Breaking (via Reuters)….
RTRS-GERMAN CONSTITUTIONAL COURT SAYS REJECTS LAWSUITS AIMED AT BLOCKING GERMAN PARTICIPATION IN EURO ZONE BAILOUTS
RTRS-GERMAN CONSTITUTIONAL COURT SAYS RULING ON BAILOUTS WAS “VERY TIGHT”
RTRS-GERMAN CONSTITUTIONAL COURT SAYS PARLIAMENT MUST HAVE SAY IN DECISIONS THAT LEAD TO BURDENS FOR GERMAN BUDGET
RTRS-GERMAN CONSTITUTIONAL COURT SAYS GOVT MUST GET APPROVAL OF PARLIAMENTARY BUDGET COMMMITTEE BEFORE GRANTING ANY AID
Now, it’s the two headlines in bold that are the most important (in our opinion).
At pixel time the full ruling was not available (it should appear here later) so we don’t know precisely what it all means. But it looks like the Court will not force the Bundestag to have full plenary sessions to vote on every activation of the EFSF (or one of its four new tools) but rather will accept a decision made by the Budget Committee (made up of around 40 MPs).
That is something of a positive (it will make the process less cumbersome) and might explain why markets have taken the news in their stride. The euro has risen slightly and equity markets across Europe remain sharply higher.
Indeed, this point was picked up Silvio Peruzzo and Jan Dubsky of RBS on Wednesday morning.
Should the parliament need a full vote, this would typically delay the activation of the EFSF or of its tools by a few days while the Budget Committee could vote within hours. In any event, this week’s court ruling is likely to be another negative for confidence.
And that surely is the wider point. A parliamentary vote is now required for Germany to participate in any future bailout via the EFSF and ESM, which adds another layer of complexity to any already fraught situation.
Back to Peruzzo and Dubsky.
Such a decision is likely to be seen very negatively by markets since it will add another layer of domestic politics in the crisis resolution mechanisms, raising the risk of massive coordination failure. To date, Finland is the only country requiring parliamentary approval for any EFSF related decision and this has already proven to be very time consuming in the case of the Portuguese bail out for example.
Update: 1.00pm (London time)
A press statement has now been released. And having ploughed through the rather dense and complex statement it this strikes us as possibly the most interesting bit.
The Euro Stabilisation Mechanism Act lays down not only the objective and the fundamental modalities but also the amount of possible guarantees. The giving of guarantees is only possible during a certain period of time, and it is made contingent on agreeing an economic-policy and finance-policy programme with the Member State affected. The programme requires mutual agreement of the euro currency area states, which secures a determining influence to the Federal Government.
However, § 1.4 sentence 1 of this Act merely obliges the Federal Government to strive to reach an agreement with the Bundestag’s Budget Committee before giving guarantees. This is not sufficient. Instead, guaranteeing parliamentary budget autonomy requires an interpretation of this provision in conformity with the constitution to the effect that the Federal Government is in principle obliged to always obtain prior approval by the Budget Committee before giving guarantees.
If we are reading this correctly, Germany will now have to adopt something akin to the the Danish model, whereby a committee deals with all the EU issues relevant to Denmark. In this case, it will deal with all issues related to the EFSF and ESM.
And as Nomura’s Nick Firoozye noted on Tuesday that has pros and cons.
While this model gives the government (once approvals have been granted) greater power to negotiate with its EU counterparties, it does so at the expense of awarding far greater leeway to veto-holders, to minority parties and to back-benchers (see A Veto Player’s Game?). The example given by Denmark is now the subject of open debate in the Bundestag, with questions of the extent of intervention and oversight required, although it appears that unlike Denmark where a special European Affairs Committee rules on such matters, in the Bundestag, a subcommittee of the Budget Committee will probably be enabled to rule on matters of EFSF participation.
However, Germany’s finance minister seems to see things differently.
Via Reuters:
RTRS-SCHAEUBLE SAYS COURT LEAVES GOVT FREE TO AGREE AID FOR EURO ZONE COUNTRIES, INFORM PARLIAMENT THEREAFTER
Related link:
Bundesverfassungsgericht risk - FT Alphaville