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Karlsruhe and German exceptionalism

by Frank Schnittger Wed May 20th, 2020 at 02:49:31 AM EST


Michael McDowell
, prominent barrister, senator, Irish Times columnist, and former Tanaiste (deputy prime minister), Leader of the (now defunct) Progressive Democratic party, Attorney General, Minister for Justice, and leading advocate for the neo-liberal policies which devastated the Irish economy in 2008-2011, has written a column in the Irish Times basically supporting the Karlsruhe judgement.

This is hot on the heals of Fintan O'Toole taking McDowell to task for his new role of deficit-scold-in-chief, having been entirely profligate while a Minister of the disastrous 2002-2007 Fianna Fail Progressive Democrat government. As I noted in the comments to that article:

"Deficit Scolds" is the term of art to describe those far right economists (like Rogoff) who criticise all spending when the Democrats are in power and give free licence to Republicans to run up far bigger deficits whenever they are in power - usually on tax cuts for the rich. As Dick Cheny said: "Reagan proved deficits don't matter" when it comes to rewarding the rich, even if this is the most economically inefficient form of "spending" any state can opt for. Michael McDowell fits the description admirably.

But it is his view on Karlsruhe that concern me here. I have responded, in the comments, as follows:


Well its a relief to see Michael McDowell writing about something he actually knows something about, even if I disagree with his line of argument. If the German court can be allowed to superimpose its own judgement on an EU policy it doesn't like, what's to prevent all other member states doing the same? So Hungary and Poland (who were quick to draw this conclusion) can ignore democratic norms as enshrined in the Treaties and substitute the judgement of their own (politically loaded) courts for that of CJEU?


Ireland's constitutional amendments, implementing various EU Treaties, explicitly state that "nothing in this Constitution" can override any obligations contained in the Treaties. Have we therefore been over-implementing EU Treaties and ceding more sovereignty than was needed? Certainly this would create one law for Germany, and one for Ireland, as there is no sense the Irish Supreme Court could over-rule the CJEU. Too bad for Michael; there goes another potentially lucrative revenue stream for his legal practice.

But the Karlsruhe judgement is much more fundamentally flawed than that. It rests on the assumption that the EU is not a state, when that is precisely what the EU is, albeit an emergent one. How else can it have citizens? And what is a state other than a set of laws which bind its citizens together? To argue, as Michael does, that one possibly flawed CJEU judgement (Opinion 2/13) undermines its whole legitimacy is a ridiculous argument from one particular to the general. What court has never issued a flawed judgement, including Karlsruhe, in this particular case?

So contra Michael, this is precisely a case of German exceptionalism by a set of jurists who have not yet come to terms with their secondary position in the legal hierarchy. Time to get real.

And as if to underline the point Merkel and Macron have responded by asserting the primacy of EU institutions by agreeing to allow the EU Commission to borrow €500 Billlion to fund its next budget - thus mutualising debts in a way Germany has long resisted in its opposition to "Eurobonds" and "Coronabonds".

Contrary to Karlsruhe's fondest imaginations, the ECB is not answerable to Karlsruhe for its decision making, the limits of which are justiciable only by the CJEU in accordance with the Treaties.

If Germany has a difficulty with ECB actions, as it often does, it has to make its case at the ECB Board meetings, where it has sometimes been outvoted during and since Draghi's tenure. If, notwithstanding being outvoted, its has an issue with the scope of ECB decision making, it can make its case to the CJEU, like every other member state. Karlsruhe is frankly irrelevant to this process, however much its Justices would like to think otherwise.

Failing that, Germany's only remedy is to leave the Eurozone completely, something many economists think is necessary and beneficial in any case, as Germany's national obsession with trading and financial surpluses has been de-stabilising the whole bloc. It will soon find that trading with a relatively revalued Deutschmark is a much more difficult thing, besides losing a lot of the value of its Euro denominated credit mountain, devalued in consequence. The Eurozone can then pursue inflation and employment targetting policies much more appropriate the majority of its members, including Ireland.

