Blog Post

The countdown for the ESM: press views on Karlsruhe

On Wednesday 12 September, Germany’s Federal Constitutional Court (FCC) will announce its decision on the European Stability Mechanism (ESM) as well as on the Fiscal Pact. Immediately after the decision Chancellor Angela Merkel will react in the German Bundestag with a government declaration to the FCC’s decision. The decision is eagerly anticipated by German and EU politicians as well as of both German and international press and we review the German press here.

By: Date: September 11, 2012 Topic: European Macroeconomics & Governance

On 12 September, Germany’s Federal Constitutional Court (FCC) will announce its decision on the European Stability Mechanism (ESM) and the Fiscal Compact. Chancellor Angela Merkel will respond in the German Bundestag, with a government declaration on the FCC’s decision. The decision is eagerly anticipated by German and EU politicians, and by the German and international press. We review the German media build-up to the decision below.

According to the Spiegel, the German government is convinced that the FCC will clear the way for the ESM.  However, a recent publication by Bundestag legal experts (on the behalf of left-wing party Die Linke) warns that the ESM might intervene in the Bundestag’s sovereign rights. The publication on 5 September argues that “a possibly direct and potentially unlimited liability” for the debt of other euro-area countries may compromise the budgetary powers of the Bundestag.

More recently, two days ahead of the decision, CSU deputy Peter Gauweiler argued that the purchase by the European Central Bank of sovereign debt in unlimited volumes on the secondary market bypasses the ESM rules even before its ratification. The ECB should thus withdraw its decision. Furthermore, Gauweiler urged the FCC to postpone its ruling if it is not able to decide on his urgent motion (Spiegel Online). The Spiegel writes writes that CSU Secretary General Alexander Dobrindt also criticised the ECB’s decision to purchase euro-area government bonds, expressesing his “great sympathy” for Gauweiler.

Bond purchases by the ECB would overlap with the ESM, which also has the buying of bonds as part of its toolbox. However, the German law accompanying the ESM treaty clearly stipulates that this action necessitates the approval of the Bundestag. Heribert Prantl in the Süddeutsche Zeitung says that ECB president Draghi’s decision on the bond-buying programme before the FCC’s ruling pleases many economists, but worries jurists as the “end does not justify the means”. It would be good if the European Parliament could act on the issue, but since the FCC decision in 2009 declared it to be a “Minder-Parlament” (less important Parliament), its capabilities are limited. According to Prantl, Europe does not merely need the euro, but also more democracy.

Börse Online writes that the FCC might pronounce positively on the ESM, but the reaction of the financial markets will depend on the stringency of the conditions accompanying the ESM, which are expected to be set out by the FCC.

According to the Manager Magazin the so-called “Draghi effect” last week, namely the decision to buy the sovereign debt of euro-area countries, could quickly vanish in the case of a negative FCC decision, which would be a “party killer” after the euphoria following Draghi’s announcement.

Law Professor Christoph Degenhart writes in Wirtschaftswoche that he is skeptical about the ruling because “the ECB could always foil the FCC’s decision by printing money in unlimited volumes”.

What decision of the FCC is expected by German Constitutional Law experts?

The FAZ writes that most of Germany’s leading Constitutional Law judges expects the approval of the FCC for ratification of the ESM treaty and the Fiscal Compact (based on a Reuters survey). All 20 judges are convinced that the FCC will reject the urgent motions against the two treaties, even if they do not all agree with a possible positive decision. However, 60 percent of the judges also expect the FCC judges to impose harsh conditions on the German government. These could go from greater involvement of the Bundestag or Bundesrat, to a declaration under international law that Germany’s capped liability within the ESM credits cannot be exceeded. To date, the FCC has never blocked any EU measure according to Helmut Siekmann, University of Frankfurt.

Furthermore, a quarter of the judges expect that the FCC ruling will signal that the time has come for a referendum about a new Constitution (the German Basic Law) including the ESM and the Fiscal Compact. The remaining three-quarters, however, argue that this is not plausible as the “FCC won’t force the replacement of the Basic Law, through which it itself is constituted”.

The Spiegel writes  that, given that the FCC previously declared the euro rescue to be legitimate, it will call for amendments to the ESM rather than demand a comprehensive constitutional change. According to Der Spiegel there are two possible points on which the judges could call for amendments. First, they may strengthen the rights of the Bundestag (eg the plaintiffs demand to the inclusion of a cancellation clause in the ESM treaty in order to retain control over state finances). Second, they may demand a definition of the German liability cap within the ESM treaty.

Günther Jauch, German television host, organised a discussion on whether the rescue of the euro had to stop for reasons of democracy. Speakers were Bavarian Finance Minister Markus Söder, former chief economist of the ECB Otmar Issing, and former FCC vice president Winfried Hassemer. Hassemer was invited in order to give some insights into the working methods of the FCC. According to the Welt, although the 37,000 plaintiffs are still waiting and hoping, the decision of the FCC has probably already been taken. Hassemer reckons that the text already exists. Moreover, he assumes the existence of economic expertise on the consequences of a failure of the ESM and Fiscal Compact, which is essential for the judges to take a decision. However, he did declined to prejudge the decision.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.


