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Analysis
German Constitutional Court delay risks political complications

German Constitutional Court delay risks political complications

Easter judgement will influence May parliamentary vote 

by Anne-Christine Scherer

Thu 30 Jan 2014

A decision by the German Constitutional Court on whether planned European Central Bank (ECB) bond purchases violate the German constitution has been delayed again. It is now expected in April at the latest, probably after Easter. This raises the likelihood of an awkward juxtaposition with the European parliamentary elections in May, seen as heralding the advance of anti-euro parties in many countries including Germany.

In addition, the reining back of the Federal Reserve’s own bond-buying programme will almost certainly be further advanced by the springtime. This increases the chances that higher interest rates for government refinancing seen in emerging market economies will spill over to the peripheral countries in the euro bloc, in spite of their much improved external economic positions brought by sharp falls in domestic demand and high unemployment.

German officials concede that the postponement appears the result of prolonged disagreement among senior judges on the Karlsruhe court on the constitutionality of the ECB’s programme under its so-called Outright Monetary Transactions (OMT) for purchasing bonds of troubled countries.

The judgement was originally expected by the end of last year, but was delayed partly because the court was waiting for the establishment of a German government in extended coalition talks after the September Bundestag elections.

The Constitutional Court this week was sticking to its legendary discretion. No official date for the decision has been communicated.  A press spokesman said the court would finalise the proceedings as soon as possible. Several German newspapers, including Handelsblatt, Frankfurter Rundschau and Die Welt, mentioned April as the most likely date and reported that divergent opinions among the judges led to prolonged consultations.

Hearings took place in Karlsruhe on 11 and 12 June 2013, chaired by the court’s president Andreas Voßkuhle. A majority of five of the eight judges is required for a judgement.

Many experts think the court will not fundamentally oppose OMT but will impose strong constraints on Bundesbank participation to ensure full parliamentary scrutiny of the risks for German taxpayers. This could involve the need for Bundestag authorisation of individual bond transactions, which would severely constrain the OMT’s operational effectiveness.

The Bundesbank and the ECB were witnesses in the hearings last summer, putting forward starkly contrasting views. Constitutional action has been filed by the conservative Bavarian politician Peter Gauweiler, the Linkspartei (Left Party), former justice minister Herta Däubler-Gmelin, and several academics and other individuals.

Their argument is that the financial risks caused by euro rescues will interfere with German financial management in a way that deprives the Bundestag of budgetary control and infringes a fundamental principle of the German constitution. Many Germans, including Bundesbank president Jens Weidmann, believe the impasse over integrating European assistance for euro economies can be resolved only by a change in the German constitution – a laborious and time-consuming process.

Anne-Christine Scherer is Institutional Relations Assistant Coordinator, OMFIF.

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