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Wednesday, 7 September 2011

After the German Federal Constitutional Court verdict: what German exports owes to the Euro

The financial and political world was anticipating wet-handedly the verdict of the German Federal Constitutional Court in Karlsruhe on the constitutional legitimacy of the European bail-out plans for Greece and the other peripherals.

If the verdict would have been negative, this would have been a serious blow to the Euro; in the opinion of some pundits, it would have even been the final blow. Fortunately, the court was very clear: there are no fundamental complaints against the bail-out plan for the Euro countries.

It presented the following verdict, of which I show the pertinent snips:

Constitutional complaints lodged against aid measures for Greece and against the euro rescue package unsuccessful – No violation of the Bundestag’s budget autonomy

In today’s judgment,the Federal Constitutional Court has rejected as unfounded three constitutional complaints which are directed against German and European legal instruments and other measures in connection with the aid to Greece and with the euro rescue package.

The Second Senate of the Federal Constitutional Court has decided that the Monetary Union Financial Stabilisation Act, which grants the authorisation to provide aid to Greece, and the Euro Stabilisation Mechanism Act, which relates to the euro rescue package, do not violate the right to elect the Bundestag under Article 38.1 of the Basic Law.  

By adopting these Acts, the German Bundestag [German Parliament – EL] did not impair in a constitutionally impermissible manner its right to adopt the budget and control its implementation by the government or the budget autonomy of future Parliaments.

However, § 1.4 of the Euro Stabilisation Mechanism Act is only compatible with the Basic Law if it is interpreted in conformity with the constitution. The provision is to be interpreted to the effect that the Federal Government is obliged to obtain prior approval by the Budget Committee before giving guarantees within the meaning of the Act.

Furthermore, the Senate determines the boundaries under constitutional law for authorisations to give guarantees for the benefit of other states in the European monetary union.

And in the motivation of the verdict, I found the following text:

As elected representatives of the people, the Members of Parliament must remain in control of fundamental budget policy decisions in a system of intergovernmental governance as well. When establishing mechanisms of considerable financial importance which can lead to incalculable burdens on the budget, the German Bundestag must therefore ensure that later on, mandatory approval by the Bundestag is always obtained again. In this context, the Bundestag, as the legislature, is also prohibited from establishing permanent mechanisms under the law of international agreements which result in an assumption of liability for other states’ voluntary decisions, especially if they have consequences whose impact is difficult to calculate. Every larger scale aid measure of the Federation taken in a spirit of solidarity and involving public expenditure at international or European Union level must be specifically approved by the Bundestag.

Although the verdict is very clear, there is a snag in it. See for this the red and bold text. This states that for every extension of the bail-out amounts or for every change in the bail-out act itself, there should be prior permission of the Bundestag Budget Committee.

This could be seen as a right of the German Parliament to veto new legislation concerning the bail-out act or to veto new instalments of bail-out money to Greece or other countries. Especially Dutch member of Parliament Diederik Samsom looks at this part in this way.

I think that this will not be a problem in practice. It’s useless to send your government to international assemblies without financial room for negotiations. And when new (larger) instalments of bail-out money are due, I think the Germany Bundeskanzler in practice will have the same breathing room during the negotiations. Otherwise Bundeskanzler Angela Merkel would be tied by hand and feet.

Everybody that follows my blog for a longer time, knows that I’m not in favor of the current bail-outs for Greece and the other countries in distress (Italy, Spain, Portugal, Ireland and (currently) Italy.

And do the Dutch and European taxpayers have to save these banks again… and again?!

My reaction is: let us not go on growing the cancer (thank you, Toddo ( larger and larger in our desperite attempts to avoid the car crash:
  • Let Greece take the pain of a default now. It hurts for a while, but they can start to rebuild Greece with fresh energy and reduced debt. Because: if Greece has to go, it has to go and there is no way that Europe can prevent this without causing massive pain in Greece and the rest of the Euro zone. So please let us stop trying.

  • The same goes for Portugal and Spain: their unsustainable (youth) unemployment and educational problems should be cured, before these countries can return to growth. It is not to Europe to keep for them all the balls in the air, like a juggler. Not, because I don’t like these countries, but simply because it’s impossible to do. And the financial markets know that.

  • For Italy and Ireland, I have not so many worries: Italy is still an industrial leader with worldclass products and Ireland seems to have some light at the end of the tunnel.

  • And as far as the Dutch banks are concerned: if they need state support again, then it is time to remove the current management layers and put a new generation of managers with more awareness in. And please let’s then get rid of the bonus boys.
    • Also the shareholders and bondholders of the Dutch banks should in this case foot the bill for the adventures of the banks on the international investment markets.

But please let’s stop with this bailout madness, as this not solves the situation in the PIIGS-countries, but only makes it worse. In these countries as well as in our own national financial markets.

My stance didn’t change. I don’t like the bail-out madness and I don’t like the enormous amounts of good money being thrown at bad money in order to maintain the current status quo.

I’m more in favor of a system of controlled defaults (debt destruction) in all countries within the Euro-zone that can’t pay their dues anymore.

It will be a very harsh time for the countries involved, but it will give them the opportunity to start building up again, instead of keeping them in a state of coma for dozens of years to come.

But I also want to make clear that I am an Euro-supporter and I want to emphasize here that Germany has had a very prosperous relation with the Euro uptil now. Abolishing the Euro by the Germans would be a grave mistake.

Look for instance at a chart that shows the German imports and exports for the last 20 years:

All data courtesy of the German federal bureau for statistics Destatis (

Since the introduction of the Euro the German export more than doubled and even after the 2008 crisis, the export is back at the level of 2007. And that in spite of the credit crisis and the implosion of the dot-com bubble. Everybody that doesn’t see the positive influence of the Euro here, is either blind or a Euro-fobic.

The Euro made international exchange of goods, services and people so much easier and enhanced international trade in such a fashion that it would be the biggest mistake to return to the pre-1999 situation.

This too will blow over and then a strong and (especially) united Europe is there to compete with the other leading economies in the world.

Therefore it was a good verdict of the
German Federal Constitutional Court
this morning: it puts some ammunition in the hands of the Euro-friendly politicians in Germany, while making life harder for the enemies of the Euro.

Stopping the bailout-madness would be great, but abolishing the Euro would be a disaster for Europe.

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