On September 12, the German
Constitutional Court approved the treaty
establishing the European Stability Mechanism
(ESM), subject to very minor qualifications.
Strictly speaking, the court only decided not to
grant an injunction to stop the ESM until a final
verdict expected later in the autumn, but no one
believes the court will do anything other than
wave it through. The ESM is likely to come into
operation within the next few weeks, well before
the court gives its now-theoretical final
judgment.
The court rejected as largely
unfounded constitutional complaints brought by
more than 37,000 petitioners who had argued that
the ESM imposed financial commitments incompatible
with the budgetary autonomy of the Bundestag. It
ruled that Germany's liability under the ESM was
limited to 190 billion euros (US$250
billion) unless
parliament decided to increase the country's share
or authorized additional assistance.
The
court further decided that provisions of the ESM
treaty concerning the inviolability of the
documents of the mechanism and the professional
secrecy of all persons working for it must not
prevent comprehensive information going to the
German parliament.
On the key issue of the
alleged violation of the budgetary autonomy of the
Bundestag, the court confirmed its familiar
position that the legislature enjoyed a wide
margin of authority in determining the level of
public debt compatible with its ability to
determine the living conditions of the German
people by means of taxation and public
expenditure. Parliament enjoyed similar discretion
in assessing the risk that loans and guarantees
extended to ailing euro-zone economies would
ultimately have to be written off.
Even in
view of Germany's pre-existing overall commitment
of several hundred billion euros, the court
stated, it was not obvious that the additional 190
billion euros under the ESM would entail
commitments that in effect extinguished budgetary
room for maneuver. Even if the Bundestag
authorizes unspecified additional assistance
beyond that sum, either under the ESM or in
addition to it, there is no such certainty.
In effect, the court ruled that Germany's
liability under the ESM was limited unless
parliament decided that it should be unlimited,
and that even if the Bundestag continued
authorizing further assistance that could increase
German public debt by an unspecified amount, the
court would not regard any consequential risk as
sufficiently large as to threaten the nation's
budgetary autonomy.
In the ESM judgment,
the Court abandoned its previous position that
there were non-negotiable areas of national
sovereignty that depended on ongoing national room
for maneuver in determining levels of taxation and
the direction of public expenditure at national
level. It was a matter for the legislature, the
court decided, to decide what level of
international financial commitment was compatible
with the minimum domestic financial strength and
flexibility required to conduct an effective
economic, social and educational policy.
The court held that in principle,
unlimited liability under the euro-zone rescue
operations was not incompatible with Germany's
budgetary autonomy provided the Bundestag itself
authorized every move in that direction.
Germany's annual federal budget in 2011
amounted to 306 billion euros. According to the
Ifo Institute for Economic Research, the nation's
exposure with the ESM is approaching 1 trillion
euros, three times that amount.
On the
subsidiary issue of parliamentary consultation,
the Constitutional Court decided that treaty
provisions ensuring professional secrecy of ESM
employees and the inviolability of the mechanism's
documents could conflict with parliamentary rights
to consultation. The court asked the government to
ensure appropriate changes either by treaty
variation or some other means such as a
reservation by the president of the Federal
Republic of Germany. Neither is significant, as
the court has not challenged the provisions
granting immunity from prosecution to ESM
decision-makers, even in cases of gross
incompetence or possible malfeasance in public
office.
The court further rejected the
objection by Peter Gauweiler, a lawmaker in
Chancellor Angela Merkel's ruling coalition, that
the ESM could become the vehicle of
unconstitutional state financing by the European
Central Bank. However, the court observed that
borrowing by the ESM from the ECB, alone or in
connection with the depositing of government
bonds, would be incompatible with the prohibition
of monetary financing entrenched in Article 123 of
the Treaty on the Functioning of the European
Union (TFEU).
A depositing of government
bonds by the ESM with the ECB as a security for
loans would also infringe Article 123. In this
context the court observed that the prohibition
applied both to a direct acquisition by the ECB of
government debt instruments and their intermediate
acquisition by the ESM on the secondary market. It
would also be unlawful for the ECB to acquire
government bonds on the secondary market where
such purchases were aimed at financing government
debt independently of the capital markets, as it
would circumvent the prohibition of monetary
financing.
The Constitutional Court has
jurisdiction to prohibit the ECB's bond-buying on
the grounds that it has jurisdiction of final
resort over whether the interpretation and
exercise by the EU institutions of their powers
are compatible Germany's constitutional
requirements. The ECB could then buy bonds, but
the court could prevent the German government from
underwriting the bank's balance sheet.
The
court's comments may also strengthen the position
of Deutsche Bundesbank president Jens Weidmann,
who has criticized the ECB's unlimited bond-buy
plan. Continued opposition by Weidmann may
eventually force Merkel to choose between him and
ECB president Mario Draghi.
However, the
lack of politically acceptable alternatives
together with the short-term attraction of
recourse to the printing press in a low-growth
environment would suggest that Merkel might now be
"wedded" to Draghi. Most Germans are deeply wary
of the Italian's plans at the helm of the ECB,
where the fear of inflation remains ingrained, but
Merkel has pushed through the ESM against
widespread public skepticism.
German
opponents of the ECB would also be ill-advised to
place too much hope in the Constitutional Court.
It has declared ECB bond-buying to be unlawful in
most circumstances, which seems to suggest this is
a red line that must not be crossed. However, the
court has a history of asserting the German
constitution in theory, while submitting to every
additional step taken by the government toward
further integration.
How likely is it that
the court will act on its apparent opposition to
Draghi's plans? Facts sometimes speak for
themselves. All eight judges on the Constitutional
Court's Second Senate, which decided this case,
were appointed by the main political parties,
which remain integrationist and broadly supportive
of the ECB despite majority popular opposition to
further bailouts.
The leading German
financial daily, Handelsblatt, reports that
Constitutional Court president Andreas Vosskuhle
is on record as calling for the restriction of
constitutional complaints by individual
applicants. The paper further reports that he
remains a law professor at Freiburg University and
a member of one of the university's governing
bodies together with Finance Minister Wolfgang
Schaeuble and EU Commission President Jose Manuel
Barroso. The Guardian newspaper further reported
there had been at least one high-level contact
between court and government over the summer to
agree a position.
Germany's political
establishment now seems locked into Draghi's
"lirafication" project for the euro, while the
Constitutional Court has never opposed the
establishment on any fundamental constitutional
issue.
The euro may yet fail - not,
however, because of a court ruling, but for
economic reasons and because of public opinion.
What remains unclear is how public opinion can be
effectively translated in political will in a
system that deeply distrusts direct popular
involvement in politics outside the established
party system. The result, therefore, may not be
the end of the euro - there are no mainstream
euro-skeptic or anti-bailout parties in Germany to
which voters could turn - but rising poverty,
public disenchantment and ongoing stagflation.
The euro's failure may yet lie in its
survival. Foreign investors should be distrustful
of the low-growth, high-inflation geriatric euro
zone with Germany at its helm in lieu of a return
of national currencies that would offer the
prospect of revival to at least some countries.
Germany's judges and politicians are
sacrificing the German population for the euro. It
is unlikely to be to anyone's benefit in the end.
Dr Gunnar Beck is reader in
European Union law at the School of Oriental and
African Studies, University of London, a
specialist practitioner in EU and constitutional
law, and a former legal adviser to the EU
committee of the British House of Commons.
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