46 thoughts on “Introductory statement by the ECB in the proceedings before the Federal Constitutional Court”

  1. Can Irish Oireachtas Committees and Courts get the same attention and responsiveness from the ECB?

  2. The crux of the matter;

    “Fifth, we announced that our OMT interventions would be ex ante “unlimited”. We have no doubt that this strong signal was required in order to convince market participants of our seriousness and decisiveness in pursuing the objective of price stability. At the same time, however, the design of OMTs makes it clear to everyone that the programme is effectively limited, for one by the restriction to the shorter part of the yield curve and the resulting limited pool of bonds which may actually be purchased.”

    The markets will draw the necessary conclusion i.e. do not take on the bank.

    On the political front, it seems that a truce has been agreed even before battle is joined. Schaueble has expressed the concern of the federal government and has questioned – for the first time, to my knowledge – the competence of the Constitutional Court in the matter, making the perfectly obvious point that if one supreme court can involve itself, so can 26 (soon to be 27) others. The president of the Court has replied in terms that suggest that it is finally aware of the thin ice on which it is walking.

    As far as public opinion is concerned, however, the damage is already done, some 48% of the German electorate expressing the hope that the court will abolish OMT, a power which it never had in the first place.

    Leaving the political field vacant ends up handing it over to various actors that have no political mandate. A further obfuscatory judgement may be expected after the elections.

  3. Twice already the German government have launched preemptive strikes on their judiciary and now this, a third strike. The judges have looked exceedingly weak in each of these court cases. However, more than 35,000 Germans filed complaints against the ECB’s OMT programme calling it back-door financing of governments. Let’s not forget that Merkel has her election and this ordering, heckling and barracking of the supreme court is not going to go down well at all.

    Contrast the 35,000 Germans who filed complaints with the complete lack of any citizen involvement here, in filing complaints against our governments bailout of banks with tax payer money and government giving blanket guarantees valued at 440bn multiples of our GDP.

  4. Robert,

    “preemptive strikes on their judiciary”. Did I miss something? Do you have some kind of reference / link?

    What DOCM didnt cite in the Asmussen statement , is the strict conditionality, what I find important.

    Before any, especially at the start, limited money flows, the countries would have to accept recovery plans, and they do not have any kind of debt budget or rate limit guaranteed.

    On the other hand, speculators like Soros, also can not calculate how much money they would have to gang up, to bet against any member state.

    How much did he need to bet against the Bank of England and its currency reserves? 20 b? 30b? Setting up any reasonable limit, would enable them to plan against it. Their tactical advantage.

    To your situation in Ireland, as far as I know it, many of the decisions were not that clever, but stupidity is not illegal, normally you can only vote governments down.

  5. @DOCM
    Don’t take on the bank!
    Pretty ironic on the day that the Constitutional court sat to consider the legality of OMT that Portugese 10yr hit 6.51%… Dangerously close to the 7% considered unsustainable.
    It seems the “markets” have regained their moxy.

  6. @ francis

    You may have missed a particular subtlety in the statement by Asmussen.

    “Another important point in this regard is that an EFSF/ESM programme is a necessary – but not a sufficient – condition for OMTs. There is no automatic follow-on. The Governing Council of the ECB will decide independently in each individual case, looking exclusively at the necessity of OMTs from a monetary policy perspective.”

    Like any properly functioning central bank, the ECB is not going to make itself dependent on actions by any particular government or tie its hands in a manner that present markets with a sure thing to make profits; its raison d’etre is to keep investors – or speculators, if you like – guessing.

    They are the only audience that really matters at this juncture.

    http://www.ft.com/intl/cms/s/0/f9db7ec4-d2bc-11e2-aac2-00144feab7de.html#axzz2VwEcGk32

    Stupidity, as you say, is not a crime. Nobody, other than a properly constituted court, can establish criminality. It is for this reason that use of the word outside this context is invariably misplaced.

  7. @ Flj

    And the German Constitutional Court is about to lose its!

    A public hearing, the holding of which was its discretion, in the middle of both an economic crisis and a federal election campaign!

  8. The legal jurisdiction of Karlsruhe Court is fundamentally prescribed by law to include (only) German institutions. ECB is not a German institution….

    Therefore it has no legal jurisdiction – under Lisbon Treaty – on ECB and its Governing Council and its rules of procedure, Bundesbank and its President Weidman notwithstanding.

    The institution in question is ECJ which will most likely *hang* Karlsruhe for its decision on OMT – ie. if it dares!