Warning: Invalid argument supplied for foreach() in /home/bruegelo/public_html/wp-content/themes/bruegel/content.php on line 449
View comments
Read article More on this topic More by this author

Blog Post

Where Brexit goes, the law shall follow

How the financial industry and the law firms that support it are preparing for what comes next

By: Rebecca Christie Topic: European Macroeconomics & Governance Date: June 25, 2019
Read about event More on this topic

Past Event

Past Event

How comprehensive is the EU political realignment?

Has the left-right divide become obsolete in EU politics?

Speakers: David Amiel, Otilia Dhand, Nicolas Véron and Silke Wettach Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 25, 2019
Read article More on this topic More by this author

Blog Post

The June Eurogroup meeting: Reflections on BICC

The Eurogroup met on June 13th to discuss the deepening of the economic and monetary union (EMU) and prepare the discussions for the Euro Summit. From the meeting came two main deliverables: an agreement over a budgetary instrument for competitiveness and convergence and the reform of the European Stability Mechanism (ESM) treaty texts. We review economists’ first impressions.

By: Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: June 24, 2019
Read about event More on this topic

Upcoming Event

Jul
8
09:00

How big is BICC? Revolutionising the Eurozone budget

What does the new Eurozone budget do, and what does it not do? What are its strengths and weaknesses?

Speakers: Bruno Le Maire and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author

Podcast

Podcast

Deep Focus: Making a success of EU cohesion policy

Bruegel senior fellow Zsolt Darvas talks to Sean Gibson in this Deep Focus podcast about how the EU can improve its cohesion policy, citing the best examples of its implementation and stressing the methodological difficulties in measuring its effectiveness.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: June 20, 2019
Read about event More on this topic

Past Event

Past Event

What reforms for Europe's Monetary Union: a view from Spain

How is a successful European Monetary Union still possible in today's ever-shifting political landscape? What reforms need to occur in order to guarantee success of cohesive policies?

Speakers: Fernando Fernández, José Carlos García de Quevedo, Gabriele Giudice, Inês Goncalves Raposo, Javier Méndez Llera and Isabel Riaño Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 19, 2019
Read article Download PDF More on this topic

External Publication

Soaring house prices in major cities: how to spot and moderate them

This article examines whether there are regional differences in house price growth within European countries and find a stronger cyclical pattern in capital cities compared to other regions, indicating a clear rationale for regional-level tools. The authors recommend using macro-prudential measures at a regional level, in particular loan-to-value and debt-to-income limits, to dampen the housing boom-bust cycle.

By: Grégory Claeys, Konstantinos Efstathiou and Dirk Schoenmaker Topic: European Macroeconomics & Governance Date: June 19, 2019
Read article More on this topic More by this author

Blog Post

GNI-per-head rankings: The sad stories of Greece and Italy

No other country lost as many positions as Greece and Italy in the rankings of European countries by Gross National Income per head, between 1990 and 2017. The tentative conclusion here is that more complex, country-specific stories – beyond the euro, or the specific euro-area fiscal rules – are needed to explain these individual performances.

By: Francesco Papadia Topic: European Macroeconomics & Governance Date: June 18, 2019
Read article More on this topic More by this author

Blog Post

Uncertainty over output gap and structural-balance estimates remains elevated

The EU fiscal framework strongly relies on the structural budget balance indicator, which aims to measure the ‘underlying’ position of the budget. But this indicator is not observed, only estimations can be made. This post shows that estimates of the European Commission, the IMF, the OECD and national governments widely differ from each other and all estimates are subject to very large annual revisions. The EU should get rid of the fiscal rules that rely on structural balance estimates and use this opportunity to fundamentally reform its fiscal framework.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: June 17, 2019
Read article More on this topic More by this author

Blog Post

The campaign against ‘nonsense’ output gaps

A campaign against “nonsense” consensus output gaps has been launched on social media. It has triggered responses focusing on the implications of output gaps for fiscal policy under EU rules, especially for Italy. But the debate about the reliability of output-gap estimates is more wide-ranging.

By: Konstantinos Efstathiou Topic: European Macroeconomics & Governance Date: June 17, 2019
Read about event More on this topic

Past Event

Past Event

Role of national structural reforms in enhancing resilience in the Euro Area

At this event Gita Gopinath, Chief Economist at the IMF will discuss the role of national structural reforms in enhancing resilience in the Euro Area.

Speakers: Shekhar Aiyar, Maria Demertzis, Romain Duval, Gita Gopinath and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 17, 2019
Read article Download PDF More on this topic

Policy Brief

A strategic agenda for the new EU leadership

Memo to the presidents of the European Commission, Council and Parliament. 'A strategic agenda for the new EU leadership' by Maria Demertzis, André Sapir and Guntram Wolff is the first of our 2019 Bruegel memos to the new presidents of the European Commission, Council and Parliament. Focusing on the most important economic questions at EU level, these Bruegel memos are intended to be a strategic to-do list, outlining the state of affairs that will greet the new Commission.

By: Maria Demertzis, André Sapir and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: June 13, 2019
Load more posts