On September 6 the Bundesverfassungsgericht (Federal Constitutional Court) in Germany declared that both the initial Greek bail out and the involvement of the Bundestag in the EFSF did not infringe on the German constitution (or more correctly the Basic Law). At the same time though, the court made two very important comments that have a huge impact on further expansions of the EFSF and other possible bailouts.
Firstly, the court made it very clear that prior to guaranteeing any financial aid, the Haushaltsausschuss of the Bundestag (parliamentary budget committee) has to be informed and the committee also has to approve any further financial commitments. While this does not put an end to further bailouts, it does slow down the approval process of any future bailouts. It has been commonly critisised internationally, by media and politicians, that the slow process for the EU bailouts has been a big problem, so this perceived problem has now been further exacerbated.
Secondly, the court made a significant comment that very much hints at Euro-Bonds. The following is my translation of part of the court's statement taken from a German news article (http://de.reuters.com/article/domesticNews/idDEBEE7870A520110908):
"the parliament, as lawmakers, is prohibited from establishing permanent international legal mechanisms, which amount to an acceptance of liability for conscious decisions of other states, especially if associated with unpredictable consequences"
The ruling coalition of CDU and FDP jumped on this as a legal end to Euro-Bond discussions, while the main opposition, SPD, claims that it is not that clear from the statement. But even within the SPD there is no agreement on Euro-Bonds and this statement, and the voting public is definitely opposed to Euro-Bonds and further bailouts. Based on conversations with friends and family of mine in Germany, I would say that Germans would rather see the return of the Deutsche Mark than the introduction of the Euro-Bond.
I have heard numerous people in the media and also on AAM state that the only way forward for the Euro is either through Euro-Bonds or a Euro-zone wide central fiscal department. While, there certainly is still room for debate and clarification on Euro-Bonds, I am 100% convinced that an EU wide fiscal decision-making department would be unconstitutional in Germany. The reason for this is that by German Basic Law, only German members of parliament are allowed to decide on the German Federal budget, no outside forces are allowed to influence the decision process; any outside influence would severely infringe on voters rights.
The Reuters article above also quotes a German law professor from Frankfurt saying that Euro-Bonds would require a legal change to article 125 of the Treaty on the Functioning of the Euro, also known as the no-bailout-clause. This would mean a new treaty that would have to be passed unanimously by all Euro-zone members. For the Euro-Bond proponents this would mean quite a delay, as European treatise take a while to put together and vote on. The more important question though would be what the chances are of one of Germany, Luxembourg, Netherlands or Finland opposing such a legal modification.
Even if the current or a new German government were to introduce legislation for Euro-Bonds, it is very likely that the German President Wulff would not immediately sign off on the laws, but rather refer them to the Bundesverfassungsgericht. The reason I think this would be the case is that Wulff is opposed to Euro-Zone bailouts including the ECB's recent interventions in bond markets. This would at least ensure that any such legislation was constitutional from the start6 and would not have to be retracted again.
So, what's next for the Euro? Without Germany there will be no Euro-Bonds. Past bailouts have required very quick decisions by European leaders. Future bailouts will not be able to be implemented at speed due to the ruling of the court. Is this the beginning of the end for the single currency?
Firstly, the court made it very clear that prior to guaranteeing any financial aid, the Haushaltsausschuss of the Bundestag (parliamentary budget committee) has to be informed and the committee also has to approve any further financial commitments. While this does not put an end to further bailouts, it does slow down the approval process of any future bailouts. It has been commonly critisised internationally, by media and politicians, that the slow process for the EU bailouts has been a big problem, so this perceived problem has now been further exacerbated.
Secondly, the court made a significant comment that very much hints at Euro-Bonds. The following is my translation of part of the court's statement taken from a German news article (http://de.reuters.com/article/domesticNews/idDEBEE7870A520110908):
"the parliament, as lawmakers, is prohibited from establishing permanent international legal mechanisms, which amount to an acceptance of liability for conscious decisions of other states, especially if associated with unpredictable consequences"
The ruling coalition of CDU and FDP jumped on this as a legal end to Euro-Bond discussions, while the main opposition, SPD, claims that it is not that clear from the statement. But even within the SPD there is no agreement on Euro-Bonds and this statement, and the voting public is definitely opposed to Euro-Bonds and further bailouts. Based on conversations with friends and family of mine in Germany, I would say that Germans would rather see the return of the Deutsche Mark than the introduction of the Euro-Bond.
I have heard numerous people in the media and also on AAM state that the only way forward for the Euro is either through Euro-Bonds or a Euro-zone wide central fiscal department. While, there certainly is still room for debate and clarification on Euro-Bonds, I am 100% convinced that an EU wide fiscal decision-making department would be unconstitutional in Germany. The reason for this is that by German Basic Law, only German members of parliament are allowed to decide on the German Federal budget, no outside forces are allowed to influence the decision process; any outside influence would severely infringe on voters rights.
The Reuters article above also quotes a German law professor from Frankfurt saying that Euro-Bonds would require a legal change to article 125 of the Treaty on the Functioning of the Euro, also known as the no-bailout-clause. This would mean a new treaty that would have to be passed unanimously by all Euro-zone members. For the Euro-Bond proponents this would mean quite a delay, as European treatise take a while to put together and vote on. The more important question though would be what the chances are of one of Germany, Luxembourg, Netherlands or Finland opposing such a legal modification.
Even if the current or a new German government were to introduce legislation for Euro-Bonds, it is very likely that the German President Wulff would not immediately sign off on the laws, but rather refer them to the Bundesverfassungsgericht. The reason I think this would be the case is that Wulff is opposed to Euro-Zone bailouts including the ECB's recent interventions in bond markets. This would at least ensure that any such legislation was constitutional from the start6 and would not have to be retracted again.
So, what's next for the Euro? Without Germany there will be no Euro-Bonds. Past bailouts have required very quick decisions by European leaders. Future bailouts will not be able to be implemented at speed due to the ruling of the court. Is this the beginning of the end for the single currency?