    Expect the German Court to refer the OMT case to ECJ…

  9. This German court case is a load of tosh – Europe falls apart quickly or Europe falls apart a little less quickly.

    The real news tonight is in Greece.

  10. @ Eureka

    Instead of the personal insolvency they should be concentrating on State insolvency. They keep talking bull about NAMA, Pillar Banks, Eglington Road agreements and saving 333 million. It’s a joke. The reality of trading while insolvent is staring them in the face. I’m waiting patiently for all the state apparatchiks especially the ones employed in distortion and subterfuge to get their comeuppance.

  11. @ Robert,

    thanks for the link, I enjoyed it. I think I know you said about them “8 a-holes” : – ) But it should also be noted, that those comments were made 40 years ago. At that time FJ Strauß also called that guy “rats and bluebottles”

    The BVG might tend to some overreach, I am not happy with how detailed they go into financial decisions,

    but, especially if I compare that to the SCOTUS, I do not find, that it is significantly different.

    @ DOCM

    I just said, I am not aware of any situation in Ireland, where a citizen could have sued your Government in the Constitutional court.

    But, also at hari,

    If the BVG would decide anything drastic, then Schäuble would obey, in the ESM governing council, or we would throw him into prison.

    And the OMT is strict conditional with blocking veto for 3 member states. That could shut it down.

    And they do not like the present ECJ

    interesting link: http://www.faz.net/aktuell/wirtschaft/rettungspolitik-vor-verfassungsgericht-schaeuble-an-die-kandare-12218433.html

    Dorothy, I am all ear for you !

  12. grrr,

    “you said” should be “who said”

    and it was Wehner, whose birth house is 1.5 km from here.
    Former communist, survivor of the Stalin purges, and record holder (75 calls to order in the Bundestag : – )

  13. @ francis

    Numerous citizens have challenged actions of our government before the Irish supreme court and there is a series of judgements in relation to EU matters and how they impact on the Irish constitution named after them.

    If it is any consolation, the Irish supreme court has made as big a hash of the matter as its German opposite number. The distinction is that, when a conflict with EU law emerges, we change the constitution, the German court appears to be trying to achieve the opposite.

    It is not a matter of liking or disliking the judgements of a court but whether one accepts its jurisdiction. The German consitutional court, as the article you linked to explains, refuses to do so. It is most unlikely, for this reason, to refer the case to the ECJ as lower courts in Germany routinely do.

    The OMT is decided by the board of the ECB where decisions can be taken by simple majority although there is routinely a situation, it seems, of “near unanimity” i.e. minus Weidmann.

  14. @ francis

    A very succinct and accurate Q & A in the FT.

    http://www.ft.com/intl/cms/s/0/5611867c-d1da-11e2-b17e-00144feab7de.html#axzz2VzCZpY00

    As matters stand, the German taxpayer is making money, not losing it. And the net impact of this public hearing is to drive spreads up and rates down in Germany, further eroding the earnings margin for German savers, as Asmussen pointed out.

    The popular narrative in Germany is as distorted as it is elsewhere. Politicians across Europe carry a heavy responsibility for playing to national audiences and failing to address the bigger picture. They are now being forced by events to do so.

  15. @DOCM
    Not so sure that the German taxpayer will make money. Even Asmussen has admitted that they could lose money on any restructuring. With the inevitable Greek restructuring looming and the possibility of Portugal and ourselves needing same..I wouldn’t be counting the chickens.
    Btw, I looks like some intervention today (ECB?) Portugal down 17 and Irish down 11 basis points.

  16. while waiting for Dorothy,

    maybe DOCM points out a very few cases, where Irish private people have challenged financial / treaty decisions of the government? even with links?

  17. @francis not my area,but irish people are polite normally,if you ask them enough times they say yes…..just a bit of fun,few hour difference anything this morning/today ?

    “It passed. Finally. Yet on the day after the Irish “yes” to the Lisbon Treaty, the predominant feeling on the streets of Dublin was one of relief that the referendum was finally over. “Thank God they will all shut up now,” said pensioner Margaret Crossley. “I can’t listen to them anymore.” Claire Grannon, a 28-year-old jewellery designer, agreed. “Finally they will take down these posters,” she said.”
    http://www.spiegel.de/international/europe/voting-on-the-lisbon-treaty-ireland-overturns-its-no-to-eu-reform-a-653062.html

