OMT decision referred to European Courts - English

The Vanishing Point of Law

By Juliane Mendelsohn8.02.2014Economics

The euro cannot be allowed to fail. Even pedantic German courts start to realize that now – thank goodness.



A door opens. In walk men and women dressed in red cloaks, red hats. Their voices are lowered, their eyes glare firmly into the distance. For many years, these judges and the German constitutional court were the closest thing I could imagine to oracles. Now, for better or for worse, their almighty competences are shrinking.

Yesterday, the second senate of the German constitutional court passed a preliminary ruling which one of the plaintiffs declared to be the _“most important verdict in decades”_ (but plaintiffs always think that). It passed the question of whether the Outright Monetary Transactions (OTC) of the European Central Bank (ECB) are legal onto the European courts and promised a verdict on the legality of the European Bailout Mechanism (ESM) by March 18.

“Whatever it takes”

All of this started back in July 2012 when, to calm the markets, Mario Draghi said he would do _“whatever it takes to save the Euro”_. Draghi fulfilled his function of Euro-archangel, and is celebrated for keeping the lights on in the eurozone (at least for the moment). “Whatever it takes” meant that the ECB would purchase an unlimited amount of Member States’ government bonds in order for them to recover from the eurozone crisis, should this measure become necessary.

But Draghi’s blank pledge made the German Bundesbank, queasy. It also enraged a certain group of elite German eurosceptics that usually spend their time plotting up glorious euro-exit strategies. The Bundesbank likes to believe that all central bank’s mandate is limited to price stability. The Eurosceptics wish the Bundesbank was the last central bank on earth.

Whilst the constitutional court believes that, _“the OMT decision does not appear to be covered by the mandate of the European Central Bank (and that) the monetary policy is to be distinguished (…) from economic policy”_ it did not cause a scandal, nor hand the key to future Goldmarks to some self-important economists. Instead it ruled only on a point of law and in doing so, rightly concluded that the question was one of European Union law rather than German law. Now it is up to the European Court of Justice to decide the technicalities. But will this court know any better? And is it in anybody’s interest to restrict the freedoms of Mario & friends?

How long till somebody shouts fire?

What dwells underneath all of these constitutional rulings on Europe is not only the idea that Europe cannot be stopped or shrunk back to its comfortable size, but also the fact that its growth and its actions reach far beyond the content of its treaties. How long till somebody suggests that the treaties have been overridden and that we need a new set? How long till somebody shouts fire?

The Courts and the Commission have broken every rule of the original eurozone during the course of the crisis. They’ve bent the “no bail-out” rule beyond recognition. After all this, doesn’t the insistence that the Central Bank only has a mandate for price stability, and the pretence that judges, of all people, can best distinguish between monetary and economic policy seem a little pedantic… a little German?

Basically, the law’s veil of innocence has fallen. Today it recognized that issues of ‘legal’ and ‘illegal’ run a distant second to ‘what will cause the Euro to function’ and ‘what will destroy it’.
The eurozone runs under one assumption, and that assumption is above and beyond law: the Euro cannot be allowed to fail. Thank goodness for that.



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