The ugly truth is that Germany has been the Euro's largest beneficiary, but if like the UK, it wants to throw those benefits away, it is perfectly entitled to do so, although it is notable that the Eurozone does not contain an Article 50 style exit clause.

Far from being slow to condemn Karlsruhe, Ireland should be equanimous about the prospect of Germany leaving the Eurozone, if that is what it really wants to do, as the logic of the Judges ruling seems to suggest.

Your comments are welcome!

Display:
Some questions:

  1. Would the BundesBank be breaking any EU law/regulations if it refused to participate in repurchase programmes that had been agreed in accordance with the ECB's statutes? In other words, could the EU bring infringement proceedings against Germany? I appreciate any such actions could have political repercussions in Germany, potentially increasing support for the AfD, but that is hardly the ECB's problem. They had no difficulty over-ruling Greek and Irish proposed actions on debt restructuring and not bailing out junior bondholders in Irish banks, so why not over-rule German non-compliance as well. Or is Germany simply to big to be told what to do?

  2. Is the Merkel/Macron proposal for the EU to borrow and spend €500 Billion a direct response to the Karlsruhe ruling? I.e. they are at last beginning to recognise the limits of monetary policy (in both economic stimulus and legal terms) and choosing to provide a fiscal stimulus instead? It would be a nice riposte to judicial over-reach if it was: If you want to block the ECB from trying to prevent the EZ going into even deeper depression, we will just use more direct means...

  3. I had always thought the EU was legally barred from borrowing to fund its budget: was I wrong to think that, and if not, how has that legal obstacle been overcome?


Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed May 20th, 2020 at 03:26:59 AM EST
by Oui on Wed May 20th, 2020 at 01:39:09 PM EST
Excellent and detailed analysis of the decision:  Last two paragraphs:
But the problem runs deeper still. The Federal Constitutional Court will police Germany's relations with the EU, monitor ongoing and future ECB policies, and most likely block any attempt to introduce eurobonds, however powerful the policy case for them might be. And, because the Basic Law, adopted in response to the horrors of the Nazi regime, protects the principle of democracy with an "eternity guarantee," not even a constitutional amendment can resolve this impasse.

And now that court - heedless of the political consequences for Europe and Germany, contemptuous of the rule of law within the EU, and cavalier about its own limitations - risks sacrificing the euro and possibly even the EU by clamping down on the ECB's efforts to manage the euro. An institution that, by design, no one governs is out of control.



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu May 21st, 2020 at 11:04:22 AM EST
[ Parent ]
If/when AfD comes to lead a government we will find out just how eternal is that guarantee. "Eternal guarantee" are just two high sounding words. Constitutions have been changed before. Or, more likely, the part about respecting democracy will just be ignored.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri May 22nd, 2020 at 04:16:19 PM EST
[ Parent ]
by Oui on Thu May 21st, 2020 at 02:58:29 PM EST
[ Parent ]
It's time to choose what kind of EU we want for the 21st Century"

One without Germany perhaps. Or is that a denkverbot?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri May 22nd, 2020 at 04:23:56 PM EST
[ Parent ]
Best choice the six founding members with a few democracies - if there are any in former dictatorships and the countries in New Europe. The latter  countries prefer to be weaponized by the only Superpower (Trump&Co) and become a separate US of E. These states will be a nice buffer zone for Western Europe. Ask NSC advisor to Joe Biden - Tony Blinken. Will save Brussels a lot of subsidies/funding corruption.
by Oui on Fri May 22nd, 2020 at 05:31:53 PM EST
[ Parent ]
The original six include Germany, so that is no solution. Yet France is wedded to the idea of an alliance with Germany. From Mundell's perspective of an optimal currency area France, Italy, Spain, Portugal, Belgum, Greece and the Mediterranean island states would make an optimal currency area. As would Netherlands, Germany, Austria, Denmark and Finland.