  18. this english translation is excellent of the leaked letter…the second link is Sinn’s presentation,alas no translation yet-will link it when one turns up.
    h/t open europe.
    http://www.antehoc.com/2013/06/bundesbank-letter-to-german.html
    The Sinn presentation is available and at bottom of this page-will try get it as a web page,Chrome does a very competent translation job.Unless francis/Dorothy has a link to English version or quick summary…anyone ?
    http://www.cesifo-group.de/ifoHome/presse/Pressemitteilungen/Pressemitteilungen-Archiv/2013/Q2/pm-201230612-sinn-ezb-kurs.html

  19. @ francis

    Given the long and winding road covered by the saga of Ireland’s constitutional relationship with the EU, it would be impossible to make an easily understood series of links. The similar roads in both Ireland and Germany are now joined because of the Pringle case. There were also, of course, aspects of the case heard in Ireland apart from the matters referred to the ECJ.

    The original case that started Ireland on the winding road is that named after the plaintiff; Crotty. The Supreme Court had this to say in its recent judgement on the ESM (which also gave rise to the reference to the ECJ).

    ” Principles

    15. (i) An important aspect of the sovereignty of the State is the exercise of the fundamental powers of the state by the organs designated in the Constitution. Under the Constitution the Government has been given the power to exercise the executive functions of state.

    (ii) Foreign policy is an important aspect of executive power and is a function of the Government.

    (iii) It is a routine exercise of executive power for the Government to enter into a treaty, as a matter of foreign policy, for the State.

    (iv) All treaties involve an element of policy. That is the nature of a treaty.

    (v) Thus, the Constitution empowers the Government to exercise executive policy, which includes a decision to enter into a treaty as a matter of policy. However, in Crotty there was a specific aspect of the treaty in issue which took it outside the norm. As was stated in Crotty, the Government may not abdicate its power as the executive organ of the State. If such a decision is required it may be taken only by the people, as the ultimate authority in the State. If a treaty involves a fundamental transformation, such as a ceding of sovereignty, then it would require a mandate of the people.

    (vi) As Hederman J. pointed out, the organs of State, including the Government, cannot enter into an agreement to subordinate its powers to another. The Government may not qualify sovereign power to formulate foreign policy by abdicating such decisions to a foreign institution.

    (vii) In the Crotty case the Court held that Title III of the SEA would bind the State to concede part of its sovereignty in foreign policy by conducting foreign policy in the future, future decisions on foreign policy, without reference to the common good, and that such a step required authorisation by the people through a referendum.”

    The fundamental error in the Crotty judgement to the ordinary observer is the fact that the State did NOT concede part of its sovereignty in foreign policy which was at the time an area of inter-governmental cooperation and has remained so since. This did not, however, prevent the court from applying the principles enunciated in the Crotty judgement. Governments have chosen to consult the people by way of referendum on all EU treaty amendments – and related treaties – since.

    The wording of the Court is, however, rather cryptic but does seem to contradict the reasoning of the majority that decided the issue in the Crotty case. It remains to be seen what future consequences there may be in other judgements of the court.

    The interest from a German point of view is that the Constitutional Court appears to be clearly also infringing on the executive powers of its government.

    In sum; government by lawyers and/or economists is extremely bad news!

    http://www.supremecourt.ie/Judgments.nsf/1b0757edc371032e802572ea0061450e/db079f79be08a50e80257a9c004f4975?OpenDocument

  20. I realized, that what I took yesterday as Dorothy’s opinion, was just her representation of the position of „Die Welt“.

    Thanks John!

    Bringing up the Pringle Case and the Lisbon treaty referenda should help substantially in mutual understanding.

    a) Lisbon Treaty

    The Irish constitution required a referendum, where as for the German constitution a parliament vote was good enough. My guess is, because ours is younger, we had already some Europe friendly provisions in it. Everybody has his own historic peculiarities.

    b) Pringle Case

    I am referring now to the full English text at http://curia.europa.eu/juris/liste.jsf?num=C-370/12
    (the direct English link would be 2 lines long) to make sure, we are all talking from the exact same original page.

    The main thrust is, are the changes for the additional ESM treaty in EU law a “ Simplified revision“ of EU law, which then does not require an Irish referendum, and this is about interpretation of EU law, which the Irish court correctly referred to the ECJ, which has no jurisdiction about the underlying question, when you need a referendum.

    Noted from my side, with a little smile about the currency policy as task for the EU as a whole : – )

    The text mentions “strict conditionality” 9 or more times, dependent on how you count it.

    But understood, from my side.

    c) The preliminary BVG decision on the ESM in 9/2012

    That is about the same ESM, but about a completely different aspect, namely is this compatible with the German constitution and its budget prerogative, and this is of course a decision only the German BVG can make.

