Eurointelligence Daily Briefing, 8 de Setembro de 2011. Enviado por Domenico Mario Nuti.

 

 

Germany’s constitutional court clears EFSF, but sets limits

  • Germany’s justices strengthen the role of the Bundestag, who from now will have to approve each country programme;
  • the Bundestag will cast a vote on the second Greek loan programme not before October;
  • the court also sets tight limits on the government and the parliament in terms of future engagement in joint European financial projects;
  • Reinhard Müller applauds the fact that the Bundestag will from now on get a vote on each rescue package;
  • Heribert Prantl writes Germany’s ability to accept further European integration was now fully exhausted under the present constitution;
  • Nikolaus Blome welcomes that Angela Merkel had finally drawn a red line, and would not accept eurobonds;
  • Klaus Regling says the peripheral eurozone countries need to get used to permanently lower living standards;
  • Italy’s Senate approves the revised budget plan;
  • the IMF cuts the growth forecast for Ireland;
  • Greek unions signalled a new round of strikes in protest at the austerity measures;
  • Finnish opinion polls point to a rise in euroscepticism;
  • Didier Reynders says Finland will have to accept a lower return on its loan as a quid pro quo for the collateral;
  • the EBA expresses concern about liquidity shortages of European banks;
  • a news report suggests that the European Council and the European Parliament are close to an agreement on the stability pact;
  • Herman van Rompuy is critical of the golden rule;
  • Wolfgang Proissl argues that the central bankers’ embrace of treaty change reflects a fear that the ECB would come under more pressure to bail out European governments;
  • Mark Rutte, meanwhile, wants to impose a dictator for the eurozone, with the power to set taxes in member states and kick countries out.

The German constitutional court gave its long-awaited verdict on the EFSF, rejecting the plaintiff’case to declare both the EFSF and the bilateral Greek programme unconstitutional. The one material decision taken in respect of the German implementation law of the EFSF relates to the involvement of the Bundestag. At present, the government needs to consult the budgetary committee in respect of any EFSF programmes. In the future, it must seek its prior approval. The vote thus strengthens the Bundestag in the operational aspects of the EFSF. This will impact the new EFSF law, to be voted on September 29.

 

 

Empowered by the ruling, the Bundestag will hold a separate vote on the Greek programme, once all the parameters are clear, including the extent of the private-sector involvement. Quentin Peel of the FT quoted a parliamentarian as saying that this vote would not happen until October. (It is not clear to us whether this will be voted on by the budget committee or by the full Bundestag. In any case, the Bundestag can pretty much determine the scale of its own engagement when it drafts the EFSF law.) Peel writes that Angela Merkel will therefore face three big parliamentary tests until December: the Sept 29 vote on the EFSF, the October vote on the Greek programme, and the September vote on the ESM.

 

 

The court also reduced the German government’s room for manoeuvre on further rescue programmes, setting out a series of clear guidelines that put a ceiling on the Bundestag’s rights to transfer budgetary sovereignty onto third parties. Eurosceptics in the coalition were quick to point out that the ruling made the issue of a Eurobond effectively impossible under German constitutional law.

 

 

The Court published a short English translation of the verdict. If you want to enjoy the entire ruling in German – which runs to 29 tightly written pages – you can follow this link.

 

 

Here a number of comments:

 

 

For Reinhard Müller the court prohibits the Bundestag to disempower itself

 

Frankfurter Allgemeine Zeitung’s legal correspondent Reinhard Müller lauds the fact that the constitutional court’s ruling makes it clear that a disempowerment of Bundestag is unconstitutional. “The German legislator must not accept durable mechanisms in international law that would end in guaranteeing the decisions of other states”, Müller writes. Each help that generates costs within the EU and on an international level “must from now on be voted on by Bundestag in each individual case”, he concludes.

 

For Heribert Prantl the limits of EU integration in the Grundgesetz have been reached

 

For Süddeutsche Zeitung’s deputy editor Heribert Prantl the Karlsruhe ruling has defined the limits of European integration as long as the Grundgesetz is in place. “The power of the Grundgesetz ends when the European confederation becomes a federal state”, he explains underlining that the European possibilities of the Grundgesetz have been exhausted.  “If more Europe becomes necessary, a European government shall be created – whether you call it an economic government or otherwise. It would then no longer be sufficient to involve the parliament, and a new constitutional basis would needed. This would supplant the Grundgesetz, and would have to be decided by the people”.