But establishing two such currency areas would disrupt an existing dynamic of the northern states feasting off of the misery of the southern states while benefiting in trade with the rest of the world by having the value of the Euro depressed by the southern states. So it is unlikely to be accepted by the northern states. And France is one bridge between Iberia and Italy with the Mediterranean being the other and the bridge between Greece and the island states as well. I do not know if it is possible for such a southern union to form without France.  
 

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue May 26th, 2020 at 05:36:13 PM EST
[ Parent ]
The folly or, perhaps, the 'mindblock'/'denkverbot' of the existing arrangement is the idea that the southern states BENIFIT from the strength that Germany's Deutchmark brought to the Euro when it joined. My view is that this is anything but a benefit.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue May 26th, 2020 at 05:40:18 PM EST
[ Parent ]
At the beginning Italy was able to borrow at cheaper rates than with the lira, so took advantage of that (to its eternal detriment) as it was misspent on bridges to nowhere, pharaonic nothingburgers which fattened 'certain' pockets but brought zero-to-few benefits to the average Joe, who suddenly had to pay double for coffee at the bar and navigate new roundabouts sometimes every hundred metres (while viaducts and bridges were woefully under-maintained and millions allocated by the EU went unspent because no-one could organise how 'best' -hint, hint- to do it).
To a great degree Italian malfeasance turned the Euro into the poisoned chalice it became, and helped form the negative image now used as cudgel by the 'frugal' nations.
 

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Sat May 30th, 2020 at 12:43:01 AM EST
[ Parent ]
Berlusconi was in charge much of that time, no?


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 31st, 2020 at 06:35:18 PM EST
[ Parent ]
For France it is the Franco-German alliance. All else is optional.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri May 22nd, 2020 at 05:41:47 PM EST
[ Parent ]
Au contraire, the Franco-German axis is merely the springboard from which all major initiatives in Europe tend to start and develop. At least that's Macron's view, but he's not alone in this; his predecessors were much the same and many French pols share the same view.

EU history also tends to follow that narrative: the big countries agree on something and the other EU countries are brought on board later on. Not the most democratic process, but this is how it has worked many times.

Besides France and Germany, there used to be another country with a population over 60 millions and a GDP in the top 5 WW, but it seems to have drifted away.

by Bernard on Fri May 22nd, 2020 at 08:15:51 PM EST
[ Parent ]
It was never the most reliable of allies...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri May 22nd, 2020 at 10:32:42 PM EST
[ Parent ]
France's dedication to Germany is what is preventing a realignment - unless Germany leaves the EuroZone unilaterally. This doubtless springs from the trauma of France being defeated in two world wars. But how likely is it that a breakup with Germany leaving the EuroZone would lead to a war today. Germany cannot even bring itself to fund its military adequately.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 24th, 2020 at 12:33:00 AM EST
[ Parent ]
Professor Pistor's analysis is dead on.  There is a doctrine in law called "collateral attack", i.e. a court reviewing a decision of a court it has no reviewing authority over.  It is always presented in a negative form, something a court does NOT get to do.  A court can only decide that the other court has no precedential authority over it (the other court has no review authority over the present court) and so the other court's decisions are not binding precedent.  While the Constitutional Court ultimately concluded the CJEU's 2018 ruling was not binding, it did so by reviewing that ruling and determining it to be ultra vires.  That is textbook collateral attack.  The Constitutional Court gives no authority for its conducting such a review, so we're left to infer that it believes the EU treaties somehow confer on it the power to review the CJEU's decisions.  Which they clearly do not.  I therefore believe the EU and its other member states would be wholly justified in classifying the Constitutional Court as the court that was behaving ultra vires and commence a broad attack on the decision.
by rifek on Sun May 31st, 2020 at 10:40:10 PM EST
[ Parent ]
Germany has been the leading obstacle to the further evolution of the EU and the Euro-Zone. Germany leaving the Euro-Zone would make genuine progress possible for the remaining countries. Or Germany can come to terms with the realization that they will not have perpetual veto over any and all EU or Euro-Zone policies with which they disagree.

