http://www.telegraph.co.uk/finance/debt-crisis-live/9532796/Debt-crisis-German-court-may-delay-euro-ruling-live.html
12.30 Germany's Constitutional Court said it will examine whether to postpone its long-awaited verdict on the eurozone's €500bn ESM rescue fund and the EU fiscal pact given a new legal challenge by a leading eurosceptic politician.
A spokeswoman told AFP the court would hold an emergency session on the latest challenge by Peter Gauweiler - a eurosceptic lawmaker from the CSU Bavarian sister party to Chancellor Angela Merkel's conservatives - on Monday afternoon and make public its decision on Tuesday morning.
The court verdict is the last legal hurdle for the ESM before it can come into effect. Until now, the court had been scheduled to deliver its ruling on Wednesday.
But it could now be held up following Gauweiler's latest complaint on Sunday, in which he challenged last week's decision by the European Central Bank to launch a bond-buying programme.
He argues that the ECB move alters the situation and the court must now first decide whether the central bank's bond purchase programme is legal before it can rule on the constitutionality of the ESM rescue fund.
and......
http://blankfiendsew.blogspot.com/2012/09/the-ecb-thumbs-its-nose-at-law.html
http://globaleconomicanalysis.blogspot.com/2012/09/actual-constitutional-case-against-ost.html
Monday, September 10, 2012 1:02 PM
Actual Constitutional Case Against OMT and ESM; Why Bond Buying Undermines Democracy; Is Draghi Above The Law?
A post on the the Fibs and Waves blog by "Blankfeind" outlines the actual legal case against the OMT. I believe the case is rock solid. How the German constitutional court rules in two days is another matter.
Please consider The ECB Thumbs Its Nose At The Law.
Please consider The ECB Thumbs Its Nose At The Law.
On September 6th, the ECB announced its Outright Monetary Transactions program, known as OMT. Justified as a means for the ECB to repair monetary policy transmission and to recreate the singleness of monetary policy for the euro area, the OMT offers an unlimited commitment by the ECB to purchase short-term (one to three year) sovereign debt in the secondary markets for sovereigns who agree to certain conditions.
The bond purchases themselves will not be conducted by the ECB, but rather by the national central banks in proportion to their capital key with the European Central Bank. Hence, should Spain eventually fall under the OMT program, it will be the German Bundesbank that will be responsible for purchasing the largest single share of Spanish bonds.
But, is OMT legal under the treaties that govern the ECB?
The letter of the law:
Treaty on the Functioning of the European Union (TFEU)
Article 123 (ex Article 101 TEC)
1. Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favor of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
With the OMT program, the ECB has essentially said that any European Monetary Union sovereigns unable to obtain favorably priced credit from the market may apply to the ECB in order to obtain that credit in unlimited quantities, albeit via debt purchases in the secondary market.
This clearly means that the ECB will have established a credit facility in favor of the sovereign participating in the OMT program, and that is an explicit violation of the letter of the law.
Primary vs. Secondary Markets and Intent of the Treaty
Former ECB president Jean-Claude Trichet (and one of the original architects of the treaties that created the eurozone), opened up this can of worms by allowing the ECB to buy bonds in the secondary market.
Since the ECB could act as the end party immediately buying bonds from the original buyer, there is in practice virtually no difference between buying bonds in the primary and secondary markets.
Here is the loophole Trichet exploited:
Article 123 (ex Article 101 TEC)
1. ... Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
Clearly, that could not possibly be what the treaty intended. When discussing the intent of the treaty, the ECB is already in violation. Now Draghi has gone a step further.
"Blankfeind" continues ...
Why Bond Buying Undermines Democracy
In a direct criticism of "Draghi Almighty" Der Spiegel explains Why ECB Bond-Buying Plans Undermine Democracy
Double Game
And what is the German government doing? It's playing a double game. It supports both the ECB president as well as his main critic, Weidmann. Merkel is secretly pleased with Draghi's initiative because the chancellor would probably not be able to gain majority support in the Bundestag for additional euro rescue programs. That's why she is among those saying that the ECB is acting within the scope of its mandate.
If she said anything else, she would have to take action. She could, for example, file a suit with the European Court of Justice in Luxembourg in a bid to have the ECB decision nullified. The Bundestag could also pass a resolution calling for such a lawsuit -- and thus force Merkel to put her cards on the table.
