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Will A German Constitutional Court Delay Today Cripple The EUphoria?

Tyler Durden's picture


While early news are still abuzz with last night's largely irrelevant FinMin meeting, which came up with nothing new, but merely regurgitated the June 28 summit decisions in a way to send Peripheral bonds modestly higher, however briefly, the real news this morning will be out of Karlruhe, where the German Constitutional Court - which holds the fate of the European bailout mechanism -  has already said there will be no final decision on the constitutionality issue. The question now is whether the Court will issue a temporary injunction, which however, the court itself admits "will be interpreted by the foreign press as ‘euro-rescue is halted." Instead, what will likely take place is a two step process. As Market News reports, "Judges during the hearing suggested a two-part decision was likely, first on the injunction in about three weeks, and then in early 2013 on the broader constitutional question." Obviously, the court is not in any rush to come up with a definitive judgment. The problem is that Spain is. As is Italy: unless the ESM is able to promptly roll out its rescue functionality, the entire bailout mechanism will be halted and all the "progress" achieved so far will be for nothing. Sure enough, "a delay could have “serious economic consequences” for the Eurozone as well as Germany, and in turn would risk placing the entire euro project “in question,” Schaeuble warned." Yet not even the German FinMin will dare to tell German's constitutional arbiters to hurry up. Which is why keep a close eye on those Red flashing headlines out of Germany: they can make or break both the Euro, the PIIGS bonds, and broadly risk, if there is indeed a major delay, and certainly, if the court does order an injunction.

From Market News:

Judges of Germany’s Constitutional Court showed concern Tuesday over finding the right balance between making a quick decision on the European Stability Mechanism and taking the necessary time for proper evaluation of the ESM’s constitutionality.

What they did make clear is that there will be no final decisions today on the constitutionality of the ESM and Fiscal Compact approved by European leaders and passed with a two-thirds majority by Germany’s parliament last month.

But judges also acknowledged that granting even a temporary injunction could be interpreted as a sign that they were leaning against approving the ESM’s constitutionality.

An injunction “will be interpreted by the foreign press as ‘euro-rescue is halted’” said Constitutional Court President Andreas Vosskuhle, during a hearing into the injunctions sought by opponents of European rescue fund.

Opening the hearing earlier Tuesday, Vosskuhle said he recognized that it was “not easy” for the court to decide whether to grant a temporary injunction — which would prevent the ESM from taking immediate effect — or allow the treaty to take effect at the risk that it can no longer be halted if ruled unconstitutional at a later date.

Vosskuhle emphasized that the court could only hold a hearing over the injunction itself Tuesday, and would not discuss the broad constitutional questions stemming from the ESM and Fiscal Compact, which were both approved last month by Germany’s parliament.

“It is clear that this constitutional court cannot hold a full substantive, but rather a summary examination, given the tight time constraints” of the temporary injunction requests, Vosskuhle said. “That means that a final decision can not be taken in this hearing today about the constitutionality of the ESM, the Fiscal Pact and its accompanying laws.”

Judges during the hearing suggested a two-part decision was likely, first on the injunction in about three weeks, and then in early 2013 on the broader constitutional question.

But Vosskuhle and others on the court suggested uncertainty over just how far even a decision over the temporary injunction should go, and pressed Germany’s government representatives over exactly how much time the court has to reach a ruling.

German Finance Minister Wolfgang Schaeuble told the court that a long delay before the ESM takes effect would have serious consequences for market confidence and the Eurozone’s fragile economies.

Schaeuble said the ESM was a more “lasting, dependable instrument” than the temporary EFSF fund and had put Europe on the path toward regaining confidence.

“A considerable delay … would have serious consequences far beyond Germany,” Schaeuble said. It would entail “dangers for financial stability” and cause a “clear strengthening” of the Eurozone crisis, which could once again lead some European countries to have serious refinancing problems.

A delay could have “serious economic consequences” for the Eurozone as well as Germany, and in turn would risk placing the entire euro project “in question,” Schaeuble warned.

Opposition demands for an injunction have already stopped the ESM from taking effect on July 1 as originally planned. The Constitutional Court had earlier asked Germany’s president not to sign the ESM and Fiscal Compact into law until it could rule on the injunctions.

Opponents argue the ESM and Fiscal Compact will permanently curb the German parliament’s budgetary powers, and would therefore require a change of the constitution to be approved. They also argued an injunction would not be especially damaging, given the existence of the EFSF.

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Tue, 07/10/2012 - 07:15 | 2601424 Quintus
Quintus's picture


"Will A German Constitutional Court Delay Today Cripple The EUphoria?"


