102 thoughts on “German court refers ECB bond-buying programme to ECJ”

  1. What Paul Quigley posted some time ago

    http://www.irisheconomy.ie/index.php/2013/03/28/political-asymmetries-and-emu/#comment-404561

    “‘The dominant retain their position by constantly changing their stance’. This leads to all sorts of real world contradictions, so the debate has to be structured in such a way as to ensure the ‘nonsensical aspect’ is concealed. This is traditionally achieved by limiting the scope of the debate, the number of ‘legitimate’ contributors, and shutting down alternative debates by force if necessary. ”

    It is such a pantomime.

    And DOCM on the integrity of the law.

  2. Draghi should now throw a ‘wobbler’, this evening.
    Sell every State bond on ECB books, today, regardless of price.
    That should resolve any outstanding legal quibbles.

  3. Referring to the ECJ could be interpreted as a conciliatory move by the German Constitutional Court. They do not feel obliged to follow the ECJ’s interpretation of the treaties however, if they do not find it reasonable.

  4. Strange! When it comes to the debate on ‘Banking Union’ Germany insists on sidelining the ECJ and The Commission with Schauble’s diktat on inter-governmentalism.

    Spose the ~75 Trillion (or more) in the Derivatives Death Star hovering over Frankfurt might have something to do with it. Oh – derivatives are ‘excuded’ from the .. er .. stress tests.

    What was it again that a US assistant sec of state said on EU governance …?

    @otto
    Lots of support around Europe for ‘The Bremen Town Musicians’ these days.

    @DOCM
    .

  5. Have they scuppered our chances of getting back any of the 65b?

    “The German judges warned that the ECB’s mandate “is limited” and that “it is not authorised to pursue its own economic policy”, limits that appear to have been breached by the use of OMT as a measure that would have involved fiscal transfers to struggling eurozone countries.
    “If one assumes – subject to the interpretation by the Court of Justice of the EU – that the OMT decision is to be qualified as an independent act of economic policy, it clearly violates this distribution of powers,” said the court.
    “The OMT can lead to a considerable redistribution between the member states, and can thus gain effects of a system of fiscal redistribution, which is not entailed by the European treaties.”

  6. fiat

    23. francis Says:
    {January 9th, 2014 at 9:03 pm}

    Fiatlux,

    I actually think, if the Bundesverfassungsgericht could just say:

    hmrgh garble murmph

    and let everybody wonder what that is supposed to mean for the next 50 years or so

    it would be the best for everybody involved : – )

    the ruling of today is a slightly different, but equally legal and effective version of it : – )

  7. The press release and the decision of the court.

    http://www.bverfg.de/en/press/bvg14-009en.html

    http://www.bverfg.de/en/decisions/rs20140114_2bvr272813en.html

    As the Telegraph points out, this is the first time that the German constitutional court has referred a point of law to the ECJ. What the court says the ECJ should conclude in relation to the matter is, by definition, a political rather than a legal statement and was, one suspects, required to get a majority for the decision to refer.

    There are two federal supreme courts in Germany, the second being the Bundesgerichtshof which is the final arbiter in matters relating to criminal and private law. This may be an element in explaining the obstinacy with which the constitutional court has defended what it has mistakenly considered its turf vis-a-vis the ECJ.

    The issue is effectively now referred to the correct legal forum and taken out of the immediate limelight.

    There must be growing political pressure to tie up the loose threads on the other issues – notably the judgement by the court on the ESM and conclusion of banking union legislation with the European Parliament – before the parliament (and the commissioners – including Rehn – who are taking leave of absence to stand in the elections) folds its tent and goes into full campaigning mode.

  8. just to throw some cold water on some folks here,

    let me cite:

    3. The existence of an ultra vires act as understood above creates an
    obligation of German authorities to refrain from implementing it and a
    duty to challenge it. These duties can be enforced before the
    Constitutional Court at least insofar as they refer to constitutional
    organs.

    b) A violation of these duties violates individual rights of the voters
    that can be asserted with a constitutional complaint.

    4. Subject to the interpretation by the Court of Justice of the European
    Union, the Federal Constitutional Court considers the OMT Decision
    incompatible with primary law;

    a) The OMT Decision does not appear to be covered by the mandate of the
    European Central Bank.

  9. @Prudent Hans (aka francis)

    ‘Law’ is a social ‘construction’. [Between Facts and Norms, J. Habermas]

    As a German, surely you might understand this ‘fact’.

  10. Courtesy of Frank Galton posting on the other thread.

    Question: Just a year ago, the Irish Government engaged in an arrangement whereby promissory notes that were used to recapitalise financial institutions were replaced by long-term bonds. At the time, the ECB took note of this but said it would have to review it to see if it was in compliance with monetary financing rules. Two questions. Number one: have you, or when will you discuss this? And number two: what kind of demands could you make from the Irish central bank if it’s found that this arrangement was indeed in breach of Article 123?

    Draghi: Well, the second question I’ll answer immediately. We will see. We don’t know it in advance, we’ll have to see what we find out. And, concerning your first question, we are collecting all the necessary information and the assessment of the Governing Council will be known in due course, after the completion of this monitoring exercise.

    http://www.ecb.europa.eu/press/pressconf/2014/html/is140206.en.html

    An exchange as curious as the extract from the judgement of the German court quoted above.

    There are two fundamental requirements impacting a country’s membership of the EU (i) that it be a functioning democracy (especially in relation to respect for fundamental rights) and (ii) that it respect the provisions of the EU treaties wherein it is stipulated that the ECJ is the arbiter of what may constitute a breach of them, whether by a country, institution or other party.

  11. @Grumpy

    OMT…what does this thing do?
    What’s truly amazing is that the markets collectively fell for the three card trick.

  12. OMT is merely a stop=gap due to the flawed institutional architecture of the EZ.

    Peter Bofinger would like to go much further – as would I!

    Why We Need Basket Eurobonds
    04/02/2014 by Peter Bofinger

    The Euro area is suffering from insufficient macroeconomic stabilisation

    At the end of 2009 the unemployment rates of the Euro area and the United States had reached a level of 10%. Since then, unemployment in the US has fallen to 7.3% while in the Euro area it has climbed to 12.0%. This is not surprising as the real GDP in the United States is now 9.0% above the level of 2009, but in the Euro area it has increased by only 2.4%.

    […] Different approaches can also be identified in the field of monetary policy. Almost immediately after the Lehman collapse, the FED reduced interest rates to the zero lower bound. The ECB followed a much more cautious approach. After Lehman, the ECB did not go below 1% with its own interest rate – instead it raised it again in two steps to 1.50% in July 2011. It took almost two more years before the Eurozone rate was reduced to 0.50%. The more active approach of the FED is also reflected in its quantitative easing policy. Since Draghi’s strong statement on 26 July 2012, the ECB’s bond holdings have declined from 602 billion Euros to 600 billion Euros. At the same time the FED has increased its bond portfolio from 2,472 billion Dollars to 2,844 billion Dollars.

