The countdown for the ESM: press views on Karlsruhe

On 12 September, Germany’s Federal Constitutional Court (FCC) will announce its decision on the European Stability Mechanism (ESM) and the Fiscal Compact. Chancellor Angela Merkel will respond in the German Bundestag, with a government declaration on the FCC’s decision. The decision is eagerly anticipated by German and EU politicians, and by the German and international press. We review the German media build-up to the decision below.

According to the Spiegel, the German government is convinced that the FCC will clear the way for the ESM.  However, a recent publication by Bundestag legal experts (on the behalf of left-wing party Die Linke) warns that the ESM might intervene in the Bundestag’s sovereign rights. The publication on 5 September argues that “a possibly direct and potentially unlimited liability” for the debt of other euro-area countries may compromise the budgetary powers of the Bundestag.

More recently, two days ahead of the decision, CSU deputy Peter Gauweiler argued that the purchase by the European Central Bank of sovereign debt in unlimited volumes on the secondary market bypasses the ESM rules even before its ratification. The ECB should thus withdraw its decision. Furthermore, Gauweiler urged the FCC to postpone its ruling if it is not able to decide on his urgent motion (Spiegel Online). The Spiegel writes writes that CSU Secretary General Alexander Dobrindt also criticised the ECB’s decision to purchase euro-area government bonds, expressesing his “great sympathy” for Gauweiler.

Bond purchases by the ECB would overlap with the ESM, which also has the buying of bonds as part of its toolbox. However, the German law accompanying the ESM treaty clearly stipulates that this action necessitates the approval of the Bundestag. Heribert Prantl in the Süddeutsche Zeitung says that ECB president Draghi’s decision on the bond-buying programme before the FCC’s ruling pleases many economists, but worries jurists as the “end does not justify the means”. It would be good if the European Parliament could act on the issue, but since the FCC decision in 2009 declared it to be a “Minder-Parlament” (less important Parliament), its capabilities are limited. According to Prantl, Europe does not merely need the euro, but also more democracy.

Börse Online writes that the FCC might pronounce positively on the ESM, but the reaction of the financial markets will depend on the stringency of the conditions accompanying the ESM, which are expected to be set out by the FCC.

According to the Manager Magazin the so-called “Draghi effect” last week, namely the decision to buy the sovereign debt of euro-area countries, could quickly vanish in the case of a negative FCC decision, which would be a “party killer” after the euphoria following Draghi’s announcement.

Law Professor Christoph Degenhart writes in Wirtschaftswoche that he is skeptical about the ruling because “the ECB could always foil the FCC’s decision by printing money in unlimited volumes”.

What decision of the FCC is expected by German Constitutional Law experts?

The FAZ writes that most of Germany’s leading Constitutional Law judges expects the approval of the FCC for ratification of the ESM treaty and the Fiscal Compact (based on a Reuters survey). All 20 judges are convinced that the FCC will reject the urgent motions against the two treaties, even if they do not all agree with a possible positive decision. However, 60 percent of the judges also expect the FCC judges to impose harsh conditions on the German government. These could go from greater involvement of the Bundestag or Bundesrat, to a declaration under international law that Germany’s capped liability within the ESM credits cannot be exceeded. To date, the FCC has never blocked any EU measure according to Helmut Siekmann, University of Frankfurt.

Furthermore, a quarter of the judges expect that the FCC ruling will signal that the time has come for a referendum about a new Constitution (the German Basic Law) including the ESM and the Fiscal Compact. The remaining three-quarters, however, argue that this is not plausible as the “FCC won’t force the replacement of the Basic Law, through which it itself is constituted”.

The Spiegel writes  that, given that the FCC previously declared the euro rescue to be legitimate, it will call for amendments to the ESM rather than demand a comprehensive constitutional change. According to Der Spiegel there are two possible points on which the judges could call for amendments. First, they may strengthen the rights of the Bundestag (eg the plaintiffs demand to the inclusion of a cancellation clause in the ESM treaty in order to retain control over state finances). Second, they may demand a definition of the German liability cap within the ESM treaty.

Günther Jauch, German television host, organised a discussion on whether the rescue of the euro had to stop for reasons of democracy. Speakers were Bavarian Finance Minister Markus Söder, former chief economist of the ECB Otmar Issing, and former FCC vice president Winfried Hassemer. Hassemer was invited in order to give some insights into the working methods of the FCC. According to the Welt, although the 37,000 plaintiffs are still waiting and hoping, the decision of the FCC has probably already been taken. Hassemer reckons that the text already exists. Moreover, he assumes the existence of economic expertise on the consequences of a failure of the ESM and Fiscal Compact, which is essential for the judges to take a decision. However, he did declined to prejudge the decision.