But if there are no plaintiffs, no judges will intervene. In such a situation, Mario Draghi is the most powerful man in Europe, undeterred by courts or parliaments.
Is Draghi Above The Law?
The answer to that question is obvious. He thinks and acts like he is. This should not be surprising. It is one of the direct corollaries of the Fed Uncertainty Principle, which I wrote on April, 3, 2008, long before the Fed started its big power grab.
What I said about the Fed applies equally to the ECB and central bankers in general. Here are key excerpts.
http://www.silverdoctors.com/italy-to-ban-cash-transactions-over-e50-in-2013/#more-13457
http://www.zerohedge.com/contributed/2012-09-09/sub-zero-and-decoupling
Submitted by Bruce Krasting on 09/09/2012 11:26 -0400
http://globaleconomicanalysis.blogspot.com/2012/09/german-constitutional-court-approval-of.html
I certainly do not agree with Draghi, but the man clearly is not a dunce. Was there a strong reason to announce OMT, altering the ESM, before it was approved?
Certainly, yields went into the stratosphere a few weeks ago. Yet, mere talk of rate caps and unlimited bond buying had yields collapsing last week.
Did Draghi feel he could not wait another week? Did see a need to strike first, fearing the court may otherwise have laid down guidelines against his OMT?
Perhaps Draghi wanted to bring this all to a head right here right now, the sooner the better, even if it meant the court might rule on the need for a referendum.
From that aspect, (and from the point of view of the pro-bailout crowd) the sooner Germany has a referendum, the more likely it would pass.
A year ago I think a referendum would have passed with flying colors. Now 54% of Germans Want the Constitutional Court to Kill the ESM.
With each passing day, more Germans are upset at the economy and the bailouts on top of it (see Germany Trifecta: Steep Drop in Construction New Business, Services New Business, Manufacturing New Business) and an increasingly large group want Germany out of the eurozone completely.
Perhaps we should not overthink this.
Occam's Razor suggests Draghi simply made a mistake in failing to see the bitter response from Germany and the potential implications down the road.
I had been thinking the court would easily approve the ESM, but with reservations. However, the OMT changed the odds quite a bit. Regardless, we are going to find out one way or another in two days.
Former ECB president Jean-Claude Trichet (and one of the original architects of the treaties that created the eurozone), opened up this can of worms by allowing the ECB to buy bonds in the secondary market.
Since the ECB could act as the end party immediately buying bonds from the original buyer, there is in practice virtually no difference between buying bonds in the primary and secondary markets.
Here is the loophole Trichet exploited:
Article 123 (ex Article 101 TEC)
1. ... Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
Clearly, that could not possibly be what the treaty intended. When discussing the intent of the treaty, the ECB is already in violation. Now Draghi has gone a step further.
"Blankfeind" continues ...
Germany demanded the inclusion of Articles 123 and 125 of the Treaty on the Functioning of the European Union with the clear intent of protecting itself and its citizens from responsibility for the fiscal failings of other member states. Hence, OMT violates the intent of the applicable laws.
Conclusion:"Blankfeind" is certainly correct. And I point out the obvious creep in unconstitutional acts. Trichet capitalized on one misplaced word and debate over the intent of "directly" giving Draghi a bit of cover to even more blatantly break the law.
The OMT program is in violation of both the letter and the intent of Article 21 of Statute of the European System of Central Banks and of the European Central Bank and of Article 123 of the Treaty on the Functioning of the European Union (TFEU).
Why Bond Buying Undermines Democracy
In a direct criticism of "Draghi Almighty" Der Spiegel explains Why ECB Bond-Buying Plans Undermine Democracy
Anyone who breaks a law can hardly excuse his actions by claiming that he is acting within the scope of the law. In any case, it won't help him much -- unless his name is Mario Draghi and he is the president of the European Central Bank (ECB).This Wednesday, Germany's Federal Constitutional Court is expected to decide whether the European Stability Mechanism (ESM), the permanent successor to the current rescue fund, is compatible with the German constitution. It is seen as likely that the judges will put a ceiling on Germany's liability. But in view of the latest ECB decision, such limits are already useless before they have even been enacted. The ECB apparently stands above the Bundestag and above the Federal Constitutional Court.
Draghi wants more, though; he wants to save the European common currency at all costs. The euro, he says, is "irreversible."
So far, the ECB has already spent over €200 billion ($256 billion) buying sovereign bonds from crisis-stricken euro-zone countries. If the exception now becomes the rule, additional bonds worth hundreds of billions could quickly follow. German taxpayers are also ultimately liable for this amount -- without the German parliament, the Bundestag, having a say.