    With this in mind, the weakness of the Euro area economy cannot only be explained through structural problems. Rather, it has more to do with an insufficient macroeconomic response to a severe macroeconomic crisis. ‘

    Read on: [IMHO EuroBonds are inevitable if The European Project is to be saved]

    http://www.social-europe.eu/2014/02/basket-eurobonds/

  13. Auf der Heide blüht ein kleines Blümelein
    Und das heißt: Deflation
    Heiß von Millionen von jungen Arbeitloser bei den PIIGS
    Wird umschwärmt Deflation.
    Denn ihr Herz ist voller Sinnloskeit,
    Zarter Duft entströmt dem Bundesbank
    Auf der Heide blüht ein kleines Blümelein
    Und das heißt: Deflation

  14. Bofinger concludes:

    “… structural reforms can be helpful to improve the competiveness of the Euro area. But without a dynamic macroeconomic environment, improvements at the microeconomic level will not materialise. Under the current legal framework, the fiscal space of the Eurozone member states will remain very limited. Therefore, the ECB will remain the only powerful actor at the macro level. Its commitment to OMT has already shown a remarkable impact on financial markets. With the issuance of basket Eurobonds the ECB’s ability to engage in a policy of quantitative easing could be significantly improved. In addition purchases of such bonds could no longer be criticised as a form of implicit government financing.”

    Methinks the ‘hospital pass’ by the GCC to the ECJ is “a bit Irish”.

    http://www.irishtimes.com/culture/heritage/the-full-irish-freud-1.1682484

  15. continuing the ‘a bit Irish’ theme …

    Ireland – The Star Pupil Of The Euro Fiasco
    12/02/2013 by John Weeks

    ‘In case [anyone] missed it, the path to recovery runs along the following road. Austerity forces down wages, lowering production costs. Lower costs result in export competitiveness, and the growth of exports rejuvenates the economy as a whole. The rejuvenated growth reduces the fiscal deficit by raising tax revenue that can be used to pay foreign creditors. If the residents in the PIGS would show the discipline of the Irish, the euro crisis would soon end.

    To describe this sequence as “nonsense” is a compliment. It is vulgar ideology.’

    Quite!

    http://www.social-europe.eu/2013/02/ireland-the-star-pupil-of-the-euro-fiasco/

  16. fyi further German press coverage.

    http://www.stern.de/wirtschaft/news/karlsruhe-kritisiert-ezb-krisenpolitik-und-gibt-entscheidung-ab-2088421.html

    It contains this significant content.

    Bundesaußenminister Frank-Walter Steinmeier (SPD) hofft auf eine schnelle Entscheidung des EuGH und betonte: “Ich sage, … dass für uns die Maßnahmen der Europäischen Zentralbank in Übereinstimmung mit dem europäischen Recht stehen.”

    German Foreign Minister Frank-Walter Steinmeier (SPD) is hoping for a quick decision of the ECJ and stressed: “. I say … that are for us the actions of the European Central Bank in accordance with European law”

    Steinmeier has surpassed Merkel as the most popular politician in Germany according to a recent poll.

  17. It is clear that the German court lacks the testicular fortitude to do what it believes is required and rule against OMT for fear of the consequences. Furthermore, it is clear that they are unwilling to admit they have got it wrong. So, the Only thing that a 2nd rate bureaucrat can do in circumstances when they are unwilling to take a decision is to send the file to some body which will. The chances of the ECJ upsetting the apple tart are nil.
    Strike one for the good guys. Europe is moving towards doing what has to be done to boost the economy and save the EZ project. Let the presses roll and make DAVID and me happy. On with the risk on trade,

  18. Text from Blind Biddy at The Opera:

    Sinn Féin deputy leader Mary Lou McDonald has launched a scathing attack on the Government parties, accusing them of failing to stand up for Irish citizens.

    “They put themselves and their friends first.” “Good governments stand up for their citizens at home and abroad. Our Government is on its knees before its leaves Dublin airport,” … She questioned whether the Government “put it up to the Eurocrats in the same way they put it up to the old, the sick and the vulnerable here at home”.

    http://www.irishtimes.com/news/politics/government-s-windy-rhetoric-fools-nobody-mcdonald-1.1684068

  19. @ Tull

    They are doing the right thing but it was only when it got close to the core that they got busy. And Ireland was sloppy etc but it didn’t get a fair deal on that score.
    The ideological purity went out the window the closer they got to the angle grinder. Ireland was shafted during the orthodox phase.

  20. Seafoid,
    That is certainly correct. I look a the portfolio held by the CB & wonder whether that should be termed out to infinity at a fixed coupon of 50bps.

  21. Seafoid,
    I am not sure the downtown office of the BUBA agrees with me though. It is ironic that the CB is just a stones throw from our pervious Imperial power.

  22. @Tull

    How did the war loans work? Was there not some gilt with just a coupon and a perpetual ie maybe never redemption?

  23. According to the Wiki, HMG, issued a 5% perpetual in WWI but cut the coupon to 3.5% in the 1930s. Grumpy would be all over this but I am guessing that was not a great real return for investors over the last 100 years.

  24. John Authers recently wrote about some Austrian shares issued in 1913 that recently returned to the black.

  25. @Tull
    I doubt that the ruling is not as simple or as benign as you suggest.
    Before any ECJ ruling is issued on the matter, the BUBU can simply refuse to take part in any OMT or secondary bond support. BUBU could argue that it is obliged to refrain, as could German financial institutions.
    The question will also arise as to the position of Weidmann on the ECB council as well as the other member Asmussen or replacement. If the own constitutional court has condemned the programs as being ultra vires then logically they should have difficulty remaining on an ECB council that approved and actioned an ultra vires act.

    To use a not politically correct phrase, teh Bundesverfassungsgericht has Pi $$ ed the pitch.

  26. JR,
    The consequence of such an action would be the destruction of Europe within a century of the first time that nation had a go at this task, I think there is a realisation in Germany now that pressing the big red button is not a good idea.

  27. It is the open ended “unlimited” version of OMT that the Germans are afraid of. They could also use this as a perfect excuse to exit the Euro altogether. They will not allow Germans to be exposed to OMT for Italian 2 trillion of debt and that is just for starters. They already were outspoken about Ireland’s PN’s being converted to bonds constituting monetary financing. On that scale, they were prepared to “let the hare sit”. They know there is enormous disease within the European banking system, much of which is correlated to recalcitrant and broke sovereigns, obviously they are worried sick about that. The GCC will do what is best for Germany the ECJ will do what is best for the majority. Never the twain shall meet. The circle may only be squared by a German exit!

  28. http://ftalphaville.ft.com/2014/01/14/1740702/the-albert-edwards-show-with-friends/

    Albert’s up. He’s apologized for his clunky charts and also he’s got a cough.
    Session title: No-one can hear me scream above the roar of the printing press.
    What can he do? Equities are even more expensive than the last show. So what can he do? He can bang the table or simply tell more jokes. But SocGen high ears (and the bloody clients) have told him to do less jokes.

    Just one more joke

    ..As Yogi and BUBU fall from price stability in their dynamic equilibrium contraption

    Yogi Draghi It’s because I’m smarter than the average bear and I’m way smarter than Albert .
    Yogi Draghi I’m so smart that it hurts.
    Yogi Draghi: Hang on BUBU!
    BUBU: What do we do now?
    Yogi Draghi: Did you check the safety manual?
    BUBU: It’s just a picture of us screaming!
    [Both scream and flail their arms]
    Yogi Draghi: We have to deflate, BUBU!
    BUBU: Don’t you mean “Inflate”?
    Yogi Draghi: Inflate is up, deflate is
    [Both fall]
    Yogi Draghi: doooooooown!

  29. Having slept over it, I think it is precisely the right decision.

    While maintaining the right to rule any specific OMT action or rule to be unconstitutional within Germany, they very rightly refrained from drawing up rules by themselves, or in fact ANY rules.

    A US supreme court judges was once asked to give a definition of “porn”. And he answered: “I know it, when I see it”.

