Thursday, September 8, 2011

German court points to "United States of Europe"

Ruling seen as an obstacle for "Eurobonds"

Karlsruhe – Stocks traded on American and European exchanges rose sharply on the news that the highest German constitutional court upheld the government's ability to approve financial bail-outs of other nations.

Characterized as a victory for Chancellor Angela Merkel, the ruling repudiated a growing groundswell among key members of the Parliament who protest that unilateral negotiations by Mrs. Merkel usurp the paramount economic function of the German legislative body.

This is counterbalanced by an equally powerful consensus on the other side of the aisle formed by members of Parliament who take the view that events in the European Union occur so quickly that members of the legislative body have not the time to comprehend and react to emergent economic conditions.

Mrs. Merkel said a constitutional court ruling Wednesday upholding the country's participation in bailouts of debt-stricken euro-zone countries "absolutely confirmed" her government's actions.

The latest in a series of such bail-outs occurred following the failure of the Greek central bank, an event which placed great pressure on other European banking houses due to the imminent threat of default on that nation's bonds.

Faced with the prospect of either abandoning the European Union due to the prospect of a possible collapse of that coalition's unit of currency, the Euro, finance ministers from the region opted to approval of a massive financial aid package to shore up the struggling currency.

Open Europe reports “The German Constitutional Court this morning ruled against the claims that the eurozone bailouts are illegal, providing relief for German Chancellor Angela Merkel and causing markets to rebound slightly. However, the Court stressed that the verdict “should not be misinterpreted as a constitutional blank-cheque for further aid-packages”. The Court also ruled that, in order to conform to the constitution, “the Federal Government is in principle obliged to always obtain prior approval by the [Bundestag] Budget Committee before giving guarantees.” This means that the German parliamentary budget committee will have to agree to any future bailout packages or use of the EFSF, the eurozone’s bailout fund.

The ruling looks set to impose further restrictions on Eurobonds or debt mutualisation in the eurozone. The press release states that, “The Bundestag, as the legislature, is also prohibited from establishing permanent mechanisms…which result in an assumption of liability for other states’ voluntary decisions, especially if they have consequences whose impact is difficult to calculate.” …“This seems to suggest that any move towards Eurobonds would be unconstitutional, even with agreement from the Bundestag, though the ruling also hints that greater German control over the fiscal policies of other states that could circumvent such legal restrictions.”

The legal holding by the German high court is perceived as a first move to the establishment of a European “economic government” - a sort of United States of Europe – that will have the power to manage matters financial without the prior approval of each nation's Parliament.

In the case of Germany, the approval of the entire Parliament is unnecessary under Wednesday's ruling, but the approval of a smaller committee is required.

Many feel that though the ruling is inconclusive, it is a sign of a growing loss of economic freedom for the individual German business organization and private citizen.

Promises of austerity measures by Greece, Slovakia and Finland are now more assured, according to analysts.

“The ship is full-steam ahead on its determined course,” said Jürgen Matthes, who studies international economic policy at the Cologne Institute for Economic Research. “It will exert force on the other countries, not least Slovakia and Finland, when Germany can move ahead without obstacles.”

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