Double Game
And what is the German government doing? It's playing a double game. It supports both the ECB president as well as his main critic, Weidmann. Merkel is secretly pleased with Draghi's initiative because the chancellor would probably not be able to gain majority support in the Bundestag for additional euro rescue programs. That's why she is among those saying that the ECB is acting within the scope of its mandate.
If she said anything else, she would have to take action. She could, for example, file a suit with the European Court of Justice in Luxembourg in a bid to have the ECB decision nullified. The Bundestag could also pass a resolution calling for such a lawsuit -- and thus force Merkel to put her cards on the table.
But if there are no plaintiffs, no judges will intervene. In such a situation, Mario Draghi is the most powerful man in Europe, undeterred by courts or parliaments.
The euro may be irreversible, but apparently democracy is not.That is exceptionally harsh criticism of both the OMT and of chancellor Merkel from a magazine that is generally quite pro-euro.
Is Draghi Above The Law?
The answer to that question is obvious. He thinks and acts like he is. This should not be surprising. It is one of the direct corollaries of the Fed Uncertainty Principle, which I wrote on April, 3, 2008, long before the Fed started its big power grab.
What I said about the Fed applies equally to the ECB and central bankers in general. Here are key excerpts.
Fed Uncertainty Principle: The fed, by its very existence, has completely distorted the market via self reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed's actions. There would not be a Fed in a free market, and by implication there would not be observer/participant feedback loops either.
Corollary Number One:
The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn't know (much more than it wants to admit), particularly in times of economic stress.
Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.and.....
Corollary Number Three:
Don't expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.
Corollary Number Four:
The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it's easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.
ITALY TO BAN CASH TRANSACTIONS OVER €50 IN 2013!
SEPTEMBER 10, 2012 BY 4 COMMENTS
http://www.zerohedge.com/contributed/2012-09-09/sub-zero-and-decoupling
On Sub-Zero and Decoupling
On the IOER and Hilsenrath
Bernanke has to do something this week. Most pundits are suggesting it will be more LSAPs (QE). I have trouble with this scenario. To be of any benefit, a new QE would have to be for $600Bn. If QE3 were to be only a paltry $200Bn, it would be received very poorly. I don't see Ben shooting off a pop-gun this week. He would be better off doing nothing, than something that will fall flat. I think he knows that.
There is also the issue that there is no justification for more QE right now. We are not in an emergency, stocks are at four year highs and there really are negatives to a policy of perpetual ZIRP. Also, a big splashy QE would be perceived as being very Pro-Obama. Taking sides in a national election is not something the Fed really wants to do. Republicans tend to have very long memories.
Extending the ZIRP language for another few years is idiotic. It is a promise that can't and won't be met. It also has zero value to the current economy. Extending the language is a ho-hummer that will accomplish nothing other than to demonstrate that the Fed is out of arrows.
That gets us to changes in the overnight deposit rate (IOER). Currently at a 1/4%, it could be cut in half to 1/8. This seemingly insignificant change would actually have profound effects. I wrote about this recently (Link), but much more importantly, so did Jon Hilsenrath of the Wall Street Journal. His thoughts from Friday night on the IOER (Link):
Another possibility, which is more controversial internally and might not happen, is a small reduction in the 0.25% interest rate that the Fed pays banks for reserves held at the central bank.
If you believe (as I do) that Jon's words are scripted by Bernanke, you could read through this sentence and conclude:
A) Ben has told Jon that a cut in the IOER will be discussed and voted on next week.
B) The words "small reduction" is new to me in this context. The discussions to date have been that the IOER might be cut to "0", rather than something in the middle.
C) There is opposition to this step from at least two voting members. While Bernanke has the votes to do as he pleases, he wants there to be a consensus of opinion that includes only one dissenter. (This about the "Optics")
D) Ben is pushing for this. He wants to prove he has more arrows. He does not want to confront Republicans with a major QE at this time. But he has to do "something", the IOER might be it.
E) The words, "might not happen", could also be read as "might happen". A cut in the IOER is (at least) 50-50 if you read through Jon's words.
Three and six month T-Bills are now .10 and .13 respectively. Post an 1/8th cut in the IOER they would be -.03bp and 0.00bp. Does that matter? I think it would be a very big deal indeed.