    The point is simply, if, as of now, the ECB fails to completely sterilizes the SMP purchases from 2011 by a few billions, this is not the end of the World. If Italy would put out one trillion of 30 year bonds at 2%, and ask the ECB to buy them, that would be a clear violation, which will never happen : – )
    What is a legitimate and legal action of the ECB depends a lot on the circumstances, especially the unforeseen ones. That’s why you do not let your Central bank run by some silly simplistic rules , like the Taylor rule or whatever else.

    The perfect continuation would be, that the ECJ takes a year or so time, and then basically plays it back to the BVG with a kind of “what do you mean?, doesn’t look so bad from our side” : – )

    As long as any speculator knows, that the ECB has a Big Bertha (Draghi’s favourite term) OMT, and countries like Italy know, that they are not getting away with pushing their national deficit on the rest, but would get help in cases of attack, or, what do I know, suddenly some new volcano pops up right smack next to Milan, everything is alright

    Writing too explicit rules for the unforeseen cases is bad practice.

    For popularity of German politicians please also see:
    http://www.forschungsgruppe.de/Umfragen/Politbarometer/Langzeitentwicklung_-_Themen_im_Ueberblick/Politik_II/#Politiker

  30. @ francis

    Two Q & A’s which cover all the bases.

    http://www.ft.com/intl/cms/s/0/bb5d6f9e-8fff-11e3-aee9-00144feab7de.html#axzz2sYMiXwzs

    http://www.tagesschau.de/ausland/bverfg-eugh100.html

    Membership of the EU involves agreement to exercise in common certain sovereign prerogatives. The conditions for that exercise are set out in the treaties and for its judicial review by the ECJ. A national court cannot arrogate to itself the role given to the ECJ. If it could, all 28 constitutional courts in the EU would be empowered to do so.

    The way things stand at present, the BFvG will be in the same indefensible position after the decision by the ECJ irrespective of the outcome of the latter. The only legally defensible action that it can take is in respect of its own constitution i.e. require the German government to take some action or other. What that might be remains to be seen. Maybe the decision in respect of the ESM, to be delivered on 18 March, will give some pointers.

  31. The GCC is in that awkward position where if it successfully operates the patient will die. Germans have the rare ability to step back and assess all the ramifications of a perfectly correct (vollkommen richtig) and legal decision. They decided that what would be legal and perfectly correct for Germany would not be in Germany’s best interest.

    This is a variation on the TBTF issue in the USA.

    If Ireland was capable of such dexterity in 2008 and afterwards we would not have voluntarily put our heads in the cabbage cutter and held them there willingly.

  32. Reuters in its coverage succeeds in bringing into focus the underlying political nature of the issues in dispute.

    http://www.reuters.com/article/2014/02/08/us-germany-court-ecb-precedent-analysis-idUSBREA161I420140208

    This quote from a German legal expert, described as “eurosceptic”, sums up the contradiction at the core of the debate.

    Gunnar Beck, a Eurosceptical German expert on European law at London University, said: “This surrenders German sovereignty to a European Union court.

    “Practically speaking the (EU) Court of Justice is not an independent organization but is pre-disposed to interpret legal questions in the interest of the European Union.”

    What else should it do?

    Germany cannot have its cake and eat it i.e. enjoy the benefits of the single currency and insist at the same time that it be run on lines dictated by it. It is to be hoped that there exists, both in Germany and the other major player, France, a majority between the extremes of the left and the right that recognises this. Little light, but a lot of heat, on the subject may be expected this side of the European elections.

  33. @Tull

    http://www.theguardian.com/politics/2014/feb/08/tories-face-election-defeat-eurosceptics-tim-yeo

    The Conservatives face defeat in the next general election if David Cameron gives in to Eurosceptic “obsessives” and allows policy to be driven by a fear of Ukip, the veteran moderate MP Tim Yeo has said.
    Yeo suggested his support for gay marriage, tackling climate change and staying in the EU were to blame for his deselection as the South Suffolk parliamentary candidate after 30 years in the Commons.
    He told the Telegraph a shrinking grassroots membership was becoming increasingly extreme on a variety of issues, after becoming the second prominent Tory ejected in a week.
    He hit out at “obsessives like the people who organise this letter-writing to the prime minister on negotiation”.
    Some 95 Conservative backbenchers signed a letter drafted by the senior backbencher Bernard Jenkin calling for parliament to be able to block any aspect of European Union legislation.

  34. @Tull

    Consols and War Loan are cautionary tales in bond investment – coupon, term, inflation. Plenty of holders are heirs of the original subscribers and the contrast between their actions and the eve of war bank runs makes them a classic.

    Expedient printing, even in an era of over supply of certain things, has consequenses.

    http://www.bloomberg.com/news/2014-02-06/art-flippers-chase-fresh-stars-as-murillo-s-doodles-soar.html

    Read at least as far as the ‘broomstick’.

  35. Seafoid,
    There are other reasons for Yeo’s sacking. He is 68, rarely visited the constituency, has a string of consultancies as long as your arm & did no constituency work. You still have to do a bit even in Tory heartlands, open fetes, answer letters, get tickets to Westminster etc. There was another Tory sacked in Thirsk for similar reasons.

    Grumpy,
    Thanks for that. Perpetual zero coupons are coming to a EZ near you if required.

  36. @Tull

    Fair enough but there is a bit of tea party stuff going on as well.
    the Tory wets are all being sidelined. not unlike the GOP moderates over in the States

    Cameron has tough job. Is he strong enough to keep europe from destroying the 2015 attempt ? Europe is toxic for the Tories

    http://www.youtube.com/watch?v=zuuObGsB0No

    I agree with you that the Tories would be better than Farage but it is really tricky.

  37. “Germany cannot have its cake and eat it i.e. enjoy the benefits of the single currency and insist at the same time that it be run on lines dictated by it. ”

    Why not? That’s the way powerful states usually behave.

  38. DOCM, otto

    “cake” we very much insist that the law and treaties are kept. That this is endlessly attacked as “dictating” by people who try to break the treaties in order to steal that is the problem. That so many see constitutional court rulings as a kind of tactical game.

    The Republic of Italy had tried, under the control of the convicted criminal Berlusconi, and to a certain degree even succeeded in pushing their public debt onto the rest of the Euro countries. At the time this became public, in fall 2011, there was at least a majority in Italy, who understood that Berlusconi had to be disposed.

    But just looking at this one week in the FT:

    a) The Italian financial court goes after the credit rating agency for “unfair” rating Italy just above junk, where the market clearly charges risk premia associated with “junk”, which they are, based on their continuous behavior.

    b) The investment officer of Generali, I think the largest insurer in Italy, has the splendid idea, that the ECB should buy stock, preferable the stuff he can not sell at book value.

    c) And Berlusconi seems to have found a way to run for the European Parliament.

    And the problem is that it is not reason and order diffusing to them, but the contagion of madness comes to us.

    This week they presented some first plans for power transmission lines in Germany, and some folks went absolutely apes. They don’t want nuclear power, they don’t want to burn fossils, but they also don’t want transmission lines to bring wind power to the customers, agitated on by the Greens and Greenpeace

    And CSU Seehofer say, he will not built them against the will of the people, and polishes his nails : – ) If the lines are not built, I ll guess, they would have to run the existing cheap nuclear power plants in the south a little longer. What a pity. ROFL

  39. @ otto

    Indeed! And look where that has led Europe in the past. What is different at the present juncture in the context of the EU is that it is not made up of a set of shifting inter-governmental alliances between countries but is a supra-national undertaking with many federal features. Countries that do not form part of it – such as Switzerland – are free to make their own rules if they do no wish to abide by the agreements they have struck with the EU. Germany is not in that situation.

