Gauweiler's Challenge to Germany's Constitutional Court: Fiscal offenders or victims of nature?
Several law-suits have been launched at Germany's Constitutional Court with the aim of stopping the Euro-area bail-out. This bail-out has been put in place by the Euro-area governments – as you may recall – based on a passage in the Lisbon treaty that allows for member nations to come to the aid of other nations that have been stricken by a.
Natural catastrophes, properly defined, are things like earthquakes, unexpected volcanic eruptions, tsunamis, especially heavy storms (think hurricanes) or asteroid impacts of a certain size.
Economic downturns, contrary to the Keynesian view, are not natural catastrophes that strike us unbidden. They are the entirely predictable result of unsustainable booms based on credit expansion.
The bust is the end result of the man-made boom. It should be fairly obvious that without a money supply and credit expansion, no boom would be possible. Economic growth, even very strong economic growth, would of course still be possible, but it would be properly funded by real savings and thus could not lead to a major bust.
Note that we are not attempting to argue here that a stable money supply would make entrepreneurial error impossible. There will always be a certain modicum of entrepreneurial error, even under the best of circumstances.
However, large-scale errors such as the wide-spread malinvestment of capital that an inflation of fiduciary media fosters would not occur, as the information about consumer time preferences embedded in the interest rates charged in the loanable funds market would reflect reality – this is to say, it would be fairly clear to most people which economic activities can be funded and which can not be funded.
We can firmly conclude that economic busts are not akin to 'natural disasters'. This alone makes the bail-out package highly questionable from a legal standpoint – as it was deliberately designed to get around the explicit prohibition of financial help to Euro-area members, which is part of the EU's treaties regarding the currency union – precisely because there should be no possibility for member nations to skirt their obligations with regards to fiscal prudence.
Example for natural catastrophe creating exceptional circumstances beyond anyone's control: eruption of volcano.
(Graphics credit: Elaine Meinel Supkis)
Another example for 'exceptional circumstances beyond anyone's control': the asteroid strike.
(Graphics credit: NASA)
Germany's Constitutional Court in a Bind
To get back to the court challenges, many people in Germany have been unhappy about the Euro experiment from the very beginning.
They argued, quite reasonably, that it would likely be impossible to create a common currency as reliable and strong as the Deutschmark used to be, and that sooner or later, Germany would pay a steep price for entering into such a currency union with the serial offenders to fiscal and monetary prudence generally bordering the Mediterranean Sea. Consequently a court challenge was launched, attempting to derail the Euro project before it could even get off the ground.
This was evidently not successful, which is not at all surprising. At the time, the long bull market/stock market mania was still in full swing. It was an era of improving social mood, a 'feel-good era' not unlike the 'roaring 20's'. During such times, harmony and unity are concepts that gain a lot of currency as it were.
Monetary unions like the Euro can only come about in this kind of environment, where nothing seems impossible and optimism about the future is boundless, as it always tends to be when great booms are entering their final lap.
The Constitutional Court at the time rebuffed the challenge, a 300 pages thick suit that was brought by four 'Euro-skeptic' law and economics professors, Karl Albrecht Schachtschneider, Wilhelm Nölling, Wilhelm Hankel and Joachim Starbatty.
At the time, no other outcome was expected, in spite of the fact that many had to admit that the arguments brought by the four plaintiffs were 'sound in principle'. It has now turned out that they were actually right. In fact, they were almost 100% correct in their assessment of the likely economic outcome.
Their complaint about the inherently undemocratic nature of the Euro-area's arrangements, the fact that they would inevitably lead to a dilution of national sovereignty and thus a diminution of the say citizens had in their affairs nowadays sounds rather prescient as well (this is about 230,000 additional EU regulations later, mind).
Consequently, the Constitutional Court in Karlsruhe now finds itself in something of a bind. The same four plaintiffs are at it again, attempting to derail the bail-out, and have by now been joined by several others, the latest of which is the conservative CSU (Christian Social Union) politician Peter Gauweiler from Bavaria.
