German Constitutional Court lets EU bailout measures go forward, but austerity continues

The German Federal Constitutional Court decided not to mess around with the EU Fiscal (Suicide) Pact and the awkwardly-named EU bailout fund, the European Security Mechanism (ESM). They announced their ruling on Wednesday that both measures were constitutional under the German Basic Law (Grundgesetz), thus rejecting the suits that several thousand German citizens had joined in bringing against them.

Though the Court avoided upsetting the complex arrangements in question on the European level by ruling Germany's participation fully legal, they did impose a couple of conditions that apparently don't affect the legal validity of the agreements in question. (Karlsruhe genehmigt Euro-Rettungsschirm ESM mit Vorbehalten Financial Times Deutschland 12.09.2012) There is some question about whether the ruling requires some formal acknowledgement from the other partners to the agreements.

But the basic news is that the Fiscal (Suicide) Pact and the ESM can proceed without having to be renegotiated or the German Parliament. The German President has to sign the agreements before they formally take effect.

Wolfgang Münchau in ESM-Urteil des Verfassungsgerichts. Jetzt kommt die Fiskalunion Spiegel Online 12.09.2012 says the most significant aspect of the Court's decision on the Fiscal (Suicide) Pact and the ESM is that it revises four other major previous Court rulings in that it opens the way toa fiscal union under the current German Basic Law, which is what their national constitution is called.

And that means, he writes (emphasis in original), "Mit der Kapitulation des Gerichts ist die Bewältigung der Euro-Krise nun ganz offensichtlich eine rein politische Aufgabe." ("With the capitulation of the Court the mastering of the European crisis is now very clearly a purely political task.")

German Chancellor Angela "Frau Fritz" Merkel has used previous Court decisions related to the German participation in the European Union as an excuse to drag her feet on pushing further European integration, i.e., turning the EU into the real fiscal and transfer union it would have to become to make the euro workable as a currency for democratic societies. She and the German One Percent she loyally serves want all the benefits of the euro and the EU - especially the advantage they give to Germany's export-oriented economy - while minimizing the financial burdens that Germany would be required to shoulder in a genuine fiscal and transfer union.

The last three years have been the story of the abject failure of her attempts to do that. Now, as Münchau says, the Court has taken the legal/constitutional excuses for that course of action away from her.

Münchau's discussion of the Court's long-term strategy is really helpful. He lists five major decisions of the Court related to Germany's participation in the EU: 1993, approving the Maastricht Treaty that transformed the European Community (EC) into the European Union; 1998, allowing the adoption of the euro as Germany's currency; 2009, ruling that the Lisbon Treaty that updated the terms of EU membership was constitutional under the German Basic Law; 2011, allowing German participation in the temporary eurozone bailout fund, the EFSF; and, Wednesday's decision on the ESM and the Fiscal (Suicide) Pact (though he includes only the ESM decision in that particular list).

His reading of the Court's position is that the Court in the first four decisions deferred to the political bodies of the federal government, the Parliament and the Executive, but made qualifications in their rulings that suggested they saw limits in the Basic Law to Germany's participation without actually impeding the substance of the decision. That's what allowed Frau Fritz and other go-slow on the EU advocates to point to the Court's decisions to justify that caution. In particular, the Court had indicated that EU agreements that impinged on the fiscal powers of the German Parliament might not be acceptable.

Münchau sees the latest decision as removing that obstacle. As he puts it, the combination of the Fiscal (Suicide) Pact, the ESM and the European Central Bank's (ECB) recent decision to buy large amounts of sovereign debt in the secondary market "laufen genau auf eine Fiskalunion hinaus" ("amount to a fiscal union").

In other words, the Constitutional Court isn't going to take the bullet for the failure of the euro and/or the EU. Saving them or losing them is up to the politicians. Politicians who have shown very limited statesmanship in those matters in the last three years.

The euro isn't out of the woods by a long shot. But, to keep with the firearms metaphors, it has dodged the bullet that a negative decision by the Court on Wednesday would have represented.

Another important point Münchau makes has to do with the Court's ruling that Germany had to limit its participation in the ESM to the amount that Parliament had already approved with that same limit, and that Parliament would have to approve any increase, an essentially cosmetic ruling that tosses a bone to the plaintiffs who lost, and lost big-time:

Die größte Gefahr für Deutschland besteht nicht in den offiziellen Finanzrisiken des Rettungsschirms, sondern in den nicht quantifizierbaren Risiken, etwa durch das innereuropäische Zahlungssystem Target 2 oder durch erneuten Kapitalbedarf von Banken im Falle eines Zusammenbruchs des Euro. Das offizielle Risiko ist verschwindend gering im Verhältnis zum tatsächlichen.

[The greatest danger for Germany does not lie in the financial risk of the rescue umbrella [the ESM], but rather in the non-quantifiable risks, for instance from the inner-European payment system Target 2 or from the renewed capital requirements for banks in the case of a collapse of the euro. The official risk [of the ESM] is vanishingly small in relation to the real ones.]

And the austerity program insisted on by Germany - for other countries - is daily reducing the chances that the EU could save this thing even Frau Fritz and her counterparts suddenly became wise and responsible leaders.

Tags: angela merkel, austerity economics, eu, euro, european union, german

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