Euro Zone Policy: German Constitutional Court’s Clash with European Court of Justice Continues

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Outside of Germany’s Constitutional Court headquarters in Karlsruhe, Germany, in 2016. (Ralph Orlowski/Reuters)

The efforts by the German constitutional court (the BVG) to avoid giving much practical meaning to its (profound) theoretical clash with the European Court of Justice continues.

Reuters:

BERLIN (Reuters) – The decision on whether Germany should pull out of the European Central Bank’s bond-buying programme lies with the Bundesbank, a judge in Germany’s highest court said in remarks published on Sunday.

Germany’s Constitutional Court ruled in May that the ECB overstepped its mandate with over 2 trillion euros of government bond purchases, ordering the Bundesbank to quit the scheme unless the ECB can prove proportionality within three months.

Peter Huber, a conservative judge at the court who drafted the ruling, told the Frankfurter Allgemeine Zeitung that the court was no longer involved and the decision on whether to quit rested with Germany’s central bank.

“The Bundesbank is bound by our decision, but it must determine on its own responsibility whether the ECB’s statement of reasons fulfils our requirements or not,” Huber said. “The Federal Constitutional Court is no longer involved.”

The ruling set off an unprecedented legal conflict with a national court looking to exert jurisdiction over an institution of the European Union and trying to curtail its policy framework, seen as an encroachment on ECB independence.

In a compromise deal, the ECB agreed last week to give vital documents underpinning its policy decisions to Bundesbank chief Jens Weidmann, who can then present them to the German parliament and government, as demanded by the court ruling.

It is highly likely that the Bundesbank will be “satisfied” by those “vital documents”

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Meanwhile, the next chapter in the long battle over efforts to stabilize the euro zone (along with an attempt to sort out a new EU budget, now that the U.K., a large net contributor, has left), will be dominated by pushing and shoving ahead of a summit due for July 17/18.

France 24:

“Myriad talks” remain to be held, Merkel told a joint news conference with Macron. “We hope we can find a solution, even if there is still a long way to go.”

The French and German leaders have urged the European Union to reach an agreement on a recovery plan by the end of July to kickstart an economy battered by the coronavirus pandemic. Macron and Merkel sketched out the backbone of the €750 million ($840m) fund proposed by the European Commission to bolster the bloc’s economy.

The fund would offer grants – with no repayment obligation – to countries hardest hit by the pandemic, a major policy U-turn for Berlin and a bitter pill to swallow for the bloc’s most fiscally conservative members… Macron reiterated his position that a deal on the EU budget and recovery fund could be found at the July summit. He said the fund should include €500 billion of grants to the hardest-hit countries…. Merkel, who had initially rejected a proposal by Macron for a recovery fund, dropped Germany’s long-held opposition to mutualising debt to fund other member states when it became clear that the pandemic was an existential threat to the EU.

Scroll back a few days to an article in the Financial Times, which summarizes where the ‘northern’ countries — led by the Netherlands — stand, at least, on the coronavirus rescue package:

One of the key topics exercising Mr Rutte is the strings that could be attached to the proposed recovery fund cash. After last week’s summit, the Dutch prime minister stressed that recipient countries would have to carry out root and branch overhauls of their economies with the cash they receive from the fund.

“We want to see follow through and deep reforms to pensions, labour markets, judicial systems and taxation. We want to help others, but the others have to make sure they get their houses in order,” Mr Rutte told journalists after the virtual summit.

Talk of conditions is profoundly unpopular among southern member states. But the need for reforms is a neuralgic issue for the Dutch and their hawkish allies. Having signed off on unpopular bailouts during the height of the eurozone’s sovereign debt crisis a decade ago, the quartet of richer countries are determined to make sure that unprecedented amounts of aid offered under the recovery fund won’t come for free and will really make a difference in the EU’s weakest member states.

The Dutch (and the other three members of the “frugal four”) are dreaming. In the end, they will cave. They always do.

The FT’s report ends as follows:

[S]ome diplomats are already talking about when a follow-up summit — or summits — will have to take place. A long summer of budgetary wrangling lies ahead.

This will not be sorted out in mid July.

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