The court is in a bind because:
1. The plaintiffs of 1998 have proved to have been substantially correct in their assertions made over a decade ago.
2. The social mood has clearly changed – from the widespread embrace of the 'European Project' to distrust and skepticism – so much so that every politician probably knows by now that if the Euro were made the subject of a plebiscite there's a very good chance it would be rejected.
3. In view of the gigantic amounts of money involved in the bail-out, a wrong decision could have consequences for the court itself, which must be seen as an independent adjudicator of constitutional law, and not just a provider of judicial fig leafs for the establishment.
4. The legal basis of the bail-out decision is more than just wobbly. As mentioned above, this is not a natural catastrophe we are dealing with here. And yet, this is precisely what the EU's politicians and bureaucrats have declared it is.
5. The entire affair points to a planned further erosion of the national sovereignty of Euro-area member states. Specifically, the debate over the 'ceding of economic/fiscal sovereignty' has been revived. This however would likely contradict the Court's decisions with regards to the Lisbon treaty.
As we have mentioned in 'The Euro-area Debt Crisis – the Bail-out Update': “Note also that the politicians have not asked the producers of wealth if they are giving permission for this cross-border theft. It has been presented as a fait accompli, and that's that.”
That was, and remains, the real problem.
Gauweiler the Maverick
Peter Gauweiler is a fairly mainstream conservative politician, quite a typical Bavarian politician in many ways in fact – except when he isn't. Occasionally he takes positions against the establishment that make quite a few waves.
A few examples: he was the first conservative German politician to take the position that the planned invasion of Iraq was illegal and based on lies (as he actually put it 'untruths' and 'in violation of international law') and should therefore be firmly rejected. He held a similar position on the Nato war in Kosovo.
He took the position that German Tornado fighters should not be used in Afghanistan, and attempted to stop their use via a Constitutional Court challenge (at this point you already have to like the man. He is anti-war, and specifically, anti illegal war. This tells us he is pro civilization and peace).
He was one of the first to announce that he didn't care whether German works of art that had basically ended up as plunder in the Soviet Union after WW2 remained in Russia.
He voted against the government 'stockpiling' data on citizens. In addition, he took action against the treaty of Lisbon, once again via a suit brought at the Constitutional Court.
This law-suit was important because it was in part successful. The court issued instructions to the government aimed at ensuring that the Lisbon treaty's terms would not interfere with sovereign democratic control. In essence, while the German government may still delegate certain decisions to European institutions like the European parliament and the EU Council of Ministers, it has to ensure that the constitutional prerogatives of the states making up the German federation are in no way injured by such delegation.
In this light, Gauweiler's latest attempt to stop the bail-out package must be taken seriously. He doesn't just launch frivolous suits for show or the sheer heck of it. He really means it, and he undertakes a fair amount of research before filing suit.
He probably wouldn't file a suit that has no chance of succeeding at all. Germany's parliament has in the meantime already decided – across political party lines, which once again shows that in certain questions, such as bailing out of insolvent banks on the backs of taxpayers, the establishment is of one mind – that Germany will offer some € 148 billion as its contribution to the bail-out package.
Right after the IMF's contribution, this is the second largest (natch). Gauweiler now has filed motion for a temporary restraining order with the court in Karlsruhe, until the broader constitutional questions and challenges to the package have been debated by the court.
As mentioned above, this recent barrage of suits brought by eminent legal scholars, high profile economists and now the equally high profile political maverick Gauweiler, is not something the court can easily brush off. In reaction, the court has sent out a number of rather embarrassing letters to all concerned – the German government, the President (who quickly and surprisingly resigned before he could put his signature on the bail-out package) the ECB, the German Bundestag (parliament), the Landesregierungen (state governments), and the Bundesbank, to ask for comments.
Parts of the federal government's 38 pages long (!) statement to the court have become publicly known.
