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Is Draghi's Bond-Buying Dream Circling The Drain As ECB/Bundesbank Lawyer Up?

Tyler Durden's picture




 

Following closely on the heels of our recent (now must read) discussion of the potential illegality of Draghi's OMT, Reuters is reporting the somewhat stunning news that the ECB and Bundesbank are getting lawyers to check the legality of the new bond-buying program. Germany's Bild newspaper - via the now ubiquitous unnamed sources - said in-house lawyers were checking both what proportions the program would have to take on and how long it would have to last for it to breach EU treaties (that specifically ban direct financing of state deficits).

While Draghi - full of bravado - likely said whatever he felt was necessary at the time to stop the inversion in the Spanish yield curve, it is becoming clearer that, as usual, the premature euphoria (in the complacent belief that central banks can solve every problem with a wave of the magic CTRL-P wand) was misplaced.

Bild goes on to note that this matter could be referred to the European Court of Justice - and the ECB/Buba were preparing for such an event. Of course, since every other rumor in recent months, most of which have originated in credible media, has proven to be a lie, it is likely this is also merely leaked disinformation to push the German case, i.e. anti-Europe.

 

Via Reuters:

 

BERLIN, Sept 25 (Reuters) - The European  Central Bank and Germany's Bundesbank central bank are getting lawyers  to check the legality of the ECB's new bond-buying programme, a German  newspaper said on Tuesday.

 

German tabloid Bild, which did not name  its sources, said ECB and Bundesbank in-house lawyers were checking  both what proportions the programme would have to take on and how long  it would have to last for it to breach EU treaties.

 

The newspaper  said this meant there was a possibility that the issue could soon be  referred to the European Court of Justice and added that the ECB and  Bundesbank wanted to legally "arm" themselves for this scenario.

 

Bild  said the background to this was controversy over the issue of whether  the ECB bond-buying programme violates the ban in EU treaties of direct  financing of state deficits. The ECB and the Bundesbank were not immediately available for comment.

 

ECB  President Mario Draghi announced earlier this month that the central  bank stood ready to buy unlimited amounts of bonds issued by euro zone  member states, provided they put in a formal request for aid and  fulfilled strict domestic policy conditions.

 

Jens Weidmann, head of the Bundesbank, was the sole dissenting voice in the ECB's decision.The  plan is designed to lower the borrowing costs of euro zone states such  as Spain and Italy by buying their bonds, but it has stirred anxiety in  Germany where some people fear the ECB is venturing beyond its mandate  and potentially exposing taxpayers to billions of euros in risky debt.Draghi has said the plan is strictly within the ECB's mandate.

 

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Mon, 09/24/2012 - 20:33 | 2826461 SHEEPFUKKER
SHEEPFUKKER's picture

This is getting good. Really good. Banksters lawyering up against other banksters.  Made my day. 

Mon, 09/24/2012 - 20:46 | 2826497 Future Tense
Future Tense's picture

Europe going to war with each other with lawyers should only bring higher sentiment to the US stock market which is now at ridiculous levels. Great set of charts showing the current short opportunity in the US equity markets:

http://www.ftense.com/2012/09/us-stock-market-sentiment-prices-soar.html

Mon, 09/24/2012 - 22:38 | 2826759 Ying-Yang
Ying-Yang's picture

I finally get it.....

The difference between the EU and the US is that in Europe every now and then they check to see if breaking the law is legal.

"My Mama said I was special"

Tue, 09/25/2012 - 13:08 | 2828491 A Man without Q...
A Man without Qualities's picture

The German Constitutional Court has told Merkel that it agrees with Weidmann and it consider the currently construed OMT to be in breach of Article 123.  The hint is there in the ESM preliminary judgement, para 246 section below...

According to Article 3 (1) TESM, the purpose of the European Stability Mechanism is to provide stability support under strict conditionality to the benefit of ESM Members. It uses the funds at its disposal for direct financial stabilisation of its members, which the European Central Bank is prevented from doing by Article 123 (1) TFEU. Accordingly, in its opinion of 17 March 2011 (CON/2011/24, OJ C 140 of 11 May 2011, p. 8, observation 9), the European Central Bank assumes that Article 123 TFEU would not allow the European Stability Mechanism to become a counterparty of the Eurosystem under Article 18 of the Statute of the ESCB.