No.  The Court is too politically sensitive to cause such disruption.

Based on their performance last year when they ruled in favour of the last round of Euro-bailouts, the Constitutional Court seems to be much more concerned with the politics of the situation than with the law.

The principal of "Fiat justitia ruat caelum" - Let justice be done though the heavens fall, does not seem to be part of their thought process.


Tue, 07/10/2012 - 07:15 | 2601435 EL INDIO
EL INDIO's picture

They have already delayed it, remember !

Tue, 07/10/2012 - 07:19 | 2601439 Quintus
Quintus's picture

Well, the ESM treaty was referred to them by the President for a ruling before he signed it into law, which has caused a delay, but I don't think it's accurate to say that the Court itself has caused the delay.

Tue, 07/10/2012 - 07:33 | 2601471 jazze
jazze's picture

Political - yes. But remember most Germans don't want this crap. So... Banks or German people...

Tue, 07/10/2012 - 07:45 | 2601497 Quintus
Quintus's picture

Hmmm.  Banks or people.......banks or people....banks or people......decisions, decisions.  Which way will the ruling go??

People!  Definitely people.  The establishment would NEVER prioritise the well-connected and politically all-powerful financial system over the wellbeing of the general public.  Would they?

Tue, 07/10/2012 - 07:56 | 2601518 Nussi34
Nussi34's picture

Vosskuhle: "The constitution also applies during crisis"

Tue, 07/10/2012 - 09:16 | 2601705 CreativeDestructor
CreativeDestructor's picture

All that matters is banks, banks and only banks!!! not feeding banks is like unplugging the matrix. Banks are the architects of the matrix so that kinda answers all the questions.

Tue, 07/10/2012 - 08:09 | 2601550 andrewp111
andrewp111's picture

People thought SCOTUS would overturn ObamaCare for the same reason. Bad mistake. Never count on the courts to save your political ass.

Tue, 07/10/2012 - 08:29 | 2601596 eigenvalue
eigenvalue's picture

I guess most of the Germans don't know what ESM/EFSF is.

Tue, 07/10/2012 - 09:24 | 2601725 Nussi34
Nussi34's picture

ESM = European Sado Maso

Tue, 07/10/2012 - 07:33 | 2601472 i-dog
i-dog's picture


"a two-part decision was likely, first on the injunction in about three weeks, and then in early 2013 on the broader constitutional question"

Boot!! Another 50-yard punt down the field!

Tue, 07/10/2012 - 07:25 | 2601449 ArkansasAngie
ArkansasAngie's picture

Does it matter?  The Germans won't throw a monkey wrench into the deal.  They know who butters their toast.


It won't be a sovereign which tips this.  It will take a black swanish kind of event which is obstensively out of "their" control.


BTFD?  Nah ... I'll continue sitting on the sidelines picking up real assets that won't be confiscated.

Tue, 07/10/2012 - 08:28 | 2601595 d edwards
d edwards's picture

EUphoria-good one Tyler!


I guess there's no EUtopia, either.

Tue, 07/10/2012 - 07:09 | 2601426 Reptil
Reptil's picture

At least they have a Constitutional Court. Let's see if it actually works....

Tue, 07/10/2012 - 07:16 | 2601433 EL INDIO
EL INDIO's picture

They will delay it

Tue, 07/10/2012 - 07:15 | 2601434 gatorengineer
gatorengineer's picture

Where's Mr Roberts when the socialists need him?

Tue, 07/10/2012 - 07:17 | 2601436 KNiCKER
KNiCKER's picture

EFSF issues 30 yr bonds. I thought it was a 'temporary' mechanism???

Tue, 07/10/2012 - 07:17 | 2601438 q99x2
q99x2's picture

There will be no delay if they have judges like the US has. They will globalist that stuff right on through.

Tue, 07/10/2012 - 07:20 | 2601442 Aductor
Aductor's picture

Indeed, we live in a time when the state of exception becomes the rule.

Tue, 07/10/2012 - 07:21 | 2601444 crawl
crawl's picture

The question is do those judges commit themselves to look out for Germany or is the EU paramount?

I suspect the judges lean towards maintaining the social experiment called the EU intact.

Tue, 07/10/2012 - 07:25 | 2601451 GoldbugVariation
GoldbugVariation's picture

Not granting an injunction will be like saying yes to the ESM, as it will be signed and German capital pledged.  Granting an injunction will delay the ESM for minimum 6 months, and might kill the political process completely.

