Will A German Constitutional Court Delay Today Cripple The EUphoria?

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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.