By bringing this issue to a head the Karlsruhe decision has actually brought about progress that has long been stymied.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu May 21st, 2020 at 02:19:37 AM EST
In Ireland, a ruling by the Supreme Court, on a matter of European Law, can be appealed to the CJEU. Does the same apply to this ruling in Germany?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu May 21st, 2020 at 11:08:18 AM EST
Who in Germany would make such an appeal? But, if made, the almost certain decision would starkly clarify the legal situation. It is the ordoliberals in Germany who object. That is ironic as the rules established by the treaties forming the EU seem pretty clear on the relevant points as outlined by Frank. It would seem that it is not an argument about hierarchical order, which clearly places the EUJC at the top of the legal heap, but rather one about Germany's place in the hierarchy. What were these same ordoliberals thinking when the treaties were being negotiated?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue May 26th, 2020 at 04:39:59 AM EST
[ Parent ]
Not being an expert on German law I will have to defer to others on this. My understanding is that the Karlsruhe Court ruled that any group of concerned citizens have standing to take the case as they are impacted by ECB policy. In theory another group of German citizens could seek to appeal the Karlsruhe decision to the CJEU. However it is normally up to the Court to decide whether to allow an appeal to a higher court. If Karlsruhe does not regard the CJEU as a higher court, then presumably it will not allow such an appeal.

Arguably, it is thereby denying German citizens of their European citizenship rights, and ultimate right of appeal to the CJEU. No doubt some logic will be found to the effect that this particular ruling is specific to the ECB and does not effect German citizens rights in general.But it will be interesting to see if another group of German citizens seek to launch an appeal and if their appeal is ultimately referred to the CJEU.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 26th, 2020 at 11:28:23 AM EST
[ Parent ]
by Cat on Fri May 22nd, 2020 at 12:58:08 AM EST
Thanks - I'm not sure how this impacts on the EU-US Open Skies Agreement, if at all. Trump just seems to looking around for more Treaties he can tear up, without realising how this impacts on many countries willingness to do business with the US.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri May 22nd, 2020 at 09:48:54 AM EST
[ Parent ]
How Germany changed its mind about Europe
When German chancellor Angela Merkel announced one of the biggest U-turns of her career this week, the declaration was both emphatic and unexpected.

On Monday, she and French president Emmanuel Macron unveiled a proposal for a €500 billion EU "recovery fund" to help the European economy back on its feet after the havoc wrought by the coronavirus pandemic.

Politicians and analysts say the plan, under which the European Commission would borrow money to support the budgets of stricken member states, could mark a turning point in the history of the EU.

The two leaders and commission president Ursula von der Leyen will now have their work cut out convincing the so-called Frugal Four - Austria, Denmark, the Netherlands and Sweden - to support the proposal. But the previously faltering Franco-German partnership, revived by the need to avert an economic depression, could be a powerful persuader.

According to one senior German official, the "moment of reckoning" for Berlin had come almost two weeks earlier, on May 5th, when Germany's constitutional court in Karlsruhe had cast doubt on the legality of the European Central Bank's bond-buying programme.

For years, the EU has relied on the ECB to do the heavy lifting in a crisis. "The idea was, member states didn't need to do any fiscal stuff because the ECB would always save the day," the official said. "The bank was also a useful scapegoat to have around to blame for anything that went wrong."

The court ruling underscored the need for budgetary as well as monetary support for vulnerable EU members.

Nevertheless, Ms Merkel's championing of the proposed recovery fund with Mr Macron seemed to come out of the blue. Even her closest allies were stunned. Berlin had always opposed the idea that money from such a fund would be distributed in the form of non-refundable grants rather than loans. For Germany, that smacked too much of fiscal transfers from richer to poorer EU states - taboo in Berlin.



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri May 22nd, 2020 at 02:26:24 PM EST
A college contemporary of mine has written a story which puts the Karlsruhe judgement into a larger context.
When Angela Merkel joined Emmanuel Macron on Monday to announce their support for a €500 billion pandemic recovery package, she was not only breaking German political taboos and economic orthodoxy, but making a conscious and welcome end-run around the German Constitutional Court (GCC).