The court therefore needs time to think about this huge decision, and they are well aware of the implications.  3 weeks has been mentioned.  That won't delay the start of ESM because it can't start until ratified in Italy - and Italian ratification, though likely, is not expected to take place until August.

The main risk is that German public opinion changes in the weeks it takes the court to think about it.

Tue, 07/10/2012 - 07:28 | 2601455 Peter Pan
Peter Pan's picture

The court will approve, the stock market will jump, the polticians will be congratulating each other, the bankers will be given bigger bonuses and the rest of us will have our wages reduced, our unemployment and debts confirmed and our lives policed like never before.

Tue, 07/10/2012 - 08:11 | 2601556 andrewp111
andrewp111's picture

Until France fails, that is. Once France needs a bailout, Germany walks.

Tue, 07/10/2012 - 09:16 | 2601703 Roger Knights
Roger Knights's picture

Because at that point German public opinion will finally have said, "no mas."

Tue, 07/10/2012 - 08:20 | 2601582 Nachdenken
Nachdenken's picture

That is optimistic. What can go wrong.

Tue, 07/10/2012 - 07:29 | 2601456 eddiebe
eddiebe's picture

Irony is, wether they approve or not, the 'easing' will continue and the double irony is, it will be bullish for the Euro.

I finally figured out how all this works: Up means down, green means red and stop means go.

Tue, 07/10/2012 - 07:44 | 2601493 Cangoroo
Cangoroo's picture

Yes, I agree, it is important, more important was the interest rate decesion by the ECB. Negative rates for French bonds seem to be confusing, but they make sense. Slowly, very slowly MMs in the EMU start to unfreeze but it took them a long time to understand what was going on. So yes, if they delay it the markets will be okay. It is a vastly overrated decision. And Liborgate is an important factor. The target 2 system was frozen intentionally. 

Tue, 07/10/2012 - 07:33 | 2601474 youngman
youngman's picture

When a Government thinks it is going to get a bailout...that Government is NOT going to do anything to fix the problem...cut expenses as an example...so the charade goes on...the debt gets bigger...the problem gets bigger...the bailouts needed gets bigger..the can is huge now...

The way the bonds are getting split up...German and Austria...France?...very strong....Spain, greece, Italy...all weak....to me this signals a breakup of the euro....you have the first class passangers in the good lifeboats...while the 3rd class is in steerage....

Tue, 07/10/2012 - 07:35 | 2601481 Chaffinch
Chaffinch's picture

If there is a delay, will Spain and Italy have to follow Scanton's example, and reduce all public employees to minimum wage?

Tue, 07/10/2012 - 07:52 | 2601515 youngman
youngman's picture

A Judge stopped that too....

Tue, 07/10/2012 - 08:23 | 2601586 The Reich
The Reich's picture

If they don't stop it in their decision in three weeks Germany is doomed. Again!

Tue, 07/10/2012 - 08:25 | 2601589 Nachdenken
Nachdenken's picture

The issue is Germany as a Rechtstaat - a nation where the rule of law comes first.  This is also an exercise in democratic checks and balances - the judiciary here can check and or balance out the excesses of legislature (government).

If this fails we are only back to where we are, and going.

Tue, 07/10/2012 - 09:40 | 2601779 zelter
zelter's picture

A nation is a people, not a territory. The German people are a biological group, not a silly laundry list of ideas that do not even represent them or the state of affairs for quite a while. Sorry to say, Germany is pretty much a worthless country that has its chief subjects performing slave labour in service of the criminal EU regime, thus helping subjugate and destroy its fellow European neighbours with this nightmare.

There are no "democratic" checks and balances as Germans never got to vote on their current constitution, and they never will on another within this regime. You can lay the rule of law bullshit to rest. If it ever comes to a Art. 146 plebiscite, which concerns solely the "German people," the current political rulers will attempt to dilute the German vote with that of aliens whom they granted papers claiming citizenship.

Tue, 07/10/2012 - 08:58 | 2601672 Shylockracy
Shylockracy's picture

If you think the German constitutional court will defend the interests of the German people, and play the role of the opposition to the ESM which did not manifest in the Bundestag, you are naif at best.

The role of the constitutional court in Germany is to maintain the illusion of constitutionality and assure politicians get a free pass when their raping of the Basic Law (Pseudo-Constitution) gets obvious even to the dimmest German Michel on the street.

Tue, 07/10/2012 - 10:21 | 2601939 Nussi34
Nussi34's picture

So now it looks like they will doe a deeper check, if the ESM complies with the Germany constitution. The statement was thath this will take several months!

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