Ruling on this issue due in a couple of days....markets and gold seemingly anticipating a result Mr. Trichet may not like very much:
acting-man.com
Walking A Tightrope – German Supreme Court Hearings Begin Germany's constitutional court in Karlsruhe will begin hearings on the complaints filed by the group of legal scholars and economists led by Karl Albrecht Schachtschneider as well as the separate complaint filed by CSU politician Peter Gauweiler (who already has a partial victory under his belt from his complaint against the Lisbon treaty – we discussed Gauweiler's case previously, in Gauweiler's Challenge and an update thereto).
Schachtschneider's group and Gauweiler both opine that the bailout fund for the peripheral sovereigns is in conflict with German constitutional law as well as existing EU treaties. As we noted in our previous missives, when the bailout fund (EFSF) was originally created, the euro-group used the obscure article 122 of the Lisbon treaty as its legal justification. This article was actually meant to enable help to be extended to EU member nations in case of natural disasters. Obviously, fiscal profligacy leading to national bankruptcy is a disaster, but it is clearly a man-made one. In its decisions on the previous complaints, the court tended to side mostly with the government, but it did insist that German sovereignty and the German constitution must take precedence over the European project.
Court decisions usually are not merely a matter of a strict interpretation of law. Rather, they generally also tend to reflect the social mood of the day, which influences judges just as much as the population at large. In this sense, the latest complaints have a better chance at succeeding than the previous ones (the group around Schachtschneider tried to torpedo the creation of the euro from the start, but obviously failed to get a favorable ruling). Public opinion has changed markedly over time and anti-euro sentiment is at the moment relatively rampant. In addition, the plaintiffs can point to the fact that the predictions they made way back in 1998 have indeed come true – with eerie precision as it were.
Most observers agree that the court will likely attempt to avoid creating chaos in financial markets by retroactively disabling the already existing bailout arrangements. When the court refused the motion for a preliminary injunction against the first Greek bailout, it specifically cited the government's objection that such an injunction would upset the markets and be followed by 'unforeseeable consequences'. However, there can be no doubt that the bailouts stand on a flimsy legal basis, so the court's decision will likely limit the government's flexibility in the next iteration of the crisis. What we found most interesting in this context was an interview Mr. Schachtschneider gave to the 'Frankfurter Allgemeine Zeitung' (FAZ), a well-respected German daily. You can see the original here.
We provide a translation of the salient points below:
[...]
Q: 'Do you want to make history as the man who interred the euro?'
A: 'I'm opposed to the euro, wholeheartedly. Nonetheless I'm a friend of the European Idea. My wife and I have been married in Rome, my daughter was baptized there, I appreciate the diversity of European culture. That is precisely why I want to live in a commonwealth of free European states, not a forcibly united European federal state that is based on destructive economic illusions.'
Q: 'Since the euro crisis began, you sound triumphant like Cassandra, who sees herself vindicated'
A: 'Triumph is the last thing on my mind. But I do like to point out that what is happening now is exactly what we predicted in in our complaint against the euro in 1998. This crisis was inevitable. Agrarian and tourism-dependent nations can not be united in a workable currency union with a strong industrial nation like Germany.'
Q: 'The hearing in Karlsruhe [seat of the constitutional court, ed.] is not about whether euro rescue makes economic sense, it is about the question of its constitutionality.'
A: 'Certainly. For me as a jurist, the question of the law is the most important one. But the euro adventure must be ended on the grounds of economic reason alone. I have made a bet with my fellow plaintiffs: which law will end the euro first, economic law, or juridical law. At present there is a chance for jurisprudence.'
Q: 'Your complaint has 225 pages. What is your main argument against the euro rescue?'
A: 'It is in conflict with fundamental requirements of the European treaties and the structural principles of the currency union, namely against the proscription of assuming the liabilities of other nations. The rights and duties of the ECB were also violated.'
Q: 'But the German constitutional court does not have authority with regards to contraventions of European law.'
A: 'The breach of law is so obvious that the judges won't even need to interpret the treaties. All they need to do is read them. French finance minister Christine Lagarde [lately leader of the IMF, ed.] openly admitted that the treaties are being violated.'