As the German language issue of thereports:
“Gauweilers Rechtsvertreter Dietrich Murswiek bestätigte Berichte, nach denen die Bundesregierung in ihrer Antwort an Voßkuhle im Falle einer einstweiligen Verfügung gegen den Euro-Rettungsschirm vor einer "sich selbst erfüllenden Erwartung auf einen Zahlungsausfall" warnt. Eine Pleite Griechenlands und anderer Euro-Länder hätte demnach unabsehbare Folgen für die Gemeinschaftswährung und die Wirtschaft in der Europäischen Union.”
“Gauweiler's attorney Dietrich Murswiek confirmed reports according to which the Federal Government had warned in its statement to the court that “a temporary injunction against the Euro bail-out package (the German term 'Rettungschirm' means literally 'emergency parachute') would lead to a self-fulfilling expectation of default.” A default by Greece and other Euro-area member nations would therefore have incalculable consequences for the common currency and the economy of the European Union”
and further – this is where it gets really interesting:
“In dem 38 Seiten langen Schreiben der Bundesregierung werde unter anderem erklärt, der Euro-Rettungspakt stelle keine rechtsverbindliche völkerrechtliche Vereinbarung, sondern nur eine politische Absichtserklärung dar, sagte Murswiek. Nach Einschätzung Gauweilers ist dies von Belang, denn nur die Unverbindlichkeit ermögliche es, die Bürgschaften noch zu stoppen. Der CSU-Politiker zeigte sich zuversichtlich, im Hauptsacheverfahren Recht zu bekommen. Die Chancen für eine einstweilige Verfügung wollten dagegen weder er noch sein Anwalt beurteilen.”
“In the 38 pages long letter by the Federal Government it is inter alia stated that the Euro bail-out package did not constitute an accord unter international law, but merely a political declaration of intent, said Murswiek. According to Gauweiler's assessment this is of importance, since the non-binding nature of such a declaration made it possible to still stop the payment guarantees. The CSU politician appeared confident that he would prevail in the main proceedings. The chances of success for the getting a temporary injunction neither he nor his attorney wished to judge.”
We can be fairly certain that the Constitutional Court will in the end attempt to arrive at some sort of compromise, just as it did in the case of the Lisbon treaty. It can not very well simply ignore the questionable constitutionality of the bail-out.
The many letters to the involved bureaucracies for comment are among other things surely meant to create a fig leaf for the court to fall back on – to broaden the number of institutions and people ultimately taking responsibility.
The Court is in an unenviable situation, because regardless of how it decides, it could very well later turn out to have been the wrong decision (as already demonstrated by the original anti-Euro introduction suit by the four professors – who had predicted a certain outcome if the Euro were adopted, and have been proved right as exactly this outcome has now occurred).
We can not dismiss the possibility that the Court finds the bail-out package such as it stands unconstitutional. In this case the bail-out can not proceed without Germany's parliament actually amending the German constitution. Good luck with that one.
Trying to save the German tax-payer: the bane of the Eurocrats, Peter Gauweiler.
(Photo credit : DPA)
Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Most read in the last 20 days:
- Free Money Leaves Everyone Poorer
Destroying Lives BALTIMORE – A dear reader reminded us of the comment, supposedly made by Groucho Marx: “A free lunch? You can’t afford a free lunch.” Groucho dispensing valuable advice Photo via imdb.com He was responding to last week’s Diary about the national referendum in Switzerland on Saturday. Voters will decide whether to give all Swiss residents a free lunch – a guaranteed annual income of about $30,000 a year [ed note: the initiative was...
- How the Welfare State Dies
Hollande Threatens to Ban Protests Brexit has diverted attention from another little drama playing out in Europe. As of the time of writing, if you Google “Hollande threatens to ban protests” or variations thereof, you will find Russian, South African and even Iranian press reports on the topic. Otherwise, it's basically crickets (sole exception: Politico). Gee, we wonder why? They don't like him anymore: 120.000 protesters recently turned Paris into a war zone. All...
- Free Speech Under Attack
Offending People Left and Right Bill Bonner, whose Diaries we republish here, is well-known for being an equal opportunity offender - meaning that political affiliation, gender, age, or any other defining characteristics won't save worthy targets from getting offended. As far as we are concerned, we generally try not to be unnecessarily rude to people, but occasionally giving offense is not exactly beneath us either. The motto of the equal opportunity...