A week beforehand the GCC had precipitated what threatens to be a major EU institutional and constitutional crisis by ruling that the European Central Bank, abetted by the Court of Justice of the European Union (CJEU), had exceeded its powers in engaging in "quantitative easing".

This is a form of economic pump-priming involving the buying of bonds by the bank to inject liquidity into markets in danger of freezing up. The GCC struck a potentially crippling blow at what was, and remains, a cornerstone of the EU's response to the financial crisis, an essential monetary instrument of the bank.

The likelihood is that the commission will now agree to take to take infringement proceedings against Germany

The court in Karlsruhe is responsible for overseeing constitutional propriety in Germany, and, in its view, in organisations like the EU to which Germany cedes sovereignty.

In repudiating an earlier CJEU ruling allowing QE, it broke a fundamental principle of EU law, the ultimate supremacy of the CJEU over national courts, a ruling that has delighted Poland and Hungary which are anxious to shake off CJEU oversight.

Crucially, the GCC claimed the ECB had failed to apply a proper test of "proportionality" to its decision to engage in QE and so was underestimating its economic effects.

Under treaty law, the ECB is allowed to engage in monetary activities but is not permitted directly to fund states' spending. Now, in effect, the GCC was saying that because monetary measures like QE - and by the same logic, one Brussels lawyer put it to me, manipulating interest rates - have a substantial economic effect they may be scrutinised by the courts as a form of fiscal subsidy.

The rest of the story is also well worth reading. I have commented as follows:

Thank you Patrick, for adding a bit of perspective to the extraordinary vapourings of Michael McDowell, who also had his fingered rapped by his former teacher, and Supreme Court Justice, Nial Fennelly in the letters section today.

True to his far right political inclinations, Michael McDowell has allied himself with the neo-Nazi AfD and the Hungarian and Polish governments which have sought to undermine the independence of their own judiciaries and the primacy of European law.

He has also made a nonsense of the Irish Constitution, which explicitly states that "No provision of this Constitution" will undermine our Treaty obligations, as interpreted by the CJEU.

In doing so he has sought to dismantle the whole legal order of the EU, so that 27 different national supreme courts can now re-interpret aspects of the Treaties in whatever way pleases them or their political masters.

The political nature of the German court's ruling is underlined by its author, Peter Huber, telling the European Commission not to issue infringement proceedings against Germany should the Bundesbank not simply ignore the German Courts instructions.

And the irony of the whole situation is that the German Court has accused the ECB of failing to properly evaluate "the proportionality" of the economic consequences of its QE programme, when it is any sense of proportionality which is so evidently lacking in the German Courts ruling.

It is as if German Ordoliberal ideology is to be the sole arbiter of ECB actions, and all other economic philosophies have been declared illegal. Not only has the GCC shown itself to be economically illiterate, but politically motivated and judicially absurd.

But of course EU institutions will rightly just ignore the GCC ruling, as has Merkel in her deal with Macron



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat May 23rd, 2020 at 03:26:41 AM EST
I am upbraided by an email correspondent for this article as follows:
Dear Mr. Schnittger,

as long time reader of the I usually agree with most of you opinions. However, your comment on the German decision of the Bundesverfassungsgericht misses by far the point in a few instances.

The major issue of the Judge Huber was  that in Germany (and according to Huber also other countries) the Basic Law/constitution sets the highest bar, it cannot be changed by a European court. There was and is a conflict that has to be solved.

"If the German court can be allowed to superimpose its own judgement on an EU policy it doesn't like, what's to prevent all other member states doing the same?" only points to the fact, that you do not understand the issue. To complain that a German judge points to this conflict is therefore weak, the EU is not one country, it is a union of sovereign states, that causes problems. Ignoring the problems solves nothing.

"Is the Merkel/Macron proposal for the EU to borrow and spend €500 Billion a direct response to the Karlsruhe ruling?"

