"Don't Count Your Hahnchen": 40% Chance German Court Does Not Ratify ESM

Tyler Durden's picture

"Don't underestimate how close the Court verdict is" is the warning that Morgan Stanley's European Research group sends out in a note today. In their view, there is a non-negligible risk that the German Constitutional Court will voice concerns about the ESM and, potentially, also the fiscal compact on September 12. Given that the EFSF is still in operation, given that the Court views the scope of the German constitution as being exploited already, and given its record of voicing concerns about European integration, MS sees a 40% chance that the Court bans Germany from ratifying the ESM treaty (with major repercussions for financial markets), at least for now, and while their base case is for ratification of both treaties, they believe the market is not priced appropriately for the downside tail-risk of a possible 'no' verdict (and the asymmetric scenarios below).

Morgan Stanley: Concerns about the German Constitutional Court?

Hoping for a go ahead for the ESM on September 12

 When Germany’s Constitutional Court announces its initial verdict on several emergency injunctions regarding the ESM and the fiscal compact, the decision will be significant in two respects:

  • First, the ruling could decide the fate of both treaties if the Court decides to grant the emergency injunctions and bans Germany from completing the ratification process until it has ruled. This is especially true for the ESM, which contrary to the fiscal compact cannot start without Germany’s participation.

    Second, the verdict – either now or in the final ruling expected early next year – might set out additional boundaries for the German government when it comes to European policy initiatives.

Should the Court decide not to grant an emergency injunction, its president could sign both treaties into law, completing the German ratification process. Once Germany has deposited what are called ‘instruments of ratification’ in Brussels, it will be bound by the treaties under international law. Given the binding nature of the ratification, we expect the Court to weigh its decision very carefully and would assign a probability of up to 40% on the Court granting an emergency injunction against the ESM, forcing the government to hold off until the Court has given its final verdict sometime next year.

If the Court bans the German government from joining the ESM for now, this will likely have major repercussions for financial markets.

At the public hearing the Court held in July, the judges were probing several of the experts on the likely consequences of a delay in the ESM. By and large, the judges were assured, e.g., by Bundesbank President Weidmann and by representatives of the EFSF, that a delay would not cause major problems as EFSF support was still available. While this is certainly true, it seems to us that policy-makers, notably in Germany and Spain, favor bringing new support programs, especially if they concern sovereign support for Spain or even Italy under the ESM instead of the EFSF. As such, the decision of the Constitutional Court could therefore also affect the start of the new ECB’s bond buying program.


Constitutional Court watches over whether democratic decision-making is undermined by European integration. The Constitutional Court consists of two so-called Senates, which have eight judges each. The current President of the Court, Prof. Dr. Andreas Voßkuhle is also the chairman of the second Senate, which is in charge of the ESM and Fiscal Compact ruling. Each Senate is led by a chairman, which are usually the President and Vice-President of the Court. Decisions that involve basic rights or issues of particular importance are decided with a two-thirds majority. All other issues require an absolute majority. In an interview with the German daily F.A.Z., Judge Voßkuhle stressed that the parameters of Germany’s constitution, the ‘basic law’ (Grundgesetz), were close to being exhausted when it comes to further European integration.

Constitutional Court decision closer than many think

Overall, the decision is likely to be a close one. For starters, the Court has already signaled that it takes the issues very seriously by granting a public hearing on the matter (which is unusual for a decision on an emergency injunction). In particular, the Court already warned the government, in its verdict on the involvement of the Bundestag on EFSF matters, to not bend the rules of the constitution.


What the Court decides about on September 12

On September 12, the Court will only decide on the requests for so-called interim relief, i.e., an emergency injunction which puts the German ratification process on hold until the Court has decided on the cases in full. Such a final verdict is not expected before 2013. But the Court has chosen an unusual procedure, which makes it unlikely that the final verdict will deviate from its preliminary assessment in September.

Usually, the Court assesses a request for interim relief in two steps:

  1. The Court first looks at the validity of the complaint without ruling on the matter itself. Here the request for interim relief needs to be admissible on the basis of an immediate and direct danger to the constitutional rights of the claimant in question. This danger needs to outweigh the consequences of the delay of the government decision in dispute.
  2. In a second step – and provided the case itself is admissible – the Court would then decide on the constitutionality of the issue at a later stage, i.e., the Court needs to assess whether the complaint is justified on the grounds of the German Constitution, notably whether the sovereign rights of the German people are being infringed. For cases brought by individuals, the hurdle of admissibility is high, with the Court throwing out more than 97% of the cases.


