Draghi reigns supreme

With the European Court of Justice (ECJ) having backed Mario Draghi's asset-buying program, the chief of the European Central Bank (ECB) now has virtually unlimited access to every monetary weapon in his arsenal as long as he can justify its use.

The ECJ's ruling could have been expected because any decision to the contrary would have plunged Europe into another deep currency and fiscal policy crisis. If the court had sided with ECB opponents and banned the purchases of bonds from crisis-stricken eurozone nations, the credibility of the euro area central bank would have been fundamentally shaken. The vultures on the financial markets would have unleashed a new wave of speculation against debt-laden eurozone members, driving up their risk premiums to an extend that would have put the survival of the currency area in severe doubt.

Late approval

Draghi's 2012 announcement to buy unlimited amounts of sovereign eurozone debt in secondary bond markets, doubtlessly achieved its desired effect three years ago. Now, the use of Draghi's last arrow in his quiver has been condoned by the EU court, albeit only under certain conditions. But they are lax, indeed.

Investors shouldn't expect the ECB to buy all of their junk bonds all the time, the court ruled, and the so-called "Outright Monetary Transaction" (OMT) program must comply with a set of rules as to the length of the purchases and the quality of the debt. The snag here is, however, that the ECB can set the rules all by itself, with the ECB chief just having to ensure that they are being kept, the judges said.

In addition, the court's ruling not only theoretically approves junk-bond purchases, but gives the ECB full legal independence over its decisions to do so by ensuring that the central bank cannot be held liable for its actions. Moreover, struggling eurozone governments can now rest assured that the ECB will start the money-printing process to bail them out of their debt troubles.

In the end, it's up to Mario Draghi and his fellow central bankers in the ECB Governing Council to decide which country is rescued, and which is left to drown.

Draghi has always claimed his actions are prompted by monetary policy concerns aimed at keeping the euro stable and inflation within the ECB's target range. But in the current debt crisis, his moves have substantially broken down the barrier to fiscal and economic policy, which lie outside of the ECB mandate.

However, the accumulation of power within the ECB should make everyone feel uncomfortable, raising the question: How long before this goes too far?

Germany's Bundesbank rendered powerless

Jens Weidmann, the head of the German central bank, the Bundesbank, has long lamented that the ECB's is increasingly held hostage by irresponsible political leaders in Europe, who are failing to bring their own fiscal houses in order, brazenly neglecting to tackle long-overdue economic reforms.

Weidmann has always been a staunch opponent of ECB bond-buying, and may have secretly wished for the ECJ to limit Draghi's powers. But since this hasn't happened, his credibility and that of the Bundesbank will continue to suffer.

Now, all he and the other critics of ECB policy can hope for is a ruling to the contrary by Germany's Constitutional Court, which had originally asked the ECJ to clarify its position on OMT. Presumably though, the German court will follow the ruling of Europe's top judges, avoiding the unprecedented legal conflict a ruling to the contrary would create.

Greece's fate hinges on the ECB

And what about Greece? The ECJ's decision on Tuesday will only have a random effect on the future of the debt-laden country because Greek bonds have been barred from the ECB's asset program right from its start. Unlike the OMT's original aim of stopping massive speculation in bond market in 2012, Athens had been cut short of private funding long before that.

The country in the southern eurozone periphery has been drip-fed by the ECB ever since the central bank and other international creditors provided two rescue packages in 2010, worth a total of 240 billion euros ($269 billion).

The ECB has also thrown a financial lifeline to Greek banks, keeping them solvent through Emergency Liquidity Assistance (ELA) funding. How long ELA will continue to stave off Greece's collapse is up to Mario Draghi - now apparently the most powerful man Europe following the ECJ's ruling.

However, Draghi's critics have vowed not to cave in, and have already announced a new legal challenge to his policy - this time directed against the ECB's 60-billion-euro-a-month asset-buying program, known as quantitative easing (QE).

Alas, the move is similarly unlikely to be crowned with success in the ECJ because it would severely shake the foundation of the eurozone's debt crisis management. What's more likely is that the ECB and its president Mario Draghi will further expand their powers, including, as planned, oversight over Europe's commercial banks and a mechanism to resolve those unfit to survive.