- Moving Closer to BREXIT
Polls Show Growing Support for a Break with the EU In the UK as elsewhere, the political elites may have underestimated the strength of the trend change in social mood across Europe. The most recent “You-Gov” and ICM pools show a widening lead in favor of a UK exit from the EU as the day of the vote comes closer. Pro-BREXIT campaigners Boris Johnson (ex-mayor of London) and Michael Gove (UK Secretary of Justice) are in a good mood. Photo credit: Paul Grover /...
- A Market Ready to Blow and the Flag of the Conquerors
Bold Prediction MICHAELS, Maryland – The flag in front of our hotel flies at half-mast. The little town of St. Michaels is a tourist and conference destination on the Chesapeake Bay. It is far from Orlando, and even farther from Daesh (a.k.a. ISIL) and the Mideast. St. Michaels, Maryland – the town that fooled the British (they say, today). Photo credit: Fletcher6 Out on the river, a sleek sailboat, with lacquered wood trim, glides by, making hardly a...
- Toward Freedom: Will The UK Write History?
Mutating Promises We are less than one week away from the EU referendum, the moment when the British people will be called upon to make a historic decision – will they vote to “Brexit” or to “Bremain”? Both camps have been going at each other with fierce campaigns to tilt the vote in their direction, but according to the latest polls, with the “Leave” camp’s latest surge still within the margin of error, the outcome is too close to call. The battle lines are...
- What Could Possibly Go Wrong?
A Convocation Of Gamblers The Wall Street Journal and BloombergView have just run articles on the shadow banking system in China. This has put me in a nostalgic mood. About 35 years ago when I was living in Japan, I made a side trip to Hong Kong. Asia's Sin City, Macau Photo credit: Nattee Chalermtiragool I took the hydrofoil to Macau one afternoon and the same service back early the next morning. On the morning trip, I am sure that I saw many of the...
- The Real Reason We Have a Welfare State
From Subject to Citizen BALTIMORE – June 5th, the Swiss cast their votes and registered their opinions: “No,” they said. We left off yesterday wondering why something for nothing never works. Not as monetary policy. Not as welfare or foreign aid. Not in commerce. Not never, no how. But something for nothing is what people most want. The future Switzerland just managed to dodge... for now The Swiss voted against awarding all citizens a “universal basic...
- Going... Going... Gone! The EU Begins to Splinter
Dark Social Mood Tsunami Washes Ashore Early this morning one might have been forgiven for thinking that Japan had probably just been hit by another tsunami. The Nikkei was down 1,300 points, the yen briefly soared above par. Gold had intermittently gained 100 smackers – if memory serves, the biggest nominal intra-day gain ever recorded (with the possible exception of one or two days in early 1980). Here is a picture of Haruhiko Kuroda in front of his Bloomberg monitor this...
- The Problem with Corporate Debt
Taking Off Like a Rocket There are actually two problems with corporate debt. One is that there is too much of it... the other is that a lot of it appears to be going sour. Harvey had a good time in recent years...well, not so much between mid 2014 and early 2016, but happy days are here again! Cartoon by Frank Modell As a brief report at Marketwatch last week (widely ignored as far as we are aware) informs us: “Businesses racked up debt in the...
- Rule Britannia
A Glorious Day What a glorious day for Britain and anyone among you who continues to believe in the ideas of liberty, freedom, and sovereign democratic rule. The British people have cast their vote and I have never ever felt so relieved about having been wrong. Against all expectations, the leave camp somehow managed to push the referendum across the center line, with 51.9% of voters counted electing to leave the European Union. Waving good-bye to...
- A Darwin Award for Capital Allocation
Beyond Human Capacity Distilling down and projecting out the economy’s limitless spectrum of interrelationships is near impossible to do with any regular accuracy. The inputs are too vast. The relationships are too erratic. The economy - complex and ever-changing interrelations. Image credit: Andrea Dionne Quite frankly, keeping tabs on it all is beyond human capacity. This also goes for the federal government. Even with all their data gatherers and...