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Legal Noose Tightens On Europe's Monetary Union

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The plot continues to thicken at Germany’s constitutional court, a body with power of life or death over Europe’s monetary union.

Contrary to general belief, Germany’s eurosceptic professors have not abandoned their legal efforts to block the EU rescues for European banks exposed to Greek debt, and since May 7 for banks exposed to debt from Spain, Portugal, and Ireland as well.


A quintet of professors – Wilhelm Hankel, Wilhelm Nölling, Joachim Starbatty, Karl Albrecht Schachtschneider, and Dieter Spethmann (ex Thyssen CEO) – have just broadened their complaint over the Greek part of the bank rescue to include the new €440bn Stability Facility, which breaks EU law at every turn.

It also covers the European Central Bank’s mass purchase of Greek, Spanish, Portuguese, and Irish bonds from private banks, which is enabling investors who bought these bonds to boost yield – just as they bought US subprime CDOs to boost yield – to shift the consequences of their own misjudgements onto taxpayers (Hedge funds were already “long” Club Med debt, of course, when the ECB stepped in so they simply make a speculative gain from taxpayers).

It has been widely reported by the German press – which should know better – that their original case was rejected by the court. This is untrue. Their request for an immediate injunction to block transfers to Greece was turned down (on the grounds that such a move would be too dangerous). The case is still pending.

In their latest broadside the professors said the rescue fund “self evidently” violates the no-bailout clause of the Lisbon Treaty.

They have seized on comments by France’s Europe minister Pierre Lelouche, who admitted after the summit deal on May 7 that EU leaders had carried out a constitutional coup. “It is expressly forbidden in the treaties by the famous no-bailout clause. De facto, we have changed the treaty,” he said.

The quintet said the methods used to ram the EU rescue through the Bundestag were a “putschist” threat to German democracy. “This path is leading Germany to ruin,” they said in the Frankfurter Allgemeine.

The citizens were not informed as the €440bn Stability fund was created. The opaque nature of the negotiations in Brussels left it unclear who was driving the policy, and for exactly what purpose. A SIV (structured investment vehicle) had been created in Luxembourg to raise money and operate the fund. “Yet when the Bundestag adopted this aid plan not a single member of parliament knew what they were voting for.”

“Chancellor Merkel obliged the President to sign this emergency law within hours. He was not able to examine its constitutionality, as he is sworn to do. No government should ever treat a head of state in this fashion, not least on a question of such existential importance.”

The group said the erosion of German state finances “strikes a blow at the constitutional foundations of our state and our society”. It runs contrary to the true spirit of Europe, with its diverse roots and cultures, and “trifles with the future of our children and grandchildren”.

“To fight this is not a return to outdated nationalism. As citizens we have a right to demand that our government abides by its sworn oath to protect the German nation against threats.”

They argue that the “pretended bailout” does nothing to reduce the debts of the countries receiving it. The whole game is designed for creditors. “The funds to Greece are clearly financial transfers since everybody knows that Greece cannot repay its debts.” By the IMF’s own sums, Greece’s public debt will rise from 120pc to 150pc by 2014. “This is economic madness,” said Prof Nölling.

Meanwhile Germany’s Centre for European Politics in Freiburg – a free-market think tank – has joined the fray with a report arguing that the use of €60bn of EU money under Article 122 of the Lisbon Treaty to support the rescue package is illegal. This is a new twist and on the face of it looks unanswerable. Here is the link for German speakers: http://www.cep.eu/startseite/

“It is a complete violation of our constitutional law and the judges at the court will have to say so if a case reaches them, even though they are afraid of the economic consequences,” said the author, Dr Thiemo Jeck.

The EU’s no-bailout clause from Article 125 says:

“The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.”

This does not necessarily prohibit EU states joining together voluntarily to rescue a country in trouble. However, it is another matter to use EU money itself for this purpose, even if it is possible where “a Member State is in difficulties or is seriously threatened with severe difficulties caused by exceptional occurrences beyond its control”.

Did Greece got into trouble for reasons “beyond its control”. Obviously not.

Bavarian politician Peter Gauweiler is reportedly planning to amend his separate case at the Verfassungsgericht to include these latest arguments.

I have no idea how the court will respond to all these cases, but those who assert confidently that the judges (usually split 4:4 on EU matters) will throw out the whole do not know either.

This is the court that sent tremors through the EU institutions with its ruling on the Lisbon Treaty in June 2009. The judges read the riot act to the European Court of Justice, a body that scandalously and repeatedly claimed that it has supreme jurisdiction over national law.

The ECJ has no such power. It falsely asserts this claim. The EU is a treaty organization of sovereign states. The states transpose EU rules (not laws) into their own national law.

The Verfassungsgericht stated that the sovereign states are “Masters of the Treaties” and not the other way round. They said national parliaments are the only legitimate fora of democracy, and that the European Parliament is inherently undemocratic. This is correct.

The economic fallout of the judges ruling it was illegal could be huge. No doubt immense political pressure will be applied to ensure that they rule the bailout is legal. However if they are independent it's possible they will rule accordingly and declare the bailout illegal. I wonder if the markets have factored in such an outcome. Judging that the spreads have still be widening on Greek default maybe the markets are anticipating that this bailout will collapse before Greece enters a debt spiral.

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