In the present case, however, the Court has purposefully taken its time with its preliminary assessment of the emergency injunction, perhaps longer than expected by some. The Court is seemingly fully aware of the fact that if it would reject the request for interim relief, and hence would grant Germany permission to ratify the treaties (which would then become binding in international law), this would make it difficult to rule the treaties unconstitutional at a later stage.


Implications (click for large version):


Source: Morgan Stanley

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Lohn Jocke's picture

Bullish. QE3 Tomorrow. Who is who's bitches?

vast-dom's picture

Correction: it's 43.653342%

Zgangsta's picture

A butterfly just flapped its wings, dropping the chances to 43.653341%.

malikai's picture

On FX, under not ratified, at the bottom, he says something to the tune of "periphery states give up their resistance to fiscal integration".

But I thought the periphery wanted fiscal integration so that the Germans would buy their debt. Or does he mean they will then accept austere measures for cutting spending?

Not sure what to make of that one. Also, the conclusions drawn, while some of them seemingly plausible don't all jive with the DO OR DIE mentality of the Eurocrats.

Abiotic Oil's picture

"The Germans will work this constitutional issue out.  It's not a treaty.  It's a tax." -Justice Roberts

ebworthen's picture

I'm certain Goldman Slacks and J.P. Morgue unmarked bills and prostitutes are flowing freely to the German court judges.

Dalago's picture

And countless amounts of blow that was transferred from the Mexican drug cartels.

ebworthen's picture

Dalgo and Milton - yes, forgive me, I forgot the white stuff which flows so nicely through those rolled up bills and facilitates the other activities.  Cheers (or should I say "Prost"?).  ;-)

Abraxas's picture

I doubt the independence of the German Court and any country's Court for that matter.

q99x2's picture

The fairyland dwellers in their red jumpsuits and moron hats sure look like they could be bought off cheap to me.

youngman's picture

A Scotsman wears nothing under his Kilt...wonder what a German Judge wears??????

rufusbird's picture

Considering how high feelings are running, it had better be a chasitity belt!

fonzannoon's picture

did everyone btfd?

schatzi's picture

40%? fuck me. 100% is what is should and must be. If Draghi gets his way to help his mafiosi bankers and other assorted privileged scum, I'll either join my middle class, tax paying brethren on the barricades or leave this central European shithole and move to the States. Oh wait... more of the same shit.

SKY85hawk's picture

Less shit, actually!

Income on Money in a ROTH-IRA is not taxable.

If you say I'm wrong you must provide links to Statutory proof.

Yes, it takes time to fund up such an account, but it's exempt from the age 70.5 distribution requirement.

Also, 401-k or IRA money can be converted to the ROTH.  Taxable amt depends on your other income. This is above the annual 6,000 contribution limit.

Look out for yourself.  Stop protesting until you can prove you've been cheated!

If you answer, I'll share  my process for investing the money.

Best Regards,



WillyGroper's picture

Yea, great big crumb TPTB threw to the little people. Riddle me this: How did Mitt RobMe acquire over $100M in a tax free IRA given the income limitations? Meaning "Earned".

SKY85hawk's picture


I don't know about Mitt's business dealings.

I'm just saying that there are options for us Americans that European people don't have.  And, perhaps schazi should visit us in Philadelphia, we'd be glad to show him around.

Personally, I can do ok on 35,000 a year from a 100,000 Roth-Ira.

That's like a 70,000 job!   And I can sleep until 8:15 each day.

I suggest focusing on making your life better, jealousy rots the soul.  .. ..


Peace,  man

robertocarlos's picture

So there's a 59% chance they do ratify the ESM. That's good news for some people.

debtor of last resort's picture

Can you guarantee to infinity? Yes you can!

Scalaris's picture

Oh no, and I'm just listening to Bloomberg's breaking news, talking about evidence of a global economic slow down.

And I am genuinely in awe.

Dr. Engali's picture

Fodder to get Ben to print.

LMAO's picture

40% Chance German Court Does Not Ratify ESM

Excellent guestimate, sheer Morgan Stanley brilliance.

I think it's 50%, it's either they do or they don't.

Can't wait to find out who is going to be right......Yawn.

john39's picture

who would have guessed in advance that John Roberts would back the abomination that is obama "care"....  and yet here we are.    in other words, courts are a good show, but when it matters, don't bet on them doing anything for the people.