 

http://www.bverfg.de/entscheidungen/rs20120912_2bvr139012en.html

The Court has said that it will give its view on the OMT when it produces the final version of the judgement, but it hasn't given a date for this.  Where it would get very interesting is if the OMT were taken to the ECJ and given a positive opinion, but the German court does not.  The fact is, in Germany, the court has seniority over the ECJ and this would put Merkel in an impossible position.

So, Merkel has tasked the Buba with working with the ECB to "refine" the plan to come up with something that can work.

So, this is why Schauble is tell Spain not to make an immediate request, why there are noises about the ESM being sufficient, with the possibility of some form of leverage.

Draghi clearly overstepped his boundaries on this one, prodded by Geithner, the Fed, Monti etc, to do something.  The plan was to sneak one past the Germans and to find a backdoor way to provide direct financial assistance, and boost the firepower of the various rescue mechanisms.  The Germans will not directly challenge this, but rather parry by making clear there are rules that need to be adhered to.  

The amusing thing is the "experts" are applauding Draghi's skill in breaking the rules, but the Germans really don't like that sort of thing, it's too well, Italian, for their liking...

Mon, 09/24/2012 - 20:33 | 2826463 chump666
chump666's picture

Shut Mario down, kick out Greece, kick out Spain, tell the IMF to f*ck off and Euro markets will actually rally.

Mon, 09/24/2012 - 21:16 | 2826573 CrashisOptimistic
CrashisOptimistic's picture

So let's be sure we understand what this is.

A court case, funding lots of lawyers, is to be brought to the European Court of Justice and the outcome of this case will determine if the judges sitting on that court will continue to be paid their salaries.

And we're supposed to be sitting here with any degree of uncertainty at all as to what the outcome will be?

Mon, 09/24/2012 - 22:15 | 2826708 chump666
chump666's picture

Look the Germans will have to something, anything to appear that they are reigning on that maniac Mario, oil is 100% going to spike over 100 once the bombs drop on Iran and China occupy those piles of rock.

The outcome? which is inevitable.

Chaos

Mon, 09/24/2012 - 20:36 | 2826471 davidsmith
davidsmith's picture

You've GOT to be joking.  After the Courts have always supported these enabling acts?  EVERY Court from the German Court to the U.S. Supreme Court?  Lawyering up, are they?  Well, I've got news for them.  This is a fascist, corporatist financial instrument, and no LAWYER is going to be permitted to interfere with it. How idiotic.  Another ZH forlorn, faux naif "hope."

 

"lawyers were checking both what proportions the program would have to take on [INFINITE] and how long it would have to last [INFINITY] for it to breach EU treaties (that specifically ban direct financing of state deficits)."

 

There.  Judgment for the defendant.  And by the way, lock these lawyers away in a reeducation camp, and when they emerge, their hair will be quite white.

 

Next?

Mon, 09/24/2012 - 23:51 | 2826916 TwoShortPlanks
TwoShortPlanks's picture

They're lawyering-up only becasue the lawyers have said that they should..."First Rule In Government Spending..."
http://www.youtube.com/watch?v=8-1n1BliRQ8

 

 

Mon, 09/24/2012 - 20:41 | 2826481 LawsofPhysics
LawsofPhysics's picture

Blah blah blah, and the bankers print (out of nothing) more paper promises. What are you stupid sheep gonna do about?

Mon, 09/24/2012 - 20:48 | 2826509 stocktivity
stocktivity's picture

I don't know what the stupid ones are doing but this lone sheep is buying physical silver coins dated before 1964 with a bit of wear (no counterfeiting those babies).

Mon, 09/24/2012 - 20:59 | 2826534 LawsofPhysics
LawsofPhysics's picture

In that case, BTFD.

Mon, 09/24/2012 - 21:27 | 2826583 CrashisOptimistic
CrashisOptimistic's picture

LoPdood, I have been telling these folks for a year now that none of these money things will take the system down.  

Money's value is imaginary.  Gold's value is imaginary.  Neither means anything outside one's head.  If a money issue threatens to take the system down, money will be redefined so that it does not.

Only oil ends all this.  Oil is the one thing they cannot control.  It is the ONLY thing they cannot control.  And its scarcity is what will end the charade.

Mon, 09/24/2012 - 20:41 | 2826482 antaresteleko
antaresteleko's picture

Winter is comming... I can hear the drums. 

Mon, 09/24/2012 - 20:41 | 2826483 Schmuck Raker
Schmuck Raker's picture

It's a shame about the Euro. So young, and such a pretty currency too.