  40. @DOCM

    Perhaps the Swiss should have got a ten year ‘derogation’ from immigrants workers, like Germany (and France?) did.

    Bureaucrats and politicos in Brussels and elsewhere may well get hissy fits, but their jobs, wages or conditions are not at risk from excess labour pools, whether from within the EU or from outside of it.

    The Swiss people are doing the only logical thing possible to defend themselves from policies designed to drive unprotected labour conditions down to serf levels.

    The vote will be seen as xenophobic in Brussels, because it suits Brussels to see it that way. But a large part of this vote may be a vote to protect working conditions, because the EU sure as hell has no intention of protecting them.

  41. JR,
    I always find it amusing when a soft leftie in Ireland is sceptical on the issue of labour mobility. As a country we gain much more than we lose. When I say sceptical, I am being polite,

  42. FT leads with “let weak banks die, says Eurozone super regulator”

    Is this the Munster final or just a fantasy?
    Will AIB be caught in a landslide with no escape from reality?

  43. @ Tull: “As a country we gain much more than we lose.”

    That’s a two-sided coin Tull. And it also depends on the type of lenses you’re using to observe the situation. But more significantly, it finally depends on how your neural networks ‘construct’ your image. The situation may be real, but your image is a virtual one.

    Lets be very grateful that de Valera never succeeded in his ideological quest of ‘restoring’ the Irish language*. That might just have been a tad (economically speaking) inconvenient. But the Irish citizens were not fooled. If the Swiss voters want to ‘stick it’ to Bruxelles – then so be it! Its known in the trade as Realism (aka: political reality).

    *Think about the implications of the ‘essentiality’ of an Irish language skill for certain employments in this state. That would not be a violation of the Efficient Markets Hypothesis? But we do not bother to mention that, now do we? That surely would be ‘unpatriotic’.

  44. From the welter of media coverage, both in and outside Germany, this comment by Professor Sinn (h/t Eurointelligence) sums up the Mexican stand-off with the ECJ that the GCC seems to think it has constructed.

    http://www.project-syndicate.org/commentary/hans-werner-sinn-applauds-the-german-constitutional-court-s-ruling-on-the-ecb-s-bond-purchase-scheme

    Views vary widely and all seem to miss the point that the OMT is a metaphor for a wider political reality viz the attitude that the major governments, including notably the German, of the Euro Area, take to its announcement by the ECB, and by implication, towards the euro. As matters stand, this is that they will not allow the euro to fail. Until an immediate danger of this happening appears again, the rest is mainly noise.

    It will, however. be interesting to see what the GCC will do when the ECJ decision is made. If it presumes to continue to play the role of superior court and is not satisfied, the stand-off will then be between it and its own government one element of which, the SPD, has made clear that it considers the ECB to be acting within its mandate.

    As Professor Sinn points out, in his otherwise not very convincing presentation, “if it finds that the ECJ is interpreting the treaty in a way that violates the German constitution, it has the power to force the German government and parliament to renegotiate the treaty or ask for a referendum.”

  45. @ Joseph Ryan

    The pertinence of the Swiss vote to the subject matter of this thread IMHO is best summed up by the comment by Commissioner Reding – as relayed on the RTE news this morning – that the “EU is not a Swiss cheese” i.e. there are not bits of it that can be viewed as empty space by participants in its activities.

    This is precisely what the GCC is doing in the matter of the primacy of EU law in an exercise that has more to do with a political power play in Germany than with legal niceties.

  46. @DOCM
    Maybe the EU is more like a neoliberal fondue that is not as tasty as it used to be. The Swiss vote is linked to the wider ez crisis of authority and competence. Ticino voted 70% in favour. 60, 000 Italians cross into Ticino every day to work. Domodossola needs the money they bring home. Portuguese cleaners earn 25chf an hour in Zurich. How much does unskilled labour make in Porto?

  47. @DOCM

    Views vary widely and all seem to miss the point that the OMT is a metaphor for a wider political reality viz the attitude that the major governments, including notably the German, of the Euro Area, take to its announcement by the ECB, and by implication, towards the euro. As matters stand, this is that they will not allow the euro to fail. Until an immediate danger of this happening appears again, the rest is mainly noise.

    I think we can all agree that OMT is the expression of a meaningless aspiration rooted in the political need to be seen doing something than an actual policy that could be implemented.

    After all if it does not suit Germany, and it may not, OMT is a dead letter, or perhaps “metaphor for a wider political fantasy” if one were prone to grandiloquence.

  48. @ francis

    You are unlikely to be alone!

    http://www.irishtimes.com/news/world/europe/german-fraud-crack-down-characterised-by-high-profile-names-1.1679478

    Incidentally, I doubt very much if the citizens of the UK will welcome any comparisons with Switzerland either. The message sent by the narrow victory of the no camp, and the consequences, are more likely IMHO to harm the extremes of the left and right on matters relating to immigration than to aid them in the run-up to the European elections.

  49. @Seafoid

    The Swiss vote is linked to the wider ez crisis of authority and competence.

    It can not be said enough that the parts of the EU responsible for EMU are cargo cult institutions.

    They have all the appearances of functioning international institutions but they do not function. It is as if they had built and are staffed by people who copied the internal structures of existing institutions rather than what they did and further that in each of the these institutions success is measured only by adherence to internal principles rather than external effects. Success is not one of their mandates.

    DG ECFIN has many well educated and very well paid staff but the economic and financial affairs of the Eurozone have been a disaster under their guidance (Maroc Buti’s vox pieces do not inspire confidence) In the EU there is no relationship between competence and level of responsibility, no incentives for success and no punishment for failure.

    The only reason that the gross incompetence of the organizations headed by Rehn, Buro and Draghi are tolerated is shared class interests and their willingness to do the bidding of the dominant state in the EU. There will be no accountability for neoliberals.

  50. Perhaps I have missed the reference but Wolfgang Munchau thinks that OMT and the ideas behind are effectively dead because of German opposition.

    Germany’s constitutional court has strengthened the eurosceptics

    It is interesting how he thinks OMT will be sunk – by the German parliament refusing to ratify an application to use the ESM (for which unanimity is required). If I was reading this as a thoughtful speculator I would starting thinking that a bet against the peripherals would be a good one.

    Adam Posen also agrees that the constitutional court ruling is a shot across the bow signalling a willingness to attack if needs be.

  51. @Shay
    +1
    If as Tull thinks a lot of EZ bonds are headed down the perpetual route you would wonder why debt for equity was such a stupid idea in 2009. 5 years of no growth is how much in lost output? At what point do the losses involved in following the orthodoxy overtake what would have been lost with plans B or C?
    What is the point anyway?

  52. @ All

    The view of a WSJ commentator.

    http://www.marketwatch.com/story/governments-not-ecb-are-in-charge-of-euros-destiny-2014-02-10?link=MW_home_latest_news

    Notably;

    “The overall message is extremely important in clarifying responsibilities behind euro-area governance. Markets and governments know that the onus for shoring up the euro is on politicians, not central bankers.

    This is a message with which both Draghi and Jens Weidmann, the Bundesbank president, who argued fiercely against key aspects of the bond-buying scheme at the Karlsruhe court hearing last summer, will agree.”

    He could have included judges with central bankers.

  53. @seafóid

    It is a sad testament to European journalism, politics and intellectual life that few people are asking the question whether Europe’s aggregate failure might be to do with the things countries have in common rather than their differences. Sloppy thinking and liberal affect all round.