TheSilverJournal's picture

I wouldn't be surprised if they failed to pass the ESM and the world economy tanks, then they rush back and approve the thing...kind of how TARP went.

If this happens, it will probably cause the last ever dip in PMs as the dollar would get a boost. Then, once ESM is approved, the Euro will SOAR and the dollar will TANK. It will truly be your last chance to get out of the dollar.

Of course, if the ESM does not get approved, you better be all the way out of the banking system altogether because the entire fiat roof will come down quickly.

JLee2027's picture

Just like Roberts with the "ObamaCare is a tax"; they'll find some weasel way to ratify it. Statists always do.

OneTinSoldier66's picture

Damn. I just made a post below more than alluding to the same thing. You beat me to it!


At least I can take this opportunity to say that great minds think alike. :)

Dr. Engali's picture

Puuuuulleeaase anything coming from MS is a joke. The decision was made before the court went into recess. The judges are just being wined and dined getting hookers and blow. They have long since been bought and paid for.

What was the handicap on Obamacare?

kito's picture

@doc +1000    ms knows jack shit about anything....they should be more concerned with "how close" their own bank is to implosion....here is some basic logic....THERE IS ZERO CHANCE THE GERMAN COURT HAS ENOUGH HUEVONES TO ALLOW FOR THE POTENTIAL IMPLOSION OF THE ENTIRE EUROZONE...........  


jayman21's picture

They still do research?

nameless narrator's picture

100% it will ratify.   it does NOT MATTER how "close" the vote is.  what does matter is victory for the banks, which means ratify.


semperfi's picture

99% chance Morgan Stanley goes Lehman.

Ned Zeppelin's picture

More jawboning.  My prediction is that the German Court will approve the ESM, and the ECB will print (or let the ESM print).  In the short term, given that they can do these things, what else are they going to do?  No choice, I think.  I suppose the interesting question is even if they do those things, how long can this go on?    

semperfi's picture

until the banksters are fitted with nooses - thats when it will end

Frastric's picture

If the German Constitutional Court says 'nein' to Germany's participation in the ESM, I'm gonna make a bomb shorting stocks... Got my shorted DIA at the ready should things go ugly and really its win-win because the market is bound to mildly nosedrive when it teases out whatever stipulations (and there will be) the court lays down.

20-20 Hindsight's picture

40% chance?  Bullshit!  There's a zero per cent chance that this is going to happen.  

Yen Cross's picture

 Just ask  "Mariano Rajoy", for the odds. He's probably packing Draghi's fudge as we speak!  Spain is the dogs tail, and Greece is the "tick" on the dogs tail!

  Draghi knows the Germans are "999" , unless Club Med capitulates!

Reptil's picture

meh I don't know, there IS a big chance they'll reject the ESM. They know that they'll have a revolt on their hands if they don't. The ESM is 100% unconstitutional, in Germany as well as in the Netherlands (and probably most other countries).
Germans do take their Grundgesetz quite seriously. And they actually have a court that is supposed to uphold it. Contrary to the Netherlands where every court's descision is supposed to be according to it (but isn't).
See... that's the problem. The policians, enboldened by their "Lisbon Treaty", what they see as a victory for more intergration, tried to walk along the same path and just quietly push things through, regardless of outcome, or judicial validity.
But it's not 2007 anymore, this is in the open, thanks to ppl. like prof. Schachtschneider, and that they're seeking a public hearing is because they want public support for their descision.

We'll see if Germany is the state it pretends to be. My bet is on that they'll reject it outright.

NoTTD's picture

In a word, bullshit.   The German judges are no less elitist than their political leaders.  They'll let the government do what ever it wants, regardless of the views of the popultation.   Reliance on Germans to inject a Euro killing does of reality is misplaced.

The Alarmist's picture

Just to be pedantic about it, it's Hänchen or Haenchen.

My take is that the Constitutional Court kicked the can down the road itself in the hopes that Frau Merkel et al would take action before 12 September and thereby make their own ruling moot. Nobody wants to handle this pig.

OneTinSoldier66's picture

If Chief Justice John Roberts were sitting on this bench then I'd be able to place a sure bet, which would be... whatever the Government wants.

SmoothCoolSmoke's picture

Since the EU crisis began, this German High Court vote is, what, the 92nd vote by some entity (Greeks this or that, Fins, Slovaks, etc etc...) that is gonna screw theCrimiinal Elite Banksters.

yeah,  right..............

DutchDude's picture

I'm guessing the banksters are offering shitloads of fiat paper to those judges to pass the ESM.