Tue, 09/25/2012 - 10:26 | 2827732 falak pema
falak pema's picture

maybe she is pregnant and will produce twins; north  n south eurittos...Draghi is doing his best to play at being Zeus, with his sweet euro cow!

Mon, 09/24/2012 - 20:44 | 2826484 antaresteleko
antaresteleko's picture

This is getting  interesting. You never know where the black swan is comming from.

Mon, 09/24/2012 - 20:42 | 2826489 nmewn
nmewn's picture

Law?

"Just Us"-Richard Pryor

Tue, 09/25/2012 - 03:14 | 2827078 lewy14
lewy14's picture

Stop quoting laws, we carry weapons! -  Gnaeus Pompeius Magnus

And the Germans carry none.

Mon, 09/24/2012 - 20:44 | 2826493 q99x2
q99x2's picture

This woman actually believes she owns the planet:

Hillary says tax the rich everywhere

Last time she was in China they threw her out.

Mon, 09/24/2012 - 21:11 | 2826561 nmewn
nmewn's picture

I would pay them to keep her..."Ïts the video!!!"...lol...good grief.

Can someone explain to me why this carpetbagging, coat-tail-hanger-on, listening tourist is the Secretary of State and what are her accomplishments while in that position, I mean outside of constantly brown nosing the Chi-Coms?

Tue, 09/25/2012 - 06:47 | 2827193 falak pema
falak pema's picture

She believes she owns the planet as executive of Pax AMericana. She puts that in practice every day, its her job. 

But she sees the writing on the wall : Pax Americana has spawned a financialised model where the global 1% owns 50% of the new wealth created every day, and 30% of accumulated wealth. If you put two and two together it means their wealth can only increase even more! Whereas the wealth of the 99% depletes as the fiat pump accelerates! 

This is a recipe for world social disaster; revolution type, and she knows it like the rest of us. Being powerful doesn't necessarily make you are blind; unless you are GWB or his ilk, blinded by hubris and "we are civilization" ideology. The rich have to pay as the poor can't. If they don't we hit the wall anyway and their "fiat" riches take a HUGE reset that will make them desperate as its very leveraged! ...To a point where hubris meets nemesis, as they be TPTB; maybe in world armageddon. 

She is just hanging in there while the gravy train keeps delivering, but for how long?

 

Mon, 09/24/2012 - 20:44 | 2826495 zorba THE GREEK
zorba THE GREEK's picture

Send lawyers, guns and money, but in the end Europe will monetize its debts because the alternative 

is unacceptable to the Politico. Judgement Day must be delayed at all cost.

Mon, 09/24/2012 - 20:52 | 2826518 q99x2
q99x2's picture

European Court of Justice

Yeah, these ones wear hot pink jump suits, falsies and hats with price tags dangling from them.

Tue, 09/25/2012 - 04:19 | 2827113 Sandmann
Sandmann's picture

Go use Google you haven't a clue

Mon, 09/24/2012 - 20:59 | 2826533 Lost Wages
Lost Wages's picture

It's just a bunch of song and dance. The Bond-Buying dream will commence, but the Euro will remain stronger than the Dollar.

Mon, 09/24/2012 - 21:04 | 2826544 Raymond Reason
Raymond Reason's picture

in-house lawyers were checking both what proportions the program would have to take on and how long it would have to last for it to breach EU treaties (that specifically ban direct financing of state deficits).

Thou shalt not kill.  Let's check how many and for how long. 

Mon, 09/24/2012 - 21:05 | 2826548 TooBearish
TooBearish's picture

+1000000000000000

the courts are bought and paid for - any one remember Maastrick treaty - i mean for fuk sake the game is over - world ruled by thieves....Tyler #3 take a seat

Mon, 09/24/2012 - 21:29 | 2826606 insanelysane
insanelysane's picture

November 7th is the beginning.  The US has begged and pleaded for the world to keep the status quo can kicking going until election day.  It all starts to unravel on election day + 1.  Of course if we are lucky, crap hits fan on election day - x.  Then we get a statistical tie with the election being determined by the electoral college where ever that is.

Mon, 09/24/2012 - 21:39 | 2826631 RiskAverseAlertBlog
RiskAverseAlertBlog's picture

Treaties shmeeties. Since when did anything in these stop the euro con from crippling the banking system like Stuxnet did uranium enrichment centrifuges in Iran? As intended, the way is paved for a return to feudalism on the eurasian continent, and there isn't a lawyer lacking a nuclear arsennal who can do anything to stop it.

