Thursday, July 12, 2012

The Karlsruhe factor, Part IV

Throughout the eurozone crisis, we have often highlighted the gap between the kind of ‘shock and awe’ decisions expected by financial markets, and what national democracies are able to deliver. Nowhere has this been more evident than in the on-going constitutional tug-of-war between the German government and the country’s Constitutional Court (see here, here and here for background). The latest chapter concerns a series of legal challenges against the ESM and fiscal treaty, on the basis that they violate the sovereign budgetary rights of the German Parliament.

The stakes are very high given that the Court could, in theory, strike down the best part of Merkel and Schäuble’s efforts over the past year. It is unlikely that the Court will do so given the ramifications, but at Tuesday’s public hearing, the judges (pictured in their traditional red robes) indicated that they would take their time before issuing a ruling; up to three months to decide on whether to issue a temporary injunction pending a full decision on constitutional compatibility early next year.

This delay is most unwelcome news for Merkel who is desperate to reassure financial markets and other political leaders that Germany is serious about the eurozone rescue, which is why she expended a lot of political capital in pushing the two treaties as a package measure through the German parliament in record quick time, and was angry that after all that German President Joachim Gauck refused to give his assent after the Court asked him to allow them time to consider their legality.

The problem is that the Court was specifically designed – by the British and the Americans no less - to counteract the concentration of power and rash decision making by other federal institutions, a sort of systemic circuit breaker. It is for this reason it is tucked away in sleepy Karlsruhe, the opposite end of the country to Berlin and previously Bonn.

The question of urgency vs caution has led to deep divisions not only within the German government but also the wider political and constitutional establishment. Ahead of the proceedings, Justice Minister Sabine Leutheusser-Schnarrenberger (FDP) said that:
“Government and politicians should stay out of this completely. The Constitutional Court does not need any advice... Judges are also aware of the importance that their decision will have on the economy.”
However, addressing the Court directly, Finance Minister Wolfgang Schäuble warned that:
“A considerable postponement of the ESM… could cause considerable further uncertainty on markets beyond Germany and a substantial loss of trust in the eurozone's ability to make necessary decisions in an appropriate timeframe”.
Meanwhile the Guardian reports that Chancellor Angela Merkel allegedly told a private meeting of her CDU party that the Court was “pushing the limits” of her patience, while Martin Schulz, the President of the European Parliament complained that some of the Court’s verdicts are "characterized by great ignorance”. Conversely, Bundesbank President Jens Wiedmann, also giving evidence, warned that “a quick ratification is no guarantee that the crisis will not escalate further".

The graphic below shows how Germany’s major political figures have found themselves at odds over the Court ruling, with figures from all parties adopting a range of positions on the issue:


The German media on the other hand have presented a broadly united front, with Die Welt noting that the Court’s eventual ruling will determine “How far European integration can go without damaging the democratic substance of Germany”. A leader in German tabloid Bild argues that “It is totally right that the constitutional judges take more time – after all, the question is whether Germany is overburdening itself financially. That would be a lot worse than short term turbulences on the financial markets”, while in centre-left broadsheet Süddeutsche Zeitung, Heribert Prantl argues that:
“Karlsruhe has to find the ways and means by which Europe can continue to be built without breaking the foundations of the constitutional settlement. The success of this search is existentially vital for Germany and the EU. It is more important than the fleeting applause of the so-called markets in return for a quick decision.”
While the Court, even in the opinion of some of the litigants, is not expected to torpedo the eurozone rescue at this stage (although they take a slightly more pessimistic view over on FT Alphaville), the red lines of the existing constitutional settlement are looming ahead, with most forms of debt pooling that many have called for - such as Eurobonds or a banking union - lying on the opposite side. As the debate over the future of the eurozone will continue to rumble on, expect further tension in the broadly consensual model of German politics between further European integration on one hand and preserving the current constitutional settlement on the other.

7 comments:

Anonymous said...

Can we get an openeurope analysis of these new poll numbers http://www.bbc.co.uk/news/world-europe-18785845 ?

Rik said...

Merkel has put herself in a very dangerous position. She is pushing the boundaries of the German Constitution, very likely till a point where the Constitution will stop her. Which means she will run into a referendum on it. Which she will likely have to enter as proposer and she is very unlikely to win. Basically as it looks now she will be butchered. And as the German parliamentary tradition/history already indicates that a Kanzler's time is over when his/her own majority is gone it is difficult to see how she can remain in office if het rescue proposal is killed off by 8 to 1or2.