    On that subject I was thinking of dividing Europe’s power centers into three groups:

    The German government: Bullying self righteous fools convinced the the suffering it is causing is a necessary purgative and a moral necessity.

    The ECB: Ideologues masquerading as pragmatists who are basically indifferent to the suffering they are causing.

    The European Commission: Incompetent self important fools who think that suffering is a very complicated thing to define.

    For easier reading I have omitted the word “neoliberal” in each description.

  54. @Tull

    “I always find it amusing when a soft leftie in Ireland is sceptical on the issue of labour mobility. As a country we gain much more than we lose. When I say sceptical, I am being polite,”

    Your politeness is appreciated.
    I am not all at all sceptical about the potential benefits of labour mobility. On balance it could be a very good thing, if it were accompanied by minimum standards for the majority of mobile workers and those workers that they compete with.
    If, however, the mobile labour force simply adds to the growing pool of ‘fragile employment’, then it benefits should be challenged and questioned.

    It is true that Ireland as an economy has benefitted from the presence of mobile labour, and even more more true that Irish emigrants have benefitted from being able to access other countries.
    But, whether one likes it or not, the fears of the host country workers for their jobs and conditions cannot be dismissed as xenophobia, or attributed to the demagogic influence of Le Pen or Farage. People, particularly unskilled people, have every reason to be fearful for their futures as the race to the bottom accelerates. The plight of these people cannot be ignored, because there is a greater benefit to others / the overall economy.
    Switzerland, because of its relative wealth, seems like a unusual place for such a fear to manifest itself, but the trend is ubiquitous and will only be arrested when less well people can visualise a less hazardous employment future for themselves.

  55. Back to thread: Der Spiegel International (well worth reading)

    Europe or Democracy? What German Court Ruling Means for the Euro
    By SPIEGEL Staff

    Germany’s Constitutional Court ruling last Friday marks a significant escalation in efforts to rein in the European Central Bank. The ruling’s message? Either the European Court of Justice has to stop bond purchases or German justices will.

    […] Hans-Werner Sinn, the euro-skeptic head of the Munich-based Ifo Institute, believes that the German court’s position “will not remain without consequences for ECB monetary policies.” Furthermore, the ruling “will strengthen the position of euro critics and the general skepticism Germans have of the ECB.”

    Politicians in Berlin, by contrast, are furious.

    http://www.spiegel.de/international/europe/german-court-calls-ecb-bond-buying-into-question-a-952556.html#ref=nl-international

    Blind Biddy is fairly ‘sick of sin(n)’ at this stage; as am I.

  56. Not so long ago, the Krugtron advertised the benefits of going ruthlessly bankrupt,

    with the examples of Iceland and Argentina. In contrast to Ireland and the baltics.

    Now the peso trades at 8 officially, vs 1 to the dollar 10 years ago, 5 one year ago, and on the streets of Buenos Aires at 13 last Friday.

    Venezuala also thought they can play it rough with goverment set prices for TV sets. Not they have neither Tv sets nor flour or coiking oil in their stores.

    Iceland faces now a lawsuit of 2/3 of GDP

    http://www.ft.com/intl/cms/s/0/6e350fe6-927b-11e3-8018-00144feab7de.html?siteedition=intl#axzz2skGn799a.

    Some latin country folks do not fail one working day to come up with another idea, how to argue their sticky fingers into other peoples wallets

    http://ftalphaville.ft.com/2014/02/10/1767172/pavlovs-eurozone/

    Well, the baltics have now joined the Euro stability community, and how bad is life in Ireland, compared to the alternatives?

  57. Der Spiegel has said the court ruling amounts to a full-blown showdown between Germany and the European Central Bank over the methods to shore up southern Europe’s debt markets.

    “It is nothing less than a final reckoning with the crisis-management strategy pursued by the ECB. The German justices insist that the German constitution sets limits on the ECB’s crisis strategy. In a worst-case scenario, the Court could forbid Berlin from contributing to efforts to save the euro or even force Germany to leave the currency zone entirely,” it said.

    Furthermore, despite the wide variety of opinion the fact is that Germany does not accept the primacy of ECJ over it’s Basic laws.

  58. @Robert Browne

    Re: Germany
    The paraphrase the Kissinger quip re the EU:
    ‘When I want to talk to Germany, who do I call’?

    Der Spiegel is correct. This has far more serious implications than Europhiles were prepared to admit at first.

  59. Robert Browne and all,

    The Spiegel international says a lot of rubbish every day, and it caters to people who want to find some fault with everything german.

    In Science, those you cant do, do teach, and those cant even do that, do tell (journalists)

    Where do people get the idea from, that the ECJ has anything to say on the german constitution.

    And where do they get it from that one constitutional organ has a say above the other.

    There is a legislative, the Bundestag, an excutive, the Bundesregierung, and a completely independent judicative, with the Supreme Court at the top, ruling on the laws.

    And the fourth instance, the media, to make noises about it, and trying to influence the vote, controlling the legislative.

    The BVG ruling reflects perfectly german order / constitutional thinking, IMHO.

    Some Kissinger, Obama to call the BVG would be imperialist agression.

  60. @ francis

    It could well be argued that the “sticky fingers in other people’s wallets” are, in fact, German; courtesy of the “flight to safety” of investors within a still dysfunctional monetary union.

    Appeals to the better nature of the countries involved will not work, especially when confronted with the logic of opinion-makers such as Professor Sinn.

    “The German court is also right to argue that purchases of troubled countries’ government bonds cannot be considered monetary policy – and thus exceed the ECB’s mandate. No counterpart to the ECB’s lender-of-last-resort policy for a currency union’s regional political units can be found, for example, in the United States or the Swiss Confederation. The US Federal Reserve buys federal government bonds; it does not buy the bonds of financially troubled states like California or Illinois.”

    But which country is blocking the creation of what would be the European equivalent of federal bonds?

    This analysis of the development of the German economy since re-unification should be required reading by European leaders.

    http://www.cream-migration.org/publ_uploads/CDP_06_14.pdf

    Merkel’s proposed “reform contracts” are aiming at at the wrong target.

    As the study points out;

    “In our view, the policy recommendation from Germany for the rest of continental Europe should not be the Hartz reforms (the advice given often by policymakers, as in a February 2013 speech by German Chancellor Angela Merkel reported in de Weck 2013), but reforms that would target the system of industrial relations by decentralizing bargaining to the firm level while keeping workers’ representatives involved to secure that employees benefit again when economic conditions improve.”

    This is, indeed, sound advice but it will take some time, given that “boss-napping” is still a method of negotiation in France.

    Only self-interest will force a more accommodating attitude by all the countries involved. The countries in the Euro Area have corrected their external accounts largely by a dramatic reduction in imports, associated with some internal devaluation and increased exports outside Europe. Germany exporters have also shifted their focus to non-EA markets. However, they all now risk deflation; and running into a “BRICS” wall.

    http://www.spiegel.de/international/world/economy-slows-in-brics-countries-as-worries-mount-a-951453.html

  61. @Tull

    A ‘disaster’ , primarily, for Germany …

    BTW – Biddy would like to know if those inflation inducing ‘Cork Chemicals’ are working for you …

    @Prudent Hans

    So what did Heisenberg say to Bohr in Copenhagen? – as a ‘hard physicist’ [no cork chemical pun intended] one might expect you to know this; no, you won’t find the answer in Der Spiegel! Bit high-brow for you!