.
and.....
http://uk.reuters.com/article/2012/09/09/us-eurozone-germany-court-idUKBRE8880B820120909
(Reuters) - A lawmaker from Angela Merkel's conservatives has lodged a new complaint with Germany's top court over euro zone bailouts, but legal experts and MPs say this is unlikely to prevent the court from making a key ruling on the bloc's rescue fund this week.
Germany's constitutional court holds the fate of the euro in its hands when it rules on Wednesday whether the European Stability Mechanism (ESM) can go ahead, after already holding it up for several months.
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Any postponement of the ruling could unsettle bond markets and exacerbate the three-year-old debt and financial crisis gripping the 17-nation European currency bloc.
Lawmaker Peter Gauweiler said in a statement on Sunday the fund should not be ratified unless the ECB rowed back on its plans to make unlimited purchases of sovereign bonds, since that he said, posed a major risk to Germany's own national budget.
"The ESM - as long as it is constitutional at all - should only be able to enter into power when the ECB has taken back its self authorization to become a hyper rescue fund," said Gauweiler, one of the critics who filed a complaint with the court against the ESM.
"This possibly calls into question the plans for the announcement of the ruling on the ESM this coming Wednesday."
The ECB has made its plans for potentially unlimited purchases of sovereign bonds contingent on the activation of the ESM, legal experts said. As such, Germany's top court could be considered to be indirectly giving the go-ahead to the central bank's plan if it ruled in favor of the ESM.
Gauweiler argues that the bank's plans raise the risks to Germany's own budget uncontrollably and override its parliament's budgetary sovereignty. The overall risks to its budget from euro rescue measures were therefore becoming "completely incalculable and therefore also irresponsible".
ECB policymaker Joerg Asmussen later on Sunday said the fact all 17 euro zone states must agree on aid packages for countries whose bonds the ECB will buy provides political legitimacy for the central bank's plan.
Moreover, the bank deems the plan necessary to maintain price stability, given disturbances in the markets, and must act independently of politics - a principle Germany has traditionally championed, Asmussen told television channel ZDF.
Markus Kotzur, law professor at Hamburg University, said the German court could not determine what was within the ECB's remit as this was a matter for the European Court of Justice. But it may have to take the ECB's plans into account in its verdict.
"The court would have to think very seriously about delaying its decision on the ESM because delaying it to the start of September had already been seen as critical, people said there was an urgency to act and without the ESM the euro zone might collapse," Kotzur said.
"But the court is probably not completely surprised by this complaint and already has included these considerations in its ruling," he added.
Michael Stuebgen, speaker on European policy for Merkel's conservatives, said the ECB's announcement of its plans last Thursday did not herald a new crisis measure to be contested afresh as, "even to date there had been no real limit on the purchases of sovereign bonds".
BAILOUT UNEASE
Unease with Europe's strategy on dealing with its debt crisis is growing in Germany, Europe's paymaster.
Gauweiler is a member of the Christian Social Union (CSU), Bavarian sister party to Merkel's Christian Democrats (CDU), which in particular has been ratcheting up its tough line on the euro zone crisis ahead of a state election next year.
When the ECB unveiled its plans last Thursday for potentially unlimited purchases of bonds, a small but vocal eurosceptic minority of Merkel's MPs accused it of writing a "blank cheque" to indebted euro zone states, and some threatened legal action to stop the purchases.
The head of the German central bank, one of the country's most respected institutions, was the sole dissenting voice in the ECB's decision. Legal expert Gunnar Beck believes that lent authority to a broader opposition to the plan.
"If the Bundesbank president hadn't spoken out so fiercely I don't think the German public would be as incensed with the ECB as recent polls suggest it is," said Beck, a legal expert at the University of London. "And Gauweiler has further highlighted the issue with his complaint."
Germany's top court cannot simply ignore objections to the ECB's plans, if it wants to be taken seriously, Beck added.
"I do think people are waking up. Now, that doesn't mean the constitutional court will, but it does influence it," he said.
Hundreds of protestors brandished placards with the words "Merkel, who should pay for this?" and "Stop EU inflation and debt union" marched up to the constitutional court in Karlsruhe on Saturday, urging it to reject the ESM. [ID:nL6E8K815F]
Legal experts polled by Reuters unanimously expect the court to approve the ESM and budget rules in its ruling on September 12., but they also believe it will impose tough conditions limiting Berlin's flexibility on future rescues.
