ECJ Decision

Potentially far reaching impact of this ECJ decision, coupled with details of the SGP changes in the ‘interpretive communication’ document Seamus blogged about yesterday. QE here we come?



By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

13 replies on “ECJ Decision”

It would be desirable to be clear at the outset that this is an Opinion by one of the Advocates-General of the ECJ, not a “decision” by the ECJ which, as the conclusion to the AG’s opinion makes clear, has yet to make one. (There are examples where the Court has not agreed, either in part or in full, with the decision recommended to it).

“In the light of the foregoing, I propose that the Court of Justice answer the questions referred for a preliminary ruling by the Bundesverfassungsgericht as follows:

(1) The Outright Monetary Transactions (OMT) programme of the European Central Bank, announced on 6 September 2012, is compatible with Article 119 TFEU and Article 127(1) and (2) TFEU, provided that, in the event of that programme being implemented, the ECB

– refrains from any direct involvement in the financial assistance programmes to which the OMT programme is linked, and

– complies strictly with the obligation to state reasons and with the requirements deriving from the principle of proportionality.

(2) The OMT programme is compatible with Article 123(1) TFEU, provided that, in the event of the programme being implemented, the timing of its implementation is such as to permit the actual formation of a market price in respect of the government bonds.”

Some interesting caveats to the conclusion that OMT is not incompatible with the ECB’s legal role. One is that ‘the Treaty does not prohibit operations on the secondary market but it does require that, when the ECB intervenes on that market, it does so with sufficient safeguards to ensure that its intervention does not fall foul of the prohibition of monetary financing’. In that context the ECJ Opinion notes that the ECB had never said it intended to hold any bonds purchased to maturity, which therefore may be an issue for QE.

In addition, the Opinion implies that the ECB’s Troika role may be in doubt as the monitoring and surveillance of States in receipt of Official support is deemed beyond the Bank’s mandate.

Recent speeches by some members of the Governing Council still show opposition to QE and one wonders if the caveats surrounding the ECJ ruling will lead to a further postponement of any decision, pending legal ruminations.

The media coverage hitherto is replete with basic errors with regard to the stage the legal wrangling has reached. This Open Europe coverage by Raoul Ruperel is IMHO much closer to the mark i.e. the major issues outstanding are fundamentally political rather than legal in character.

No doubt, the argumentation advanced by the AG will play a role in the ECB’s design of the euro version of QE. But a lot of water may have passed under the bridge by the time that the ECJ – as such – makes a legal judgment; and passes the baby back to the German constitutional court.

The only thing that is expected of the ECB is to generate 2% inflation and they can’t even do that. Demand is banjaxed. And monetary policy can’t seem to fix it.

‘The prominent French economist Thomas Piketty says the rise of new the anti-austerity political parties in southern Europe, including Podemos in Spain and Syriza in Greece, are just what the European economy needs in order to push back against the tide of regressive economic policies that have punished the continent’s most vulnerable people at the behest of the wealthy and powerful.

BTW Mad oul Jozie down_the_road’s case to the ECJ based on the Brehon Laws and the concept of ‘eric’ for compensation for injustice on behalf of the Irish Citizenry re lumping odious financial system debt has now been translated from Ould Gaelic into the languages of the EU and submitted formally to the ECJ.

n.b. there is no truth in the rumour that DOCM and The Second have been hired consultants by Jozie; The Blind Biddy Intelligence Unit are providing their expertise Pro Bono in this case. Informal consultations may/may not have taken place with Colm McCarthy & The Ballyhea Group.

If the ECJ follows the recommendation of its Advocate General, and this initial commentary in the Sueddeutsche Zeitung is any guide, there will be sufficient common ground between the two courts that are in dispute to allow an appropriate legal fudge; to add to the list already associated with the euro.

The possibility of the Greeks upsetting the apple cart remains. However, it is difficult to see the fortunes of such a small economy, no more than that of Ireland, having any real impact as a catalyst of a major change.


‘… a monetary job well done.’

But for whom? Smug is the word!

I hear that The 1% are backing Lucinda! Should we be worried?

I don’t see any evidence of political movement in Germany … up to others to throw a Real Wobbly …

A useful history/graph from Le Figaro on the adventures of the euro.

This comment, however, raised some doubts.

“Une mauvaise, pour l’Allemagne qui, selon les économistes du Centre d’études prospectives et d’informations internationales, a besoin d’un euro à…1,60 dollar minimum pour ne pas mettre son économie en danger.”

On checking it out, this blog entry from CEPII would suggest that Germany will benefit also from a fall in the euro (even if it could cope with one at $1.60).

The SNB has given up on the peg with the Euro

hoping that a strengthening dollar will help but that’s only if the US recovery is genuine and interest rates rise.

And the latest US retail numbers are poor, linked of course to the lack of any real wage inflation

It may be a case of as they say in Mexico “esto se va a poner de la chingada,”or roughly, “things are going to get really banjaxed now.”

Countries like Ireland and Greece matter very much when it comes to setting precedents. Both countries are a spit in the ocean in the general scheme of things. The Irish gov’t circa 2008 could have let the banks take the normal course of action as each one failed to meet its obligations, that is Rcvrshp/Exmnrshp leading to bankruptcy if necessary. This was a course of action that was feared in Brussels and Frankfurt and very much wanted in Portugal, Spain, Italy and Greece. I wonder sometimes whether brains turn to mush as soon as they are exposed to Kildare Street or are we actually consciously selecting people who are clueless about the difference between the responsibilities of private sector businesses and public sector gov’t responsibilities.
If the Gov’t had not panicked/caved there would have been ample opportunity to negotiate as the Exmnrshp/Rcvrshp process rolled out. As I see it CB/FR/DoF are a significant part of the problem, the private Banks themselves are equeally culpable as were the major European institutions providing funds to the Irish banks. Any equitable solution would have involved the Irish Gov’t, Irish banks and Euroean lenders. Instead the Irish Gov’t saddled the Irish taxpayers with the whole burden. We have been spoon fed pablum in a long lasting and fast changing dribble of half truths and opportunistic poppycock since 2008.
We have to start paying attention to what we are sending to the Dail. We might come to the realisation that football, players, teachers, solicitors and perfectly respectable people are not suitable for national public office.

“I wonder sometimes whether brains turn to mush as soon as they are exposed to Kildare Street or are we actually consciously selecting people who are clueless about the difference between the responsibilities of private sector businesses and public sector gov’t responsibilities.”

You could just as easily have subbed-in Capitol Hill + K Street for Kildare Street and you’d still be right. Well, leave out the ‘consciously’ adverb and you’d be even righter! But they are cluefull – especially about the need to pander to the wishes and whims of Special Interest and strong-arm lobby groups. Very attentive they are.

Putative main-stream party TDs are pre-selected by current party members and endorsed by party headquarters, based on their known and well practiced skills in obsequious behaviours. Sinn Fein actually has a Special Programme for this purpose. It is not called the Whip System for nothing! Non-party TDs tend to be mavericks.

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