Germany's constitutional court has begun hearing a case that will decide whether Angela Merkel's government was right to agree to last year's multimillion-euro bailout of Greece and the accompanying rescue package for other faltering EU countries. In the unlikely event that the complainants win, the payments will be blocked, an outcome experts say would shake the foundations of the European Union. "If the court were to restrict the government's leeway to act, the consequences for the EU and the financial markets could be extremely serious," said Commerzbank analyst Eckart Tuchtfeld. Plaintiffs include MP Peter Gauweiler, a renegade member of Chancellor Merkel's conservative bloc. He has a history of challenging European Union initiatives and in 2009 he brought a complaint against the integration measures dictated by the Treaty of Lisbon, with limited success. Gauweiler, along with a group of professors, argues the measures violate EU no-bailout provisions and German constitutional clauses protecting property and democracy. They have the support of the majority of ordinary Germans, who were fiercely opposed to "their money" being used to bail out less prudent countries. The case is so crucial that Merkel dispatched her finance minister, Wolfgang Schäuble, to give evidence at Tuesday's hearing in Karlsruhe. Inside the court, he defended the rescue packages for Greece and other eurozone countries, arguing that "the stability of the euro is of paramount significance". He pointed to the risk of financial instability across Europe and beyond at the time when the government signed on to the initial Greek rescue of May 2010 and also the wider eurozone fund created shortly afterward. Those plans foresee Germany, Europe's biggest economy, guaranteeing loans up to €22.4bn for Greece and €147.6bn (£20.1bn) for other countries. The constitutional court's president Andreas Vosskuhle said the court did not want to hear a debate on the measures' economic merits, and that the right economic strategy was a matter for politicians and not judges. But, he said, his court "has to consider the limits that the constitution sets for politicians." Eurosceptic law professor Karl Albrecht Schachtschneider insisted that "what is economically wrong can't be legally right". He argued that the rescue measures violated a no-bailout provision in the European Union's Lisbon treaty without sufficient justification. He also contended that they violated German constitutional clauses protecting property and democracy, the latter by restricting the German parliament's control over its own budget. "A union of liability and debt favouring other states has been created," he said. Gauweiler's representative, Prof Dietrich Murswiek, pointed to current efforts to set up a second Greek rescue package, arguing that loans would sink into a "bottomless pit". "It's like trying to repair water damage by blowing up the house," he said. Murswiek contended: "The rescue fund serves in reality to take risks away from certain big banks," which would be unconstitutional. Schäuble said the government was on solid legal ground, and argued that "we Germans benefit even more than other Europeans from the currency union".
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Wednesday, July 6, 2011
Germany's constitutional court has begun hearing a case that will decide whether Angela Merkel's government was right to agree to last year's multimillion-euro bailout of Greece and the accompanying rescue package for other faltering EU countries. In the unlikely event that the complainants win, the payments will be blocked, an outcome experts say would shake the foundations of the European Union. "If the court were to restrict the government's leeway to act, the consequences for the EU and the financial markets could be extremely serious," said Commerzbank analyst Eckart Tuchtfeld. Plaintiffs include MP Peter Gauweiler, a renegade member of Chancellor Merkel's conservative bloc. He has a history of challenging European Union initiatives and in 2009 he brought a complaint against the integration measures dictated by the Treaty of Lisbon, with limited success. Gauweiler, along with a group of professors, argues the measures violate EU no-bailout provisions and German constitutional clauses protecting property and democracy. They have the support of the majority of ordinary Germans, who were fiercely opposed to "their money" being used to bail out less prudent countries. The case is so crucial that Merkel dispatched her finance minister, Wolfgang Schäuble, to give evidence at Tuesday's hearing in Karlsruhe. Inside the court, he defended the rescue packages for Greece and other eurozone countries, arguing that "the stability of the euro is of paramount significance". He pointed to the risk of financial instability across Europe and beyond at the time when the government signed on to the initial Greek rescue of May 2010 and also the wider eurozone fund created shortly afterward. Those plans foresee Germany, Europe's biggest economy, guaranteeing loans up to €22.4bn for Greece and €147.6bn (£20.1bn) for other countries. The constitutional court's president Andreas Vosskuhle said the court did not want to hear a debate on the measures' economic merits, and that the right economic strategy was a matter for politicians and not judges. But, he said, his court "has to consider the limits that the constitution sets for politicians." Eurosceptic law professor Karl Albrecht Schachtschneider insisted that "what is economically wrong can't be legally right". He argued that the rescue measures violated a no-bailout provision in the European Union's Lisbon treaty without sufficient justification. He also contended that they violated German constitutional clauses protecting property and democracy, the latter by restricting the German parliament's control over its own budget. "A union of liability and debt favouring other states has been created," he said. Gauweiler's representative, Prof Dietrich Murswiek, pointed to current efforts to set up a second Greek rescue package, arguing that loans would sink into a "bottomless pit". "It's like trying to repair water damage by blowing up the house," he said. Murswiek contended: "The rescue fund serves in reality to take risks away from certain big banks," which would be unconstitutional. Schäuble said the government was on solid legal ground, and argued that "we Germans benefit even more than other Europeans from the currency union".
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The plans put forward by German and French banks last week would leave bondholders nursing losses, prompting S&P to rule on Monday that the losses would amount to a default. This was a severe blow to the proposals, contingent on Greece not reneging on its debt, because the central bank has said it will not accept defaulted bonds as collateral.
Merkel's comments add to mounting pressure on the ECB to make an exception for Greece and allow as collateral bonds that may have technically defaulted – but only because of a debt rollover agreed voluntarily by investors. Although the ECB is understood to be determined to stand its ground, economists believe it is increasingly likely that president Jean-Claude Trichet will have to find a way around the ban on defaulted bonds. The ECB has lent Greek banks €98bn and its continued support is essential for the economy's survival.
It is understood that the ECB is seriously considering requiring all three of the major ratings agencies to rule that the debt-swap proposals amounted to a default before refusing to take the bonds as collateral. Although S&P is the only agency to have publicly announced its view on Greece, the other two – Fitch and Moody's – are widely expected to reach the same conclusion, based on more general statements they have made recently about what constitutes default.
The eurozone's big banks will meet in Paris on Wednesday to refine their debt-swap proposals and they will be looking at ways to sweeten the deal for investors, as they try to satisfy Germany's desire for investors to share the losses, while persuading agencies that this is not a default
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