    And the decision was, only with an explicit financial limit, and the parliament, Bundestag deciding on it, explicitly denying the right to make this omnibus without change of the constitution. Schäuble hated it, but I see this as very consistent with German constitutional doctrine, and not frivolous.

    d) The BVG decision which is now at stake is,

    if, only AFTER a strictly conditional ESM decision has been made, the ECB governing council could decide on additional secondary market operations, which are not just miniscule, if they decide, that there is some market distortion, e.g. by attacking speculators. But certainly not for financing any national state.

    To do so without an ESM decision, by simple majority vote, as DOCM suggested, seems to be for me already totally out of question. For Germany after point c), but for Ireland and potentially others after point b).
    It would require for Ireland a referendum, and for Germany a referendum about a change of the constitution.

    That the Bundesbank is independent does certainly not put it above the constitution. For enemies of the constitution we have here some §20.4 GG, which could make things very quickly very dicey.

  21. @ francis

    I rest with my view about involving lawyers and economists in what are essentially political decisions or, as they are often referred to, the “political economy aspects”of what is blithely and mistakenly assumed to be solely a legal/economic problem.

    Mickey Mouse has now made his entrance in the discussion at the Constitutional Court.

    http://www.focus.de/finanzen/news/staatsverschuldung/tid-31766/ezb-anhoerung-in-karlsruhe-im-live-ticker-vosskuhle-ezb-verluste-kein-mickey-mouse-problem_aid_1010383.html

    This is not serious politics!

    It could, however, have very serious results. Luckily, the real world seems to be treating it with the seriousness it deserves.

  22. Hope the German Constitutional Court notices the sleight of hand in the ECB statement. That the ECB will only buy at the short end of the curve places no real limit on its exposure. A sovereign in trouble will only be issuing at the short end of the curve anyway, whether replacing existing issues (with much longer average maturity) as they mature, or issuing new debt. That the ECB will not OMT longer maturity junk makes no difference to what it will have to spend to prop up a sovereign’s illusion of creditworthiness.

  23. @ DOCM and BeeCeeTee,

    I think it should be clear by now, that the no-bail, no inflation treaty will not be broken, and that any ESM program will restore real creditworthiness of the debtor countries, by guaranteeing, that the taxpayers from the creditor countries will not loose one cent with them.

    That a renting german public employee pays one cent for an significantly higher paid Irish public employee to help with his mortgage, is just completely absurd.

    Solidarity water does not flow up the hill.

  24. @ francis

    Your logic would be impeccable if the EU was a citizen’s commune. But it isn’t. Germans may choose to rent property and Irish to buy it but that is neither here nor there. They are respectively organised as nation states where the “choices of society” are made at national level. But these states have also agreed to share a common currency which involves a treaty-based collective responsibility. The interpretation of this legal responsibility is what is at issue. That and the refusal of the German Constitutional Court to fall in line with all the others – including the French – and accept that the responsibility for guaranteeing the respect of EU law lies with the ECJ.

  25. good summary and links-francis rather amusing paper via new york fed on mortgages,was a WSJ ed today about it…off tread again:)
    Sorry about the confusion over DJ-but the heading was clear enough…what it says in the german papers !
    http://www.spiegel.de/wirtschaft/soziales/sinn-bewertet-vor-verfassungsgericht-anleihenkaeufe-a-905142.html
    The irish govt. can just utilise eminent domain…….easy quick fix !
    http://www.newyorkfed.org/newsevents/news/research/2013/rp130610.html

  26. @Francis,
    OMT, ESM etc. have given the solvency of creditor countries a Schroedinger’s Cat-like quality. It’s hidden away inside a box, and its state is probabilistic rather than observable.

    My personal take on the probabilities is that it’s going to cost the German taxpayer big, and that the greater delay before the state vector is allowed to collapse the bigger the cost will be. Then again, it might not.

  27. John,

    That wsj about the MRP weirdo with a free lunch, for his company, that is really funny.

    Beyond that, it sounds like Ireland will need Eminent Domain, before any serious “asset quality review” of its Zombie banks can be made, which comes of course before any further progress with banking union. How many delinquent occupants to be cleared out by the Army?

    I remember some SCOTUS Eminent Domain decision, 2001 ?? Conneticut, with which I grappled, and found somewhat outrageous, because it was for a private “development” purpose.
    With 2005 “Kelo v. City of New London” that has obviously gone further, with some 2012 congress followup. It seems that my understanding of the US Constitution is not so bad : – )

    I was one of those weird folks reading the founding fathers “Federalist papers” in my first summer, on my porch.