Mon, 09/24/2012 - 21:40 | 2826634 Whiner
Whiner's picture

"More than at any other time in history, Germany faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray they have the wisdom to choose correctly."
Herr Voodrick Aghllen, Counsel to Bundesbank

Tue, 09/25/2012 - 00:26 | 2826966 Parrotile
Parrotile's picture

Any significance in the picture of banknotes circling the drain? I note these are AUSTRALIAN currency, and seeing as we're living there, "Is there a Problem, Houston??" or was this just sheer co-incidence (I hope!)

Mind you since they are plastic, as long as the drain doesn't include a macerator, they will survive the "laundering process" nicely. Just DON'T try to iron them flat . . . . . ! !

Tue, 09/25/2012 - 01:16 | 2827006 Dr Benway
Dr Benway's picture

I was wondering why the Aussie notes too. And they look like monopoly money. But I think they stand a light ironing just fine.

 

And while your mind is on the wonderful land of Oz, check out my report on Australian securities fraud and investment ponzi: http://s1144.photobucket.com/albums/o489/_DrBenway/

Tue, 09/25/2012 - 00:42 | 2826982 andrewp111
andrewp111's picture

European Court of Justice??? HaHaHaHa. The ECB is the sole Sovereign entity in Europe, and it can do whatever it damm well pleases. Even if the ECJ ruled against it (unlikely, but possible) the ECB could simply ignore it Andrew Jackson style.

Tue, 09/25/2012 - 04:19 | 2827112 Sandmann
Sandmann's picture

Don't count on it. It would make every contract unenforceable and Bondholders might not be happy with that notion.

Tue, 09/25/2012 - 03:21 | 2827080 fibonacci618
fibonacci618's picture

Let's face it, we've all fallen in love with LSD: Liquidity Stoned Draghi.

 

Tue, 09/25/2012 - 04:22 | 2827116 Sandmann
Sandmann's picture

The US Constitition was written before a Central Bank existed. The Bank of England is older than the United States by about a century. The ECB is anchored in Treaties.

It is the US Constitution that has proven very flexible - one day it upholds Slavery next day it approves Positive Discrimination. One day it upholds Christian Faith next day it bans it from public places. One day it decides Abortion is an issue in a fake case like Roe v Wade simply because two lawyers want to make a name for themselves and the total didgy nature of Rule by Lawyers becomes self-evident in the USA

Tue, 09/25/2012 - 06:03 | 2827172 Ghordius
Ghordius's picture

+1 and the most important part of your sentence is this

"The ECB is anchored in Treaties."

Which shifts the whole discussion on a different level than the FED.

Abolish the ECB (instant explicit dollarization) and you still have 17 national banks like the Bank of England.

Draghi is walking the narrow line, yes, but the legal one nevertheless.

Tue, 09/25/2012 - 05:13 | 2827145 Fort
Fort's picture

A real inquiry by in house laywer's = See sheeple we checked and it is all okay. Nothing to see here move on thank you.

In house laywer's what a scam.

Tue, 09/25/2012 - 06:04 | 2827173 Nussi34
Nussi34's picture

The court can rule whatever it wants. We will bomb the fucking Mario out of Frankfurt!

Tue, 09/25/2012 - 06:54 | 2827198 CDSMonkey
CDSMonkey's picture

Spain should have taken the money and ran

Tue, 09/25/2012 - 08:44 | 2827401 1eyedman
1eyedman's picture

sounds like 'pre-litigation' to me....lets clear any legal ideas now, so that when whatever exogenous event occurs, the path will already be clear for the ecb to 'save' euro-zone by having all countries simultaneously agree to/sign up/ conform/ render sovereignty to the ecb, and the ecb can be the hero once again.

not sure if its ecb vs fed; or fed vs world; or if its ecb+fed vs rest of world.....seeking parity and pegs across all major currencies for the one global currency to be controlled by who: the fed or ecb.    

poetic thats its a true roman at the helm

Tue, 09/25/2012 - 09:06 | 2827472 b_thunder
b_thunder's picture

Do you realize how lucky we all are that our Fed doesn't have to deal with any lawyers at all? That there are no laws limiting what the FOMC can do?  That anything they do is de-facto legal?

There's no power in the Universe greater than the power of the FOMC!

 

/ Dow 36000 /

 

Wed, 09/26/2012 - 05:12 | 2831083 Colonel Klink
Colonel Klink's picture

Title correction, shouldn't that be "circling the bowl"?

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