It takes a special kind of saddo to have any interest in the decisions made by the German Constitutional Court, but I am that person so here goes.
The Court has this morning pronounced on the legality of a scheme devised by the head of the European Central Bank, Mario Draghi, known as the Outright Monetary Transaction (OMT). Eurozone watchers have been waiting for this Court decision for months.
The background is that a couple of years ago southern European countries (Italy and Spain in particular) were having to pay alarmingly high interest rates on their government borrowing. The markets feared that these countries had got into a kind of vicious circle where the closer they got to insolvency, the more expensive their borrowing became, pushing them closer still to the edge. Doomsayers like me were predicting Eurozone exits, but suddenly in August 2012 ECB chief Mario Draghi came up with OMT, a scheme whereby in exchange for stringent economic conditions, the ECB would buy afflicted countries bonds. No country has had to apply for funding, because Draghi's assertion that the ECB would do "whatever it takes" was sufficient to lower bond prices. Almost overnight the debt markets calmed down. OMT is widely perceived to have saved the Euro.
The only problem was that OMT is probably illegal, infringing the ECB's mandate, which does not include paying to prop up member countries' economies. The ECB is not, the argument goes, a lender of last resort. These sentiments are particularly strong in Germany, which has used its association with the weaker economies of southern Europe to export its way to massive (and sanctimonious) prosperity.
So last year the issue was referred to Germany's Constitutional Court in Karlsruhe, and Eurozone nerds like me have been wondering what the Court would do.
One of the lessons of the Eurozone debacle has been that the great and the good, people my age growing up in Europe in the aftermath of the 39-45 war, are so wedded to the idea of European unity (and so dependent on it in terms of career advancement) that they are capable of any kind of ingenious sophistry (and OMT is itself a prime example) if it helps keep the project going.
In other words the Court's ruling was always going to be political as much as legal.
This morning came the verdict.
Das Bundesverfassungsgericht has said that "there are important reasons to assume that (OMT) exceeds the ECB's monetary policy mandate and thus infringes the powers of Member States, and that it violates the prohibition of monetary financing of the budget . . . primary law stipulates an explicit prohibition of monetary financing of the budget and thus unequivocally excludes such powers of the ECB".
Seems clear enough. OMT infringes Germany's basic law. But hang on a moment - "the OMT decision might not be objectionable (if) . . . government bonds of selected Member States are not purchased up to unlimited amounts, and that interferences with price formation on the market are to be avoided where possible".
Now it may be that something is being lost in the translation here, but government bonds can never be bought up to unlimited amounts, because if the ECB buys, say, 1 billion Euros worth of Spanish bonds the number, although quite large, has by definition been limited to 1 billion. And moreover it is always going to be impossible to avoid interfering with "price formation on the market" (that would actually be the object of such purchases). So it looks as if the Court is giving OMT the green light.
So what was its decision? Well here comes the clever part. The Court hasn't actually made one. It has decided to refer the whole issue to the European Court of Justice. And given that the ECJ is stuffed with apparatchiks devoted to European Unity as well, I wonder if you can predict what their verdict will be?
It will be a couple of years before that verdict arrives. After that the matter will go back to the Verfassungsgericht for a decision as to whether OMT infringes Germany's Grundgesetz or basic law.
Truly a decision on OMT has been kicked well and truly into the long grass.
Meanwhile, southern European bond yields remained steady. Mario Draghi must be feeling pretty pleased with himself.