  62. DOD,
    I see your pals are diversifying away from driveways & robbing old people to poaching endangered species.

  63. Methinks those asset-stripping vulture fundies might be ‘your’ pals!

    Nite now! Hope it’s eventful!

  64. @ Joseph

    To use Lord Denning remark “A vista too appalling to even consider”.

    @ francis

    I used to work in Germany and I like to think I know something of the German psyche. I look at Hans Werner Sinn to see what way the weather vane is blowing. Does anyone really think that Germany is going to pay for other countries debt laden balance sheets submitting themselves to the diktat of an Italian Central Banker, when their own constitutional court has all but said that the threatened OMT are outside the Treaties they signed up to? I don’t.

  65. Germany is now ranked fourth in GDP after the US, China, Japan. In ten years or so it will be ranked lower as Indonesia, Brazil, Turkey, Russia move up the ladder. Germany’s survival and continued prosperity depends heavily on continuation of the EZ and EU.

    The GCC could have easily ruled against the ECB on what is a prima facie domestic matter. Instead it tossed the ball to the ECJ knowing that the ECJ will rule in the ECB’s favour. From there it will be up to the Bundestag/Bundesrat who must negotiate with SPD. Contrary to what you may read in the British or US press this will not be over until the fat lady sings and she knows where her bread and butter comes from.

    Surely you all know that the British and Americans are deathly afraid of two things, one is a United Europe with a single currency (reserve?) and the other is an increasingly prosperous and powerful (militarily) China.

  66. @Tull
    Lord Turner ex FSA now working for Soros is in the Torygraph re the UK economy. I am on the move so no link. , Anyway he says it is the same model as under Gordy. Credit, City, Property. Gonna crash.

  67. @ Mickey Hickey

    Your forecast of what countries will be on top in future is wishful thinking.

    Dani Rodrik of Princeton and a native of Turkey, says miracle economies are rare and many that get to middle income cannot sustain it.

    Germany may have challenges on ageing etc in future but what gives it its current strength is not easily replicated.

    Convergence if at all takes decades.

  68. Seafoid,
    if you read in the Irish Times that our regulator from 2009 was predicting such and such an event would you believe him. the good Lord has as much cred as some economists around these parts.

  69. @ All

    Schaeuble sees no risk of deflation in the EA.

    http://www.reuters.com/article/2014/02/11/us-eurozone-summit-schaeuble-idUSBREA1A0F620140211

    He may be wrong on that point but he is certainly right on this one.

    “Some experts, including the head of Germany’s ZEW think tank Clemens Fuest, have said the court decision severely blunts the OMT program.

    Schaeuble dismissed those concerns, saying the details of the OMT were secondary to the broad message sent by the ECB and European governments that they would not let the euro zone break apart.

    “I think the return of financial market confidence in the stability of the euro has been due not only, not even primarily, to the ECB’s (OMT) announcement,” Schaeuble said.

    “When leaders of government on the one hand, and the central bank on the other, say they will do what is necessary, then financial markets need not worry.”

    This CITI paper is also of interest (if probably somewhat Utopian).

    https://ir.citi.com/UCU64JE0Ef6crVHtKJ0xRq%2BVy0WqV%2BZMVX5IFTwm%2FJ4Ma7NYAF6vxA%3D%3D

    Maybe Merkel’s “reform contracts” can be resurrected in a different guise. Countries currently the beneficiaries of low bond spreads relative to Germany – including France – would have to contribute.

    If accompanied by an appropriately reassuring treaty change, there might be something in it for everyone!

  70. @ DOCM 11:05 pm

    That other people behaving stupid and irresponsible have to pay risk premia, is certainly not our fault.

    A while ago you argued the opposite way, that all the German bondholders loose so much in interest payments, that we should give in and spread our money around.

    I have gotten so used that everything is always used in both ways to convince us to give up on insisting that the treaties are kept.

    Everybody can buy whatever bonds he wants, at market conditions. Period.

    @ D O D

    Since you brought that now up like the 3rd or more times, you can tell us what you think Heisenberg said to Bohr, because I don’t care.

    @ Robert Browne

    Prof. Un-Sinn (nice play with wiki/Professor_Unrat :- ), as Wolferl Schäuble called him at one point in time also says a lot of not so clever things, when the day is long. He wrote “Ist Deutschland noch zu retten” in 2005, heralding the coming Armageddon Germany will fall into with our “Basar-Capitalism”. I wouldn’t want this panicky guy sitting with me in a foxhole.

    It is an interesting book with lots of data, and how fast such judgements can change.

    At that time, all the hard decisions were already implemented by Schröder, we scratched the 3% deficit limit fort the 4th time, but looking back, probably most agree, we could have pedaled a little softer on the cuts.

    In 2012 he lost his nerves “Deutschland ist verloren”. Doesn’t look exactly like this now, doesn’t it?

    And just like Schäuble and Merkel, I don’t think that OMT is totally outside the treaties, it depends on what, under what circumstances, and after what “strict conditionality”. I am curious with what kind of verdict the ECJ is coming up, if at all, and I stated here before that “humph garble murmph” would be close to the best thing I could come up with : – ) After kicking the can down the road a few more times.

    @ Mickey

    I don’t care how we rank with some meaningless total GDP, relative to others. If the other folks make progress, get more productive, they might buy some more production machines from us, IF we are competitive, and when they earn more, they might buy a few more BMW or Audi form us. GOOD.

    I do not have any desire to look down on others or enjoy their misery. We have to and can compete on price and quality on the global market place. I am not aware that we have any kind of monopoly anywhere.

    Germany’s survival does for sure not depend on the Euro or the EU organization. Belgium lived for about 18 month without a government. And live would certainly go on without Euro / EU.

    We think to have both has advantages, but of course even more for all the other countries with smaller national markets and less global footprint than us. Soo, I don’t see any reason, why I should pay one cent more for this beyond the existing EU budget.

    That the US and UK do not like the Euro, on this I completely agree with you : – )

    When the EU elections and the AQR are over, we will have some wound licking, hopefully not too many ugly surprises, and that we will have a nice chat in Europe, where we will go in the next dozens of years, treaty changes, new or different institutions, reform contracts. I doubt the English will leave, or anybody else, and I have substantial confidence, that our folks will draw up things alright.

    Ummph, pretty long sampler, but a lot of things also kind of belong together.

  71. @ francis

    “A while ago you argued the opposite way, that all the German bondholders loose so much in interest payments, that we should give in and spread our money around.”

    I did?

    At some stage, there was debate in Germany about Europe “stealing the savings” of unfortunate savers who were the victims of low interest rates because of the flight to safety in Germany by outside investors. The way to correct this is to return financial markets in Europe to normality. The antics of the GCC are doing little to achieve this.

  72. @ francis

    I should add that I agree with the general conclusion that you come to in replying to Mickey Hickey.

  73. @Prudent Hans (aka francis)

    Must be dumbing down in deutschelande physics these days; I’ll put you out of your misery:

    Heisenberg was one of the Heisenbergs of Ballybrack. When he met Bohr in Copenhagen he, naturaly, said “Howyez Nieils? Awr_Roi?”

  74. I see things in Germany on the road between Kronberg and Frankfurt that should be cause for concern. Hoechst bought by American Celanese, Braun bought by P & G when it bought Gillette. Major German companies increasingly investing outside the EU, not only are they not investing in Germany they are not investing in low wage Eastern Europe. The feed stock of the Mittelstand is declining due to declining birth rates, entrants to the apprenticeship schemes in short supply. Private equity with its focus on the end of the quarter are buying out Mittelstand companies, strip and flip or pump and dump (There goes the social contract).