Again a miss by a wide margin. There was never a discussion whether there is support for the countries hit hardest by the corona visrus epidemic, only the legal framework was. The judge Huber did NOT exclude some means, he only requested a better reasoning, this should be easy for the EU. And a larger EU budget as suggested for the 500 billion EUR is of course perfectly within the legal framework given by judge Huber.

"Far from being slow to condemn Karlsruhe, Ireland should be equanimous about the prospect of Germany leaving the Eurozone, if that is what it really wants to do, as the logic of the Judges ruling seems to suggest."

Nonsensical conclusion.

Best regards in the hope to read high quality article in future again.

Taking a few of the points in turn:
Point 1: "The major issue of the Judge Huber was  that in Germany (and according to Huber also other countries) the Basic Law/constitution sets the highest bar, it cannot be changed by a European court."

We are talking here about the actions of the ECB, which is an EU institution created by the Treaties and subject only to EU law. The Huber judgement also explicitly tries to overturn case law created by the CJEU since 1964. It is simply not empowered to do so.

The primacy of EU Law over national law and the CJEUs pre-eminent role in interpreting it is enshrined in Annex 17 of the Treaty of Lisbon.

Other countries, including Ireland for example, explicitly acknowledge this in their own constitutions:
Article 29.4.6 of the Irish Constitution

6º No provision of this Constitution invalidates laws enacted, acts done or measures adopted by the State, before, on or after the entry into force of the Treaty of Lisbon, that are necessitated by the obligations of membership of the European Union referred to in subsection 5 of this section or of the European Atomic Energy Community, or prevents laws enacted, acts done or measures adopted by--

    i. the said European Union or the European Atomic Energy Community, or by institutions thereof,
    ii. the European Communities or European Union existing immediately before the entry into force of the Treaty of Lisbon, or by institutions thereof, or
    iii. bodies competent under the treaties referred to in this section,

from having the force of law in the State.

So by your logic that EU law is subservient to German Basic Law, and with Irish law being explicitly subservient to EU law, Ireland is now effectively being ruled by Germany?? This will be news to many here.

Point 2: "EU is not one country, it is a union of sovereign states"

It is a union of sovereign states which have agreed by Treaty to pool certain aspects of their sovereignty and to vest decision making authority in those areas in the 7 institutions of the EU, including the ECB and CJEU. Why do you think the Brexiteers were so intent on escape from under the yoke of the CJEU? They recognised that British law is subservient to EU law for as long as they remained a member.

Point 3: "There was never a discussion whether there is support for the countries hit hardest by the corona visrus epidemic, only the legal framework was. The judge Huber did NOT exclude some means, he only requested a better reasoning, this should be easy for the EU."

The German constitutional case pre-dates the Covid-19 pandemic and is concerned largely with opposition to the Quantitative Easing programmes initiated by Draghi, which have had the economic effect of reducing interest rates paid by net deficit countries such as Italy, and reducing interest received on savings by net savers such as Germany.

It is therefore understandable that many in Germany should oppose QE, even though it is actually necessitated by German insistence on running net export and current account surpluses which force other EZ countries into deficits. Normally Governments such as the US rectify such imbalances through net fiscal transfers from richer states to poorer ones, something which is now also, belatedly, being proposed by Merkel/Macron.

But in the past and current absence of such fiscal transfers, the EZ has had to rely ever more heavily on the ECB to rectify those imbalances, although QE has also been used, increasingly by the FED and Bank of England to prevent large parts of their economies falling into recession.

If Mr. Huber needs this explained to him, then fine. Any competent economist not trained exclusively in the Ordoliberal tradition can do so. But it is not the function of the ECJ to do so as it is not answerable to the German Constitutional Court and what it regards as "proportionate" or otherwise.

Manipulating interest rates is part of the basic policy tool-kit of any central bank in controlling inflation and preventing recessions: Not too many Germans were complaining when the ECB kept interest rates artificially low to help fund German re-unification, even though those ultra low interest rates led to an otherwise avoidable property and asset boom and greatly exacerbated the 2008 crash in Ireland and other EU member states.