She is also not really bona fide. She clearly could have dealt with things differently (and closer to the Constitution) by asking a ruling on several issues herself. Now she basically is causing the delay herself a challenge was a near certainty.
Similar with informing the parliament, that could have been done much better.
Being economical and not political a referendum on the opinion of the German population is already long overdue. But of course Merkel will not call one. As she knows that it will not be won and the Euro rescue would be over. She looks however to gamble on scenarios that donot put het in a very democratic light and/or she simply doesnot understand the issue.

This one might go through, but a rescue package that might work is simply nearly certain unconstitutional. As well as unacceptable to the German population. Which leaves her with very little options. From a pure political pov the best one basically pull the plug out just before the German national election. And not spoil much more money or increase guarantees before that time.
Saving Europe with a grand gesture is not an option. She will have to face a referendum herself or her successor will have to. So in both cases somebody will have to pull the plug out. If her successor does it she will likely get the flak for all money lost.

As said earlier the Court might find this unconstitutional. It is clear that these measures will not do the job of saving the Euro. And the Court will be aware that they will get to make another decision until the boundery is reached or better crossed. So this is a good case to draw the line. Without Germany waisting more money.
It is a good reason not to pull the plug out as a Court but it is also a good reason not to waist another few 100 Bns for only political reasons and with nothing to show for it.

Rik said...

@anonymus
Polls are highly unreliable on this issue. The 'voter' clearly doesnot understand the matter and as a consequence the way questions are asked determines substantially the outcome.
At almost the same moment there was another poll with 80-90% against.
Basically the only way to judge it is see the actual questions and determine if they are unbiased and furthermore that there is some sort of indication what the consequences financially will be for the voter.
The few I have been able to judge and looked neutral had roughly 80% against and looked relatively stable as well. Furthermore in line with polls in say Holland.
Asking about willing to help is very likely to trigger much more pros than will we cut some things here to finance an Euro rescue.
Works both ways btw. I also saw an only 4% pro if I recall it correctly (on saving Spanish banks. Which brings in saving banks as well also hardly a popular thing).

A referendum likely have this partly cleared. Both sides will make calculations and knowing German newspaper it will get a lot of attention. However the cons have the big advantage that the spending is direct spending and much easier to understand while the advantages are very indirect and involve saving German and other banks (which is as popular as the plague in its own right).

It simply looks highly unlikely that German voters will approve new huge rescue mechanisms when asked in a referendum or a normal election with as major point this issue.
Also look at Merkel's rates go up when she is strict, go down when she has to give/or gives something away. Only this time it was slightly different. But that likely could be explained as hardly anybody knew what the banking union means. In Germany it was mainly presented as simply a central regulator not massive guarantees as other people want to see.

Rik said...

Another point also the Fiscal Compact will be ruled upon. This simply also looks not a safe case (as far as I understand it). Combined with he fact that the combination Compact and ESM (or further rescue) was a demand by Merkel to Europe, makes things rather uncertain. Will she give away the Compact and sort of safeguards but allow the ESM.
As well as the fact that Fiscal compact, growth pact and ESM were demands from the German left to get the approval.
Things have everything in them to become very complicated.

If I had to put my money on it, it still would be on an okay (on both counts) and I have to admit mainly for other than German legal reasons, but it looks to me to be a much closer call than a lot of especially AngloSaxons from the economic/financial corner think.
The Court has earlier indicated that the limit is reached or very close to be reached the last time. Judges that basically make law like here, are not in the habit of making a lot of 180s. In fact they hardly ever do that.

Which in itself (the AngloSaxon view) looks pretty naive btw. When the American Supreme Court would have to decide on something similar it likely would be seen as a big risk.

Anonymous said...

Any court that puts economic expediency over constiutional mandate is a corrupt court.

Just look at the Supreme Court of the United STates for an example of that.

christina Speight said...

If these red-robed luminaries can stop the obsession that EU leaders have of "the euro at all costs otherwise we lose the ever closer EU" - if they can stop the Gadarene insistence of wrecking the world economy regardless in pursuit of their mad dreams then they will deserve our eternal gratitude.

Gosporttory said...

Fully agree with Christina. I couldn't have put it better myself.