    Germany from where I look at it has a slight advantage in manufacturing know how and cost of labour. The Germany I see today is less prosperous than the Germany of the 1970s. Second hand stores and Dollaramas selling schlock (kitsch) were as rare as hens teeth before unification.

    Even the Hegemon is weakening so it is inevitable that a few countries will plough ahead at double the global growth rate. Right on the doorstep the Ukraine is under pressure from the US and Russia that could end in a civil war between the part of the Ukraine that was hived off from Poland in 1922 and the part that has been Russian before there was a Russia or Ukraine. Europe as my children tell me has been a very troubled part of the world. The next Archduke Franz Ferdinand is likely to be shot in Kiev or Lviv. Merkel to give her, her due is urging caution. The US does not have many qualms about involving NATO in a Eastern European war. That would quickly change the rules of the game and the playing field.

  75. Mickey

    Hoechst is one of several chemical companies, there are BASF, Bayer, and many smaller ones.

    A razor company like Braun is not a “national treasure” or champion, or other blahblah.

    On the day France declared Joghurt manufacturer Danone a national champion, I know they had some learning ahead for them.

    Other countries people buy some of ours, we buy some of theirs (Chrysler, scoff, SEAT) or building factories there (Brazil, Mexico, China, the US factories of Volkswagen the last ones without some proper union representation) since decades, closer to suppliers and customers, being resilient to exchange rates, other crap)

    In the early 80ties, when 240 million Soviets, armed to the teeth, were opposed by 60 mio West Germans, and Allies, about which we kept our worries about their combat value and will for ourselves, we had 2000 tanks running and a further 2000 in the storage. And when I just look at it in my Dresden war museum, their T-72 and others were certainly no match to our Leopard 2. Today we have about 200. The rest we gave to Allies, basically for free, as far as I know.

    We keep the last one tank factory alive, basically living on selling spare parts, some research contracts, and the occasional sale somewhere else. The last one gun factory (Heckler-Koch), one company which can produce fighter planes, and we organized with our neighbors, like the Dutch, that they have at least one small battalion, which knows how to operate such machines, keeping the costs down for everybody, and some residual abilities.

    Nobody in mainland Europe including Russia is interested in picking any fight, for what?

    They also just keep their last gun factory Kalashnikov and fighter company just alive, on principle.

    120 Million Russians certainly don’t scare 500 Mio Europeans, with or without the US.

    NATO was carefully constructed to not let some local idiot draw the rest into some senseless conflicts. GW Bush did not succeed with Iraq, Georgia.

    Cameron did not even get a majority at home on the Syria war. And the Americans instigators in the Ukraine are political dead meat by now. Merkel rebuffing swiftly and clearly the Washington war mongerer Victoria Nuland was a clear statement.

    Eager Ursula was reminded by her own CDU faction that it is here a parliament’s army.

    6 months ago the German unions were moaning about 33 000 not finding an apprenticeship (with 3% youth unemployment in the south), the government should do something, now the employers see the sky falling about way too few apprentices applying. I am sooo scared : – )

    The social contract is very much alive and kicking.

    In fact the German unions were a little slow on demanding higher wages. Even the “neo-liberals” FDP / Brüderle 1224 days ago were egging them on a little bit, to be a little bit more demanding (“Ein kräftiger Schluck aus der Pulle” http://www.nachrichten.de/wirtschaft/Bundesvereinigung-der-Deutschen-Arbeitgeberverbaende-Dieter-Hundt-FDP-Stahlindustrie-Wirtschaftszweig-cid_4014133/

    But finally, this year the chemical union took the lead with a 3.7% pay raise. The public unions demand 10% (ROFL), will get 3.2 +/- 0.2% my estimate, temporary contracts will be reduced. The central German union head does support the Grand coalition, the first universal minimum wage in our history, the unions have half the board seats.

    All things pretty much work as they should.

  76. @ All

    This item by Wolfgang Munchau in his Der Spiegel blog rectifies an OTT and IMHO mistaken analysis by him earlier in the week in the FT, especially if read against the background of Schaeuble’s interview with Reuters and the extract quoted by me above.

    http://www.spiegel.de/wirtschaft/soziales/ezb-anleihenkaeufe-wolfgang-muenchau-zum-urteil-des-bvg-a-952997.html

    This contribution by the German ambassador in today’s IT sets out succinctly the broader political context.

    http://www.irishtimes.com/news/world/europe/knowing-what-is-behind-us-helps-us-to-navigate-safely-forward-1.1689203

  77. Not wanting to go on about this, but there is no such thing as “political reality” – it is a truly asinine phrase. Outcomes in politics are unthinkable, simply unthinkable, before they are a slight possibility before they are historical fact. A better construction might be “political mood” . e.g. The political mood is such that depositor bail in in the banks is unthinkable.

    The power of political will is also constantly overstated, and always in vogue among the establishment, but history is littered with failed projects for which there was enormous political will (all attempts to stick with a gold standard being prominent and highly relevant examples, farm collectivization being another).

    It would indeed be rich if the ECB engaged in QE, though QE is a sad replacement for expansionary fiscal policy, but if you imagine that the general German political atmosphere is more conducive to supporting a strings free bond purchases programme (by proxy) than the punitive conditions that would be attached to OMT I think you might have a very nasty surprise ahead. The whole thrust of German political intervention in the European component of the global financial crisis has been the conditionality of support after all.

    @DOCM

    More than one quarter of all posts in an 89 comment thread are yours. I know this is your job but please show some respect for the readers of the blog.

  78. @ john gallaher

    I had read it. He is probably right on the substantive point, it seems to me.

    “But OMT is intended to operate more like the International Monetary Fund’s lending – that is, to rescue a particular government conditional on its pursuit of fiscal belt-tightening. If the ECB were truly convinced that risk premiums were unreasonably high, and that distressed countries’ debt was sustainable, conditionality would have been unnecessary.”

    But he is still missing the essential political point that, without the conditionality, the implicit endorsement of the previous, and current, German government of Draghi’s action on OMT would not have been forthcoming. The ECB is a powerful body, but it is not omnipotent. It relies on the backing of the governments involved. It beats me how this rather obvious political point can so easily be overlooked, in academic circles in particular.

    I think, however, the reference by one banker in the FT item to “the crimson-robed weirdos in Karlsruhe” may be a bit overdone. Even a day is a long time in euro history.

    http://www.cesifo-group.de/ifoHome/presse/Pressemitteilungen/Pressemitteilungen-Archiv/2014/Q1/pm-201240212-cesifo-wp-4628.html

  79. @Prudent Hans

    ‘And when I just look at it in my Dresden war museum, their T-72 and others were certainly no match to our Leopard 2.’

    Any empirical evidence? Rewriting Kursk are we?

  80. There follows a digression.

    @David O’Donnell responding to Francis

    Any empirical evidence? Rewriting Kursk are we?

    Francis is referring to more recent history than the battle of Kursk. The T-72 was the Soviets main battle tank from the seventies on and it is entirely possible that the German Leopard II (which entered into service almost a decade later) was the more capable tank. (I have no expertise in this area)

    However, just as at Kursk, the Soviet bloc had a considerable numerical advantage and, as Stalin is reputed to have said, quantity has a quality all of its own. Germany has a bit of form on mistaking self belief for objective analysis.

    On a related note it is hard not to think that though nationalism is a forbidden sentiment in Germany we are all dealing with its consequences at an international level.

