here, and for now at least we maintain an overweight exposure to European equities.