German Finance Minister Wolfgang Schaeuble was quoted by weekly Bild am Sonntag as saying he was not worried the court might rule against the ESM.
"We were very careful in the creation of the ESM to make sure it did not breach the constitution," he said.
"And one should not forget that the constitutional court has never so far ruled that the course of European integration is against the constitution."
and Mish covers the same ground on pondering Draghi's bong buying splurge before the German Constitutional Court decision.....
Monday, September 10, 2012 3:33 AM
German Constitutional Court Approval of ESM Not a Done Deal; Draghi's Fatal Mistake?
One puzzling aspect of ECB president Mario' Draghi's Outright Monetary Transactions (OMT) plan to save the eurozone is his doing so before the German constitutional court had approved the ESM.
In spite of Draghi's emphasis on conditionality, OMT puts Germany directly at risk in an unlimited way. This modification to the ESM makes the constitutional case against it is much stronger.
I am not the only one who feels that way. Even the pro-bailout Eurointelligence site sees it that way.
Here are some snips from the Eurointelligence Daily Briefing report A new legal case against ESM – that links Draghi’s OMT to the current case
In spite of Draghi's emphasis on conditionality, OMT puts Germany directly at risk in an unlimited way. This modification to the ESM makes the constitutional case against it is much stronger.
I am not the only one who feels that way. Even the pro-bailout Eurointelligence site sees it that way.
Here are some snips from the Eurointelligence Daily Briefing report A new legal case against ESM – that links Draghi’s OMT to the current case
This is the week in the which the German constitutional court will announce the most important ruling in its history. Herbert Prantl reports in Suddeutsche Zeitung on a new anti-euro case this morning that links last week’s decision by the ECB to start Outright Monetary Transactions (OMT) to the current ESM case. The case was brought by Peter Gauweiler, a well-known Eurosceptic member of the Bundestag from the Bavarian CSU, and a serial litigator. Gauweiler argues that the OMT had fundamentally altered the ESM, and that the decision on the ESM should therefore be postponed (meaning a delay in the ratification by Germany). He also makes the legal points that the OMT decision did not constitute a breach of competence, but a permanent assumption of competences. When the Bundestag voted on the ESM, it did so under different circumstances. With the OMT, the Bundestag’s authority is permanently circumvented.
Spiegel Online reports on the increased nervousness in Berlin ahead of the court’s ruling. It says the government really has no Plan B in the event of a No vote, and remarks that the court is likely to take Gauweiler’s case very seriously, plus the fact that 37,000 citizens have joined the case (in a kind of class-action constitutional lawsuit). It also quotes views among top coalition MPs who have expressed misgivings about the ECB’s decision.Draghi's Fatal Mistake?
(Gauweiler’s motives are transparent, but the legal argument is quite strong in our view. The entire euro rescue effort is legally tenuous, and hard to square with what we already know about the German constitutional court’s interpretation of the Treaties, and its views on the scope and limits of financial crisis management. We know out of experience that it is always wrong to second-guess this fiercely independent court. The only thing we do know, in contrast to many financial market participants, is that the court will not take into account the financial market reaction of its decision.)
I certainly do not agree with Draghi, but the man clearly is not a dunce. Was there a strong reason to announce OMT, altering the ESM, before it was approved?
Certainly, yields went into the stratosphere a few weeks ago. Yet, mere talk of rate caps and unlimited bond buying had yields collapsing last week.
Did Draghi feel he could not wait another week? Did see a need to strike first, fearing the court may otherwise have laid down guidelines against his OMT?
Perhaps Draghi wanted to bring this all to a head right here right now, the sooner the better, even if it meant the court might rule on the need for a referendum.
From that aspect, (and from the point of view of the pro-bailout crowd) the sooner Germany has a referendum, the more likely it would pass.
A year ago I think a referendum would have passed with flying colors. Now 54% of Germans Want the Constitutional Court to Kill the ESM.
With each passing day, more Germans are upset at the economy and the bailouts on top of it (see Germany Trifecta: Steep Drop in Construction New Business, Services New Business, Manufacturing New Business) and an increasingly large group want Germany out of the eurozone completely.
Perhaps we should not overthink this.
Occam's Razor suggests Draghi simply made a mistake in failing to see the bitter response from Germany and the potential implications down the road.
I had been thinking the court would easily approve the ESM, but with reservations. However, the OMT changed the odds quite a bit. Regardless, we are going to find out one way or another in two days.
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