Yves here. The consensus view among experts, despite considerable public opposition in Germany, is that the German Constitutional Court will not upend the Eurozone bailout mechanisms by ruling in favor of challenges to their legality. This confirms the policy issue that Dani Rodrik flagged in 2007: you can’t have national sovereignity, democracy, and deep integration of markets at the same time. You can have at most two of the three. Sadly, Europe looks ready to settle on only one on that list.
By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.
There is nothing like the hearings in the hallowed and staid atmosphere of the German Federal Constitutional Court to bring out the knives … outside.
“It would behoove a Schäuble” – that’s German Finance Minister Wolfgang Schäuble – “not to act like the ECB had the status of the Holy See in the Eurozone,” said Sarah Wagenknecht, deputy chairperson of the Left Party. “Otherwise, a constitutional court could someday get the idea that we have to choose between the euro and our constitution.”
But that may ultimately be the choice. All major euro bailout programs get dragged before the Constitutional Court because they’re deemed to violate the provision in the constitution that gives budgetary powers to the Parliament, not to an unelected entity outside the country. And every time, the Court nods and imposes ever tighter limitations. This time, it’s the ECB’s money-printing and bond-buying programs – the very mechanisms that have kept the Eurozone from disintegrating.
For the two-day hearings, the antagonists are lined up around the block, so to speak, waiting for their turn to influence the history of the Eurozone. 37,000 plaintiffs are trying to get the Court to rule against these programs with which the ECB offered to buy crappy government bonds from teetering Eurozone countries to prop up their banks and bail out speculators.
Among the plaintiffs are individuals, politicians, and organizations across the political spectrum, making for some very unusual and normally irreconcilable bedfellows, including Bundesbank President and ECB board member Jens Weidmann, conservative MP and euro-skeptic firebrand Peter Gauweiler – these programs would turn the ECB into an “uncontrolled power,” he said – or anti-capitalist Sarah Wagenknecht whose Left Party had filed a complaint in order to, as she said, “change Merkel’s course of destruction.”
Plaintiffs fear that the ECB’s strategy would shuffle potentially huge losses onto the federal budget via Germany’s share of the ECB’s capital key, currently 27%. But if the crisis-struck countries were to become insolvent and exit the Eurozone, their portion of the losses would be redistributed over the remaining countries, and Germany’s exposure could rise to 43%. German taxpayers would need a lot of beer – or wine, in some regions – to wash that down. And it all could happen beyond any democratic processes and without parliamentary controls, in violation of the German constitution.
While the Court can’t tell the ECB what to do, it could prohibit the Bundesbank from participating in these programs, which would accelerate by a quantum leap the euro’s demise – or cause Germany to come up with a new constitution.
But Schäuble, when it was his turn, instead of slamming the ECB’s programs, or supporting them, took a different route. He told the Court that it didn’t have jurisdiction! The ECB wasn’t subject to the German constitution, he said. “I find it hard to imagine that German courts can rule on the legality of ECB actions,” he argued. “This would create the risk that the ECB would receive completely contradictory orders about the application of laws from numerous national constitutional courts in the Eurozone.” It would be legal mayhem.
A “dangerous error,” is what a riled-up Sarah Wagenknecht called Schäuble’s reasoning. She’d skewered the euro-bailout philosophy before. A year ago, during another outbreak of the bailout crisis, she’d complained, “They’re not saving the euro but the financial sector! Banks, insurance companies, hedge funds, and speculators are being ransomed.” Now she lashed out at Schäuble. He was playing with fire, she said; the German constitution did not guarantee the existence of the euro but of democracy….
Schäuble, perhaps unwittingly, had put his finger on yet another fatal structural flaw of the Eurozone: a nearly omnipotent central bank that could bail out speculators and banks and pile the resulting losses on taxpayers of other countries, no questions asked, whenever it felt like it, to whatever extent it deemed necessary – “to save the euro,” as it were. That’s its religion, its raison d’être. An act of institutional self-preservation. And if a constitution needs to be sacrificed along the way, so be it.
But in theory, the Court could throw a monkey-wrench into the efforts to keep the Eurozone duct-taped together; it could rule against the ECB’s money-printing and bond-buying mechanisms that would create, in Gauweiler’s words, a “brave new Huxley-world of the unlimited debt,” a world where “money is no longer earned but printed.” Read…. The ECB’s Forked-Tongue Policy To Save The Euro