The reality is that any ECB policy will be more or less appropriate for the economic interests for any one member state at any given point in time. That is the compromise inherent in any common currency covering widely divergent economies.

Mr. Huber went far further than just requesting a better explanation. He explicitly rejected previous CJEU rulings as absurd and declared that Germany should not be subject to them. If Germany has not properly inserted the primacy of EU law into its constitution, that is a problem for Germany to resolve. It is Germany's membership of the EU and EZ that is put in question by Mr. Huber, no one elses.

You do not appear to realise how grave an insult Mr. Huber's ruling is to the rest of the EU, and how it cannot be left to stand if the whole legal order of the EU is not to be undermined. Merkel recognised this, but in typical Merkel fashion chose to skirt around the issue by proposing a fiscal stimulus package instead. It does not look good for any government to oppose a finding by its supreme court.

However the ECB will ignore the ruling and the CJEU may take a long time to slap it down, unless some court case or other gives it an opportunity to do so. The European Commission will probably only bring infringement proceedings against Germany if the BundesBank fails to meet its obligations under the Treaties. The findings of a rogue institutional court are of no direct relevance to it. But it would be a pity if Germany were to join Hungary and Poland with infringement proceedings pending against it.

Perhaps Philip Lane, ECB chief economist will issue some ex-cathedra statement on the economic impact of QE measures which are widely credited with saving the EZ from recession. The EU usually finds some way to muddle through a crisis without explicit endorsing extreme positions. But you can expect much more QE in the years ahead if the Pandemic is not to result in an even deeper recession. The Eurozone's survival, or Germany's position within it are at stake.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 25th, 2020 at 03:13:52 PM EST
I have revised and upgraded the above to a new diary as it is rather long and complex and deserves a discussion in its own right. I am happy to be corrected on any points I have made as I am not a lawyer, and certainly not familiar with the legal system in other countries.

It seems to me the Irish constitutional amendments incorporating EU Treaties into the Irish Constitution were drafted in the way they were in order to remove precisely the sort of confusion introduced by the Karlsruhe judgement as to who decides whether ECB actions are within their Treaty given powers and indeed proportionate in terms of their economic effects.

I would have thought it self evident that decisions as to the necessity for and expected impact of ECB decisions are the statutory purview of the ECB Board and their expert economists, and beyond the competence of non-economists and non-bankers like the Karlsruhe Court.

If the ECB has exceeded its Treaty given powers in some way, that is clearly justiciable by national courts subject to final appeal to the CJEU. It is the denial of the CJEU's final say on the legality or otherwise of the ECB's actions which I believe undermines the entire legal order of the EU.

It is also open to Germany to seek a negotiated change in the role of the ECB by way of amendment to existing Treaties, but that would require unanimous political support and a referendum in some countries. If such a Treaty amendment were contemplated by Germany, I would certainly be advocating a broadening of the ECB's role in targetting employment levels as well as inflation, and ensuring the stability and balancing trade and capital flows throughout the entire EZ system.

It is not only deficit countries that require "reform", but surplus countries which refuse to reflate their economies in order to re-balance Intra-EZ capital and trade flows. If Germany wants to continue to sell Mercedes to Greece it must ensure that it imports sufficient Greek produce to enable the Greeks to pay for them.

At the heart of the debate is the German Lutheran equivalence of debt and blame - "schuld" - when in economic terms every debt has a creditor and neither is more morally upright than the other. German attempts to push their trading partners into debt is literally a case of trying to push the blame on them for a German failure to ensure the terms of trade within a common currency zone are balanced. The only alternative would be a break-up of the EZ so that national currencies can once again float freely against one another in as a means of balancing trade flows.

Negative interest rates could do the same job but no doubt Herr Huber would have a problem with that as well if the ECB pursued them to their logical conclusion. Ultimately a court of law is not an appropriate place to decide whether interest rates or bond buying programmes are "proportionate" to their economic effects. Otherwise we might as well replace the ECB with the German Constitutional Court.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 25th, 2020 at 09:10:06 PM EST
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