Jens Weidmann, the Bundesbank’s hard-line chief, testified that the ECB’s
bond rescue plan for Spain and Italy risks “significant losses” for Germany’s
central bank and grave damage to its credibility. “Ultimately, it is the German
taxpayer who carries the risk,” he said. Mr Weidmann said the bond scheme, known as Outright Monetary Transactions
(OMT), blurs the line between fiscal and monetary policy and encroaches on the
terrain of parliaments. It leaves the ECB with the task of carrying out rescue
operations that is the proper responsibility of the euro bail-out fund and
compromises the bank’s independence. The two-day hearings at the constitutional court in Karlsruhe will
investigate the legality of the OMT, the “game-changer” that defused the EMU
debt crisis last July and has been so successful that no country has yet needed
to use it. The case stems from complaints by 37,000 citizens, including the Left
Party, More Democracy and eurosceptic professors, most arguing that the ECB is
financing bankrupt states.
While the court has no jurisdiction over the ECB, it could prohibit the
Bundesbank from taking part in bond purchases. This amounts to the same thing,
since the OMT would collapse if Germany stepped aside. Chief Justice Andreas Vosskuhle said the court would adhere strictly to the
law, regardless of whether ECB actions have been successful, “otherwise the end
would justify the means – such an idea would go against the central tenets of a
democratic state grounded in constitutional law"...
SECO argues that Europe's financial crisis "cannot be regarded as addressed" because countries in southern Europe are still "relatively far from a significant economic improvement".
I agree. A chain is only as strong as its weakest link. The EZ chain is Germany-France-Italy-Spain.
Until Spain and Italy are on a firm footing, I don't think we can consider the problems "solved"....
Here's what Spiegel thinks about the German CC ruling on OMT:http://www.spiegel.de/wirtschaft/soziales/politik-der-ezb-vor-dem-verfassungsgericht-vier-szenarien-a-904828.html
They see for possible outcomes:
1) The court rejects the ruling on a European institution => unlikely
2) The CC sees a violation of the ECB charter and refers the case to the ECJ. In that case an approval of OMT is seen likely, but it would take a long time to get the ruling
3) The CC could rule that the participation of German institutions (such as the Bundesbank) is in violation with the German constitutions => chaos
4) The CC dismisses the complaints but defines rules and proceedings that teh German side has to adhere to, to avoid being in violation of the Constitution. That had been the case for the previous lawsuit against the ESM in which the CC demanded parliamentary participation in the decision process. => This is seen as the most likely outcome.
1) The court rejects the ruling on a European institution => unlikely
2) The CC sees a violation of the ECB charter and refers the case to the ECJ. In that case an approval of OMT is seen likely, but it would take a long time to get the ruling
3) The CC could rule that the participation of German institutions (such as the Bundesbank) is in violation with the German constitutions => chaos
4) The CC dismisses the complaints but defines rules and proceedings that teh German side has to adhere to, to avoid being in violation of the Constitution. That had been the case for the previous lawsuit against the ESM in which the CC demanded parliamentary participation in the decision process. => This is seen as the most likely outcome.
4 comments:
“There is the risk that the transition to higher rates occurs in an abrupt and disruptive fashion. In such a scenario, markets react pre-emptively, potentially trapping some participants in vulnerable positions that appeared manageable under low interest rates.”
The bank warned that banks “may be at particular risk” in countries that have let rip with the biggest asset bubbles. The institution cut its growth forecast for the global economy to 2.2pc this year, a world recession under the bank’s traditional definition, chiefly due to faltering momentum in China and the rest of Asia.
The World Bank said real interest rates were likely to jump by up to 270 points in the more heavily indebted BRICS states and other emerging markets as the West unwinds quantitative easing, and the tightening cycle starts in earnest.
The Chinese bank Everbright defaulted on an interbank loan last week, one of several instances of lending stress in China over recent days and a sign that bad debts are emerging from the shadows of the banking system.
The World Bank said private credit in China was now the highest of all emerging markets at 160pc of GDP. “Private debt can rapidly become a public sector problem,” it said, citing the East Asia crisis in the mid-1990s.
Euro Zone Closes In on Bank Plans
Senior euro-zone finance-ministry officials are polishing details of a plan to allow the bloc's bailout fund to directly support ailing banks.
The recent turbulence rattling global bond markets is unmasking an unpleasant notion in Europe: The euro zone's problems aren't solved.
Government bonds have recently taken a hit around the world, now that investors are preparing for the possible end of central banks' boundless economic stimulus. And those bonds of the weakest euro-zone countries have shown some of the biggest drops.
That suggests that the bonds of Spain, Italy, Portugal and Greece might be susceptible to bigger swings in the future, as the flood of cash that has poured into financial markets recedes, leaving their economic warts more exposed, market participants ...
two-day strike
French trains grind to halt amid two-day strike
© Photo: AFP
French railway workers went on strike on Wednesday evening, disrupting much of the country's train network. However, the walkout was not expected to seriously affect international rail links.
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