  81. @ D O D

    You are mixing up time periods, I am talking T-72 vs Leo 2 and not T-34 vs Tiger. Always the same with folks without military education : – )

    @ John, DOCM

    I say this Ashoka Mody gets it wrong on practical all counts,
    because he is the typical self centered, ideology driven american economist : – )

    And I will justify this admittedly pretty harsh statement.

    But first, the first time I saw his picture I got this thought, somebody should drive an ebony stake through the heart of this Princeton Nosferatu.

    On second glance, he has these incredible sad wiki/Bell_Labs eyes, I have seen so often, extremely pronounced and with a very special twist. Searching for his bio/wiki, bingo, there is not really one. When and where was this guy born? Family Status?

    But on amody.com :
    Ph.D (Economics), Boston University, 1986
    Member of Technical Staff, AT&T Bell Laboratories, 1986-1987

    How does this fit? I just want to note the parallels to Emanuel Derman (Bell, Goldman Sachs, Columbia, and his “My life as a quant” very similar sad eyes, I have seen also in varying degrees on at least half a dozen other folks, I don’t want to name here)

    For some time, these Bell Labs guys were supposed to be “the best and the brightest”, Model for so many large central research labs all over the world, IBM, Siemens, Toshiba, etc, etc.

    Nobel prize winners and inventions galore, but demasculated during the late 80ties, and then every few years again..

    “As of July 2008, however, only four scientists remained in physics research, according to a report by the scientific journal Nature.[13]“

    For the folks just interested in fundamental research and moving on to universities, that was not really a problem. It was fun to go skying / presentations / drinking the bars of Mauterndorf empty with wiki/Horst_Ludwig_Störmer, wiki/Herbert_Kroemer and 2 more nobels. Last day a race with time taking, the Swiss tried to cheat a little bit with disguising one of their Olympics as “Member of Technical Staff” : – )

    For many others at Bell Labs, and similar in other central research labs, it was like cutting their balls off, or out, even a score years later.

    Before I get technical in a subsequent post with detailed timelines / decisions (whatever it takes, Weber resignation, “strict conditionality”) / interest rates of bonds like ES00000122T3 and XS0133144898

    Just a little view on a typical southern GOP senator, spreading shameless rumours on the day of a union vote
    http://news.yahoo.com/tennessee-senator-says-vw-product-way-uaw-union-022622568–sector.html

  82. @francis, shay

    I’m very familiar with time periods.

    At least at Kursh we have empirical evidence that the Germans ran out of gas. Attempting to adjudicate on a later time period in a personal abstract without empirical evidence is simply a generalist example of another type of ‘gas’.

  83. back to the thread: worth reading

    Karlsruhe’s Underappreciated Threat To The Euro
    11/02/2014 by Andrew Watt

    The euro area once again faces a potentially existential threat, following Friday’s decision by the German Constitutional Court in Karlsruhe. The funny thing is, hardly anyone seems to realise it.

    To see why this is the case it is helpful to separate the procedural from the substantive issues, before bringing them together again

    Read on: http://www.social-europe.eu/2014/02/karlsruhes-underappreciated-threat-euro/

    Watt concludes: “I am not a legal expert, but it seems plain to me that Europe cannot function in this way.”

  84. Timing vs Rates, exact wordings

    The Reuters link above compares the OMT quite correctly to a nuclear deterrent, lurking in the background, but never to be used.

    And Reuters as one of the very few remaining news outlets with some precision, mentioned the words “believed”, “the scheme, which has yet to be used, probably”. Please compare this to the utterings at the FT or worse.

    Timing:

    Looking at good enough for dynamic analysis 10-year proxies of Italy and Spain IT0004536949, ES00000122T3, you can clearly see, that

    a) the “Within our mandate, the ECB is ready to do whatever it takes” stopped the panicky decline, but didn’t reverse course, and

    b) only the announcement of “strict conditionality” did lead to the subsequent sustained rise of these bond prices

    Details with time stamps:

    1. “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” Draghi said in a speech in London today. “And believe me, it will be enough.”
    Courtesy Bloomberg Breaking News
    {Draghi: ECB to Do Whatever Needed to Preserve Euro }
    {}
    European Stocks Rally as Draghi Pledges to Preserve Euro
    By Sarah Jones – 2012-07-26T10:48:00Z

    2. Merkel und Hollande: „Entschlossen, alles zu tun, die Euro-Zone zu schützen“
    Freitag, 27.07.2012, 17:01

    “Asked whether it was true that France wanted the bailout fund to buy government bonds, under an agreement made by euro zone leaders at their summit in June, but that Germany was resisting, Juncker answered:

    “I have no doubt that we will implement the agreements of the last summit. We still need to decide what we will do when. That depends on the developments of the next days.”

    2. ….. 06.09.12

    „M100-Medienpreis

    Draghi von Schäuble für Euro-Verdienste geehrt

    Am Abend der dramatischen EZB-Entscheidung ehrte Wolfgang Schäuble Mario Draghi in Potsdam für dessen Verdienste in der Euro-Krise. Der EZB-Chef hatte zugleich einen Rat an die deutschen Journalisten. Von Clemens Wergin
    [Draghi und Schäuble]{}
    © AFP EZB-Chef Draghi (2. v.l.) und Finanzminister Schäuble (r.) bei der Verleihung des M100-Medienpreises in Potsdam {Bild teilen }
    Preis für Verdienste in der Euro-Krise

    Schäuble versuchte in seiner Adresse an den “dear Mario” den Eindruck zu zerstreuen, er würde die am selben Tag getroffene Entscheidung der EZB kommentieren. “Wenn ich gewusst hätte, dass diese Ehrung auf diesen Tag fällt, hätte ich mir das wahrscheinlich noch einmal überlegt” sagte der Finanzminister.

    Die Unabhängigkeit der Zentralbank sei ein hohes Gut, “deshalb darf ein Finanzminister auch nach so einer Entscheidung kein Lob äußern oder gar kritisieren”. Schäuble nahm dann einen Umweg über Helmut Kohl und die deutsche Wiedervereinigung, um “ja nicht zu viel zu sagen heute Abend”.

    4.
    Monti Says ECB Plan Reduces Stigma as Rajoy Stalls on Aid
    By Angeline Benoit and Emma Ross-Thomas – 2012-09-07T08:24:42Z
    “ECB President {Mario Draghi} handed the initiative back to governments as he said the central bank would only buy debt from nations that seek aid tied to strict conditions from {Europe}’s government-led rescue facilities. Rajoy, who faces a regional election next month amid a slide in popular support, may be playing for time as he tries to soften the austerity demands tied to such support.

    Spanish bonds rose today, pushing the benchmark 10-year yield below 6 percent for the first time since May 25. It hit a euro-era record of 7.75 percent on July 25. The yield on Italian debt of a similar maturity fell as low as 5.03 percent at 9:36 a.m. in Rome.”

  85. on the ukrainia side story to this thread:

    http://www.faz.net/aktuell/politik/ausland/aussenminister-in-moskau-steinmeier-warnt-vor-eskalation-des-ukrainischen-machtkampfs-12801411.html

    for me Ukrainians are not some distant pawns, to be abused for some strategic interest, but people I talk to in my Lidl store 80 meters away, real people of flesh and blood, my neighbors, me being often successful to discriminate their local accents, and they too (“you were not born in saxony” : – )

    at first glance unrelated:

    German Thriftiness Vexes Banks

    http://online.wsj.com/news/articles/SB10001424052702303743604579351293040427268

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