 

 

For Nikolaus Blome Germany has drawn its red lines

 

After Angela Merkel’s speech in Bundestag and the court ruling, Bild’s deputy editor Nikolaus Blome explains the chancellor’s design for tomorrow’s eurozone. “At the moment the euro states are like car drivers who do not respect the traffic rules, who are not afraid of police tickets, who get into accidents and endanger each other”, he writes. “That is bad enough. But it is no reason to take the steering wheels out of all cars, the accelerator and brakes. Instead we need more traffic lights, tougher penalties and quick penalties for all breaches, perhaps even taking away the driver’s licence.” In any way, Blome concludes, Merkel has drawn her “red line” and made it clear that there is “no need for a debt union with euro bonds where Brussels is dictating national budgets and where each individual state guarantees everybody else”.

 

Rutte wants to appoint a dictator to run the eurozone

 

The Dutch  prime minister Mark Rutte, in a joint article with his finance minister Jan Kees de Jager, called for the forced expulsion of member states. He also wants to appoint a new budget tsar, the FT writes in its news story accompanying the article, with powers to dictate taxes and spending in eurozone countries, and who would be empowered to kick countries out of the eurozone. (We think the consequences of a such a proposal would be a war.  The Dutch prime minister is either ignorant of European law and the history of the EU, or plays a treacherous game. Imagine how such a proposal would go down in the Greek parliament, or in an Irish referendum, as the appointment of a dictator, and the suspension of democracy, would require a full-blown treaty change, to put it mildly).

 

Regling says Greeks should get used to a lower standard of living

 

The tone in the eurozone is getting decidedly uglier. Klaus Regling, the head of the EFSF, said yesterday that the Greek programme was not working. He said that in a monetary union the only adjustment mechanism was falling wages. “The ugly truth is that countries have to cut their standard of living.” He seems to have given up on Greece, but he called Ireland a “success story”.

 

Italy Senate votes in favour of the revised budget plan

 

This is not really a surprise. Italy’s Senate yesterday approved the Italian government’s revised budget plan with a majority of 165 against 141, with three abstentions. The vote has been coupled with a vote of confidence to ensure that the package would sail through. The approval of the chamber of deputies is due by the end of this week. La Repubblica writes that the vote was accompanied by protests that started with a sit-in at the Piazza Navona and later turned into violent demonstrations in front of the Senate building, the Palazzo Madama.

 

IMF cut growth forecast for Ireland

 

The IMF cut its growth forecasts for Ireland to just 0.4% this year due to a worsening outlook for global growth. But the public debt will peak at lower levels than previously anticipated, the Irish Times reports. The  staff report urged the government to raise €5bn in asset sales up from the €2bn currently earmarked, though this figure was not taken up in the revised Memorandum of Understanding, also released yesterday, which sets out what the Government must implement. The IMF did not advocate additional budgetary changes beyond those already agreed.  The IMF also said Euro zone leaders should consider additional changes to their temporary rescue fund to help Ireland regain market access, Reuters reports.

 

Strike actions against Greek government’s pledge of accelerated reforms

 

In Greece taxi drivers, tax collectors, doctors, teachers and garbage collectors all signalled a new round of strikes on Wednesday in response to government pledges to accelerate reforms, kick-start an ambitious privatization program and proceed with massive cutbacks to the public sector, Kathimerini reports.

 

Finnish anti-euro sentiment on the rise

 

A poll published by Helsingin Sanomat  indicates that Finnish public opinion is critical towards bailouts. Nearly half of Finnish respondent, 48%, are opposed to loans for Greece, while 38% are in favour of taking part in the loan guarantees. Only one in five wants Finland to drop the demand for collateral. Nearly one in five Finns are in favour of leaving the euro, up from just 12% at the beginning of the year, though a clear majority of 64% still wants to stay in the eurozone and the EU.

 

That tedious collateral debate again

 

Reuters reports on a proposal by Belgian finance minister Didier Reynders who said Finland would have to accept a lower return on its loan in exchange for collateral. The issue tops the agenda of next week’s Ecofin meeting.

