Mr Mares, who was Mario Draghi’s right-hand man at the ECB, said the decision was destroying the single market, attacking at a very dangerous moment, and “potentially bringing the European Union to a peak sooner than most people would expect”. While the ruling does not cover the latest € 750 billion of the “pandemic bonds” launched in March, it applies implicitly because the new scheme violates more red lines.
Pandemic QE does not have the constraints requested for previous bond purchases – the 33pc rule, “key capital”, and credit quality. This is open and therefore deviates from the court’s insistence on strict limits. So what happened when € 750bn dried up later this year and needed further big push?
Around 40% of recent purchases were made with Italian bonds. The ECB chief economist openly stated that they intended to reduce the spread of risk in “individual sovereign markets” that were at risk because of the “prospective scale of issuance of public debt”.
This is a recognition that QE has turned into a fiscal rescue at the back door and that it violates the prerogative of the tax and expenditure of the German parliament, which is rooted in the Basic Law. The court said MPs in the Bundestag might not legally alienate this fiscal power to any supra-national body even if they wanted to.
Mr Mares said there was nothing the ECB could offer to convince Verfassungsgericht that he has done his homework and weighed the economic impact of his actions. The basis of his actions is public records. “We do not see an original reconciliation between how the ECB implements monetary policy and what it considers to be acceptable German courts, within three months or at any time,” he said.
Professor Adam Tooze from Columbia University said the German decision bleak monetary science. Judges have failed to make peace with the changing nature of the central bank in an interest-free world. They plunged into a quasi-cheap economy and relied on anti-QE witnesses with axes to grind.
But the court remained “right to detect magic when the ECB confirmed a completely new set of policies” citing the price stability mandate. The ruling has “highlighted the ECB Highlights”.
The German plaintiff thinks the ECB is carrying out “redistributive Keynesianism in monetary disguise” and is an opaque technocratic institution, “seizing power itself that truly belongs to the national parliament, sliding down the slippery slope to the European superstate”. This is proven by itself to be true.
The Commission’s attempt to force German compliance was a gamble with nuclear betting. That forced Berlin to take sides. The government must defend Verfassungsgericht and Grundgesetz, Magna Carta from German democracy.
This forces clarification of the fundamental ambiguity in the structure of the EU constitution. Is a superstate union like the US with the original highest court, or is it basically an organization of treaty independent countries?
The German judges decided firmly that it was the last. They say the EU is not a “federal state” and that sovereign states remain “Masters of the Agreement”. They stated in black and white that the German court was “not bound” by the ECJ’s ruling.
Brussels might find that if it forces Germany who are reluctant to choose between these two incompatible European versions, it might not like the answer.
Wolfgang Schauble, president of the Bundestag and astute EU integration, advised Brussels to accept Germany’s decision. It must find a “smart” way out and retreat to a safer place than forcing performances that can go wrong.
“Independent institutions that are not democratically controlled must carefully obey their mandates and not get lost,” he said. “The German verdict cannot be easily disputed.”
European courts asked for problems with indifferent treatment of German courts in the 2018 decision, as if the question of exponential expansion of QE did not need to be answered. That Verfassungsgericht never accept ECJ claims for supremacy, always have the right to drop violating EU law Grundgesetz.
The ECJ only emphasizes excellence. This doctrine was created from all fabrics in the case of the Costa / Enel landmark in 1964. This bootstrap jurisprudence – basically bluffing – has been followed and tolerated by member states. Until now.
There is no basis for the Agreement for the supremacy of EU law. Judicial expansionists in the EU legal services unit tried to include it in the Lisbon Treaty but all they got was a thin Declaration in the appendix stating that “the law settled by the Court” has an advantage over national law.
This Statement is a gift. The British know how little this means. Tony Blair confirmed that what he thought (or pretended to think) was a choice out of the EU Charter of rights in the Lisbon Treaty. Protocol 30 has a higher legal value than the Declaration, but was later removed as a worthless piece of paper by ECJ judges. Sauce for geese is a sauce for male geese.
German judges have repeatedly objected to the judicial activism by the ECJ, expressly condemning the misuse of the Charter to expand its power. Their fingers are on the trigger. Finally they pulled it. The implied suddenly becomes explicit.
It changed Europe very quickly. There have been other cases where Danish and Czech courts have failed to apply EU law – leading to investigation and retreat – but these are minor episodes of different characters.
That Verfassungsgericht has taken matters into his own hands and rejected the European Court of Law of the EU Treaty itself, accusing him legerdemain existential problem. This is not just a matter of maintaining Grundgesetz much longer.
Ultra-Europeans have the right to protest that this is undermining the European Union’s legal order as they wish and making the federal project unworkable. But they are progressing themselves in believing in their own version of legality.
The German People’s Court has broken the spell. A political reality that is resilient and long silent Deutsche Volk have said in crimson that enough is enough. Ultra vires won’t fly. Every attempt to bully them into submission must fail.
“Sooner or later something like this will definitely happen, and it will not disappear,” said Marco Annunziata, an EU economic veteran. “The euro area that we have is not what the German public is registering. If he enters a transfer union, the costs for Germany will be large and open.
“The idea of Germany leaving the euro area no longer sounds as far-fetched as it was 15 years ago … just a little more far-fetched than thinking that Britain might leave the European Union,” he told a OMFIF debate. The unthinkable makes sense.
One is tempted to say that for the EU to lose the second largest net contributor is careless: the risk of losing its dominant economic power is also compulsive.
But Brussels is in trouble. The euro cannot let the euro explode after moving so far. The eternal theme of the classic tragedy is that sometimes there is no way out.
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