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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
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.
(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.)
Draghi's Fatal Mistake?
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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