 

The EBA is worried about the liquidity shortage of European banks

 

 

The European Banking Authority (EBA) is worried about liquidity shortages of European banks, Financial Times Deutschland reports. Talking to FT Deutschland, EBA’s general secretary Adam Farkas said a number of banks were currently struggling to supply themselves with liquidity. “The availability of capital, the possibility for banks to finance themselves medium to long term and to borrow short term money is currently difficult”, he said adding: “But there is not yet a risk and no urgency situation.”

 

Breakthrough in the negotiations of the stability and growth pact

 

According to Frankfurter Allgemeine Zeitung the EU parliament and governments are about to reach a deal on the stability and growth pact (SGP). The parliament is now ready to drop its demand for quasi-automatic sanctions in case of an excessive deficit but the decision for sanctions will now only require a simple majority of member states, a voting pattern that France rejected up until now. However the parliament still insists that surplus countries should also be forced to reduce their surpluses and Germany still resists against this.

(a note: Eurointelligence has been told yesterday that this and similar stories misrepresent what actually happened. There exists no pre-agreement as yet, and the parliament has not given up on its demands for quasi-automatic sanctions. This may just a case where source of a story hopes to create a self-fulfilling prophecy.)

 

The EU institutions are doubtful about the efficiency of the “golden rule”

 

The commission is doubtful that the so called “golden rules” to limit deficits and public debt in the eurozone are efficient instruments, Le Monde reports. “The governments don’t need this rule, they can do it (reduce their deficits) without such rules in their constitutions”, European Council president Herman Van Rompuy said. “All of that is a matter of application”, Le Monde quotes a commission source. “What is good would such a rule do if it is not respected? Germany was the first euro country to introduce such a constitutional debt break, Spain, Portugal and Italy plan to it as well in order to increase their credibility in the eyes of the market. In France however Nicolas Sarkozy has abandoned all efforts to introduce such a role before the presidential elections in spring 2012 because he lacks the necessary votes to change the constitution due to the Socialists’ resistance. France arouses suspicions among Commission officials because the country has not presented a balanced budget in decades and it has a long history of watering down deficit rules and procedures.

 

Wolfgang Proissl writes the euro central bankers are launching a new constitutional debate

 

Commenting in FT Deutschland, Wolfgang Proissl points out that the most prominent eurozone central bankers have recently started campaigning for a new EU treaty. Mario Draghi come out in favour of a major treaty change at a conference in Paris on Monday when he asked for legally binding rules on structural reforms, competitiveness and growth enhancement to be included in the new treaty. The ECB president-designate echoed earlier calls by Jean-Claude Trichet repeated at the same conference demanding that a European finance minister with the right to interfere directly in national budgetary and economic policies be created. Even Bundesbank president Jens Weidmann has hinted that there is an option of creating a fully-fledged fiscal union in the eurozone provided the member states get a democratic mandate for such a far reaching change. Proissl points out the deeper reason for the central bankers calls is a fear that the euro governance was dysfunctional, as a result of which the ECB will come under pressure to perform political tasks.

 

Spreads, Forex, and ZC Bonds

 

Markets responded positively to the judgement of German constitutional court. Italian and Spanish spreads have fallen significantly, despite only a mild reversal in general risk aversion, as the German yields remain exceptionally low.

 

10-year spreads

 

 

 

 

 

 

 

Previous day

Yesterday

This Morning

France

0.880

0.797

0.801

Italy

3.690

3.392

3.390

Spain

3.384

3.138

3.194

Portugal

10.150

10.093

9.903

Greece

18.076

18.354

18.42

Ireland

7.049

6.900

6.995

Belgium

2.365

2.177

2.242

Bund Yield

1.813

1.874

1.876

 

 

 

 

 

 

 

 

Euro Bilateral Exchange Rate

 

 

 

 

 

 

 

Previous

This morning

 

Dollar

1.408

1.4059

 

Yen

108.770

108.76

 

Pound

0.879

0.8812

 

Swiss Franc

1.205

1.2085

 

 

 

 

 

 

 

 

 

ZC Inflation Swaps

 

 

 

 

 

 

 

previous

last close

 

1 yr

1.36

1.36

 

2 yr

1.42

1.42

 

5 yr

1.7

1.7

 

10 yr

1.9

2.02

 

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