Q: 'Still, the court doesn't even consider these rules. Besides, a new treaty is already in the works.'
A: 'Why does the permanent stability mechanism require new rules? Allegedly the old ones are sufficient. If this were only about European law, the court would have immediately referred our complaint to the European court. It hasn't done that though, luckily. Nobody is interested in fundamental rights there.'
Q: 'What violations against German constitutional law are you challenging?'
A: 'Where do I begin? What is violated is the fiscal and budgetary sovereignty of parliament. What is violated is the principle of limited borrowing – through the rescue attempts, Germany is taking on debt beyond the limits set by the constitution. What is also violated is the principle of social stability. The government is putting Germany into a precarious financial position.'
Q: 'Those are abstract principles. Where is the infringement of your rights?' [this question relates to the fact that in order to have standing, a complainant to the constitutional court must prove his rights were violated, ed.]
A: 'Our rights are violated because the power of representation we citizens have given the State has been exceeded. The Greek rescue establishes a liability, debt and financial union, the decisive step toward a federal European State. It becomes an irrevocable reality once the permanent rescue mechanism has been established. However, politicians may not dispose of Germany's statehood. That is something the people would have to decide in a referendum.'
Q: 'Germany doesn't lose its statehood just because we guarantee loans to other nations.'
A: 'I see it differently, because these giant bailout funds exceed our capacity. The rescue package represent in any event a 'legal act that breaks the mold' – a clear violation of democratic principles.'
Q: 'Can an individual citizen even denounce the breach of an abstract rule like the democratic principle before the court?'
A: 'Yes, this was one of the great successes of the Maastricht suit, that citizens have been accorded a new fundamental right. The judges have determined that the democratic principle has a subjective component. Every citizen has the right to democracy and can complain against legal acts of the Union that break the mold.'
Q: 'The Bundestag [parliament, ed.] has agreed to the rescue package for Greece last year. Isn't that democratic enough?'
A: 'That is the big question that will hopefully be cleared up in Karlsruhe. Do we citizens have a right that the Bundestag acts in accordance with the law, or only that it acts at all? In my opinion, we don't vote for representatives so that they can then violate the constitution. Unfortunately one can expect a courageous 'no' only from very few of them.'
Q: 'The judges may say: in that case, vote for more courageous representatives.'
A: 'Even if they say that – they can not possibly assent to the fact that the Bundestag issues a blanket authorization for Germany to supply € 190 billion to the permanent bailout fund. At the very least, the representatives will have to approve every single tranche. Or should our budget depend on the fiscal policies made in Athens?'
Q: 'The bailout funds are after all tied to tough conditions'
A: 'That makes the violation even worse, in my opinion. In order to rescue the euro, we intervene in the fiscal policies of other nations. Not even our federal fiscal equalization scheme goes that far. Imagine if rich Bavaria were forced to buy the bonds issued by Saarland, and in exchange could then dictate to Saarland what it could spend the money on.'
Q: 'The government will probably argue that without a bailout, other nations will also get into trouble'
A: 'Systemic relevance is not a legal principle! Even Deutsche Bank is replaceable. It is intolerable that the billions in bailout funds flow into the coffers of banks and insurance companies. In a free market economy based on contracts and property rights, private creditors must bear their risks themselves.'
Q: 'What happens if you're successful? The judges will hardly be able to put the rescue fund out of commission.'
A: 'They could declare the bailouts to be unlawful and demand a new contractual basis for further measures – and a referendum over such a new treaty. That would be the best solution. Politicians fear nothing more than direct democracy.'
Q: 'Are you afraid that political pressure will be brought to bear against the judges?'
A: 'The president of the court is still young and has only been in office for a short period of time. My hopes are more with the juridical consciences of his colleagues in the senate [the congregation of constitutional judges is referred to as 'the senate' in Germany, ed.]. Political pressure exists, I have no illusions about that. Judges have telephones. Against this, I can only use judicial dogmatics and appeals to reason.'
So much for Schachtschneider's point of view. |