    I learned that we do that similar in Germany “Zwangsenteignungen”. This should be done only in cases of a significant public good, and not for a new shopping center, like above. And we have to do more of that to clear space against future floods. The Greenies will get hit with overriding nature protection laws.

    And it reminded me of my father, who had to do 2 or 3 cases of surveying for “Flurbereignigung” at gunpoint.

    It reminds me also of one case in the flood here. Some farmer with 600 cows complaining about deteriorated milk quality after some risky rescue. Hmmm, …. Huugh?. Until the local Landrat (~mayor) made it clear, that the guy had ignored prior evacuation orders, endangered his cows and the people rescuing them, and that he will not get a payout, but his property seized, a lawsuit, and possible a jail term.

    Why do I tell this here? Because that is a central insight for me in the last 3 years, that in like 95% of the cases, those who cry the loudest for solidarity, are those who deserve it the least, are even often downright criminal.

    Real solidarity and justice means looking out for those, who are really suffering, and that happens very, very often silently and invisible.

    John, I really enjoy the correspondence with you, many good links, which network my thoughts.

    I smiled yesterday a little bit, when Mickey Hickey called German banking a blood sport. Getting layed off, relieved from a board or a minister job is not bloody at all.

    Being subject to the application of Art 20.4, that could be very bloody : – )

  28. Hi francis,always enjoy the exchange.
    I think it’s know on Irl as CPO,or compulsory purchase order,yes the WSJ editorial was a little rough.
    Will try track down Sinn’s submission in English,I always enjoy reading/reviewing his side of any argument.
    Did not check today but last few days Ireland’s gilts/bonds were moving out fast-interesting implications for exiting
    Regards off to my usual perch 🙂

  29. fyi

    Debt crisis:
    ECB hauled before Karlsruhe court
    12 June 2013 Frankfurter Allgemeine Zeitung Frankfurt

    Starting on June 11, the German Constitutional Court will examine whether the European Central Bank exceeded its powers by creating the European Stability Mechanism (ESM). Once again the eurozone is waiting with bated breath for another decision in Karlsruhe.

    http://www.presseurop.eu/en/content/article/3873851-ecb-hauled-karlsruhe-court

    p.s. personlly, I’m becoming more than a mite p1ssed off with the shenanigans of the german constitutional court … I didn’t vote for them ..

  30. fyi Der Spiegel

    Crisis Course: High Court Skeptical of ECB Bond Buys
    By Stefan Kaiser in Karlsruhe, Germany

    After an hour of intense questioning, a slight grin breaks out on Jörg Asmussen’s face. The justices have been peppering him with questions and Asmussen, a member of the executive board of the European Central Bank, can no longer resist a brief smirk. “Mr. Asmussen, you can still smile,” says Andreas Vosskuhle, president of Germany’s Constitutional Court. “That comes as a great relief to us.”

    http://www.spiegel.de/international/europe/german-high-court-skeptical-of-ecb-bond-buying-a-905246.html#ref=nl-international

  31. shay,

    could yould do 2 more of your volume analysis here ?
    including the 20 most contributors here.
    and like 1st quarter of 2013 and 2nd
    and to whatever you have on your mind

    I think that could be pretty interesting

  32. Well, whatever you cut it: The conversation is like a one at a funeral : everyone is talking about the dead : but what they are really thinking about : is the ham and cheese sandwiches in the next room.

  33. Well, the Smaghi thing was a very useful reminder of what happened in 2011.

    The Greek government simply not doing what it promised at the initial bail out. Which then let to the demise of Papandreou, who was invited after that by the German Green party to their tax raising party convent.

    The Italian Berlusconi Regime was simply doing nothing, while they run their country to insolvency, openly trying to force the crime of breaking the no bail out treaty. With Smaghi in the Executive Board of the ECB and refusing to make place for Draghi, until December 2011, when it became clear that Berlusconi had lost his gamble.

    Well, descendants of German peasants and butchers are left first speechless by some much chuzpe of a “descendant of several old Tuscan noble houses”. But at some point the criminality goes beyond reasonable doubt. And the aggressive stupidity, to believe that they could get away with it.

    When they made the sequester deal in the US, I wondered, whether that was all the time planned to make it this way, cut the deficit in a radical way without anybody loosing face.

    I wonder also, whether we are now in a kind of evidence collecting phase, where everybody gets plenty of opportunity to more violations of Euro treaties. Which will then serve as urgent reasons for divorce.

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