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Friday, June 22, 2012 1:12 AM

German Supreme Court Delays ESM; Another Setback for Merkel; Creeping Bailouts; Reflections on German Expectations

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Reader "Bert" from Germany writes ...

Hello Mish

The German Supreme Court asked the president to delay signing the ESM. This is unprecedented. The court needs more time to study the proposal, they say.

So no ESM yet! I was waiting and hoping for this kind of action.

Kind regards and please keep going on with your very interesting mail service, I never skip a day.

Another Setback for Merkel

Bert sent this link from Faz: Gauck unterzeichnet Fiskalpakt vorerst nicht.

The Google translation was so bad I won't even post it.

Instead, please consider the Spiegel Online English version report Germany Faces Delay in Ratifying Euro Rescue Fund
Germany's highest court asked the country's president on Thursday to delay ratification of the permanent euro bailout fund, the European Stability Mechanism, and the fiscal pact into law next week. If he complies, the move could delay the implementation of the ESM by several weeks in the latest setback for Chancellor Angela Merkel.

The Constitutional Court, anticipating challenges to the legislation, wanted more time to review documents. German President Joachim Gauck, hardly three months in office, was already faced with an important decision. If he complied with the request from Karlsruhe, at least one piece of legislation proposed by Chancellor Merkel and her coalition government -- the permanent bailout fund known as the European Stability Mechanism (ESM) -- would undoubtedly be delayed. The ESM was originally scheduled to come into force on July 1, 2012.

Gauck doesn't want to sign the two laws, at least for now, when they are presented to the two houses of the German legislature -- the federal parliament, the Bundestag, and the upper legislative chamber, the Bundesrat -- for ratification next week. However, laws in Germany are only considered ratified, and therefore binding under international law, when signed by the president. Now it could take another two or three weeks before the court rules on possible emergency appeals.

Declining a request by the Constitutional Court judges, especially on such a delicate matter, would have created a massive conflict and set off a debate on the question of whether a German president in cases of doubt has the power to ignore Karlsruhe. It was a conflict Gauck was anxious to avoid. According to a statement by the president's office, Gauck intended to "comply with the request, in keeping with standard government practice among the constitutional bodies, and out of respect for the Federal Constitutional Court, as soon as the Bundestag and the Bundesrat have adopted the corresponding treaty laws."

Emergency Appeals by the Left Party and a Former Minister

For now, Germany's highest court has the final say. The Left Party and former Justice Minister Herta Däubler-Gmelin, a member of the center-left Social Democratic Party (SPD), have announced their intention to file suits against the ESM and the fiscal pact. They are expected to file emergency appeals against the measures.

Almost no one in Merkel's coalition government of the center-right Christian Democratic Union (CDU) and the pro-business Free Democratic Party (FDP) believes that Karlsruhe will actually stop the fiscal pact and the ESM. And neither does the opposition, which doesn't want to imagine the prospect of both projects failing on Germany's account. "The house is on fire," says a leading member of the Green Party opposition, in a reference to Spain. He is expressing the dilemma that the Constitutional Court also faces as it considers the possibility of legal challenges, namely that the judges are also keeping an eye on the nervous markets.
Reflections on German Expectations

The article notes that "almost no one" believes the supreme court will stop the ESM. However, note that Merkel and others were shocked by this delay in the first place.

Having followed such stories for over a year, the compromise position would be for the court to allow the ESM with various warnings.

And why shouldn't the court warn? More specifically, why shouldn't the court reject the ESM outright?

"Mistake to Pursue United States of Europe"

Flashback December 28, 2011: "It's a Mistake To Pursue a United States of Europe" says German Supreme Court Justice in Spiegel Interview ; Interpretation of Interview from Saxo Bank Chief Economist

Flashback September 26, 2011: Germany's Top Judge Throws Major Monkey Wrench Into Leveraged EFSF Machinery, Demands New Constitution and Popular Referendum for Further Powers

Please read those two articles carefully.

Does Merkel Care About Constitutional Issues?

It is not at all uncommon for politicians (in this case Merkel) to simply not give a damn about constitutional issues.

Moreover, and although I cannot speak for Germany, perhaps it is shocking for the courts to intervene this way. Certainly in the US we do not see laws delayed before they are signed by the president.

Creeping Bailouts

Although Merkel has stayed true to form against Eurobonds and other blatantly obvious transfer mechanisms, I believe the real reason is her fear the German supreme court might demand a referendum.

Even if the court allows the ESM, this is a further warning to Merkel to not stray too far.

Every step of the way, Merkel has caved in to demand for higher bailouts, as well as bailouts upon bailouts, all of which increase German taxpayer risk, as does ever-escalating target2 balances.

For further discussion, please see Discussion of Target2 and the ELA (Emergency Liquidity Assistance) program; Reader From Europe Asks "Can You Please Explain Target2?"

Has the Supreme Court Finally Had Enough?

With creeping bailouts caused by cave-in after cave-in by Merkel, and with Target2 balances skyrocketing out of sight, perhaps the German supreme court has finally had enough.

I doubt it, but let's hope so.


Reader Philipp ads this note about German courts ...
Hi Mish,

A correction to your post about "Germany Supreme Court Delays ESM". The federal constitutional court is not the supreme court of Germany. Actually, there are 5 supreme courts in Germany with different areas of expertise.

The constitutional court is situated above the supreme courts and its only job is the final interpretation of the German Constitution.

The difference to the US system is based on law jurisdictions. The US system is based on the anglo-saxon common law while most of Europe is based on the Roman Law system and the Corpus Juris Civilis of the East Roman Empire with influences of the laws of the Salian Emperors (Holy Roman Empire) and the Code Napoleonique.


Mike "Mish" Shedlock
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