By Stephen Lewis
Of Monument Securities
LONDON--The constitutional court in Karlsruhe has today ruled that the
German government did not properly consult Bundestag members over the
configuration of the European Stability Mechanism (ESM). This decision
will encourage some CDU politicians to redouble their efforts to clip
the court's wings.
Ever since the court insisted last September that the government keep
legislators informed on euro plans, the constitutional judges have
been consistent in finding in favour of parliamentary rights.
After a nine-member panel of Bundestag members had been set up with a
view to meeting expeditiously the requirements set by their September
ruling, the judges declared in February that this procedure was
unconstitutional. This was on the grounds that the Bundestag could not
delegate its responsibility for fiscal oversight to such a small
number of its members.
The latest ruling could delay the process of ratifying the ESM, where
Mrs. Merkel has set her heart on completion before the ESM is due to
start operations in July. It could also reduce the chancellor's room
for manoeuvre in all future negotiations at euro-zone level over
reform of the system.
The vague commitments by which these discussions have
characteristically progressed over the past two years hardly meet the
conditions of clarity demanded in a government communication to the
Bundestag. There are those in the CDU, close to Mrs. Merkel, who have
been urging a constitutional amendment to deprive the court of its
power to rule on matters relating to the EU and the euro. They are
likely to be enraged by today's decision.
However, it is doubtful whether Mrs. Merkel really feels she is in a
strong enough political position to challenge the prerogatives of the
constitutional court at this point. Furthermore, any political
challenge to the court's jurisdiction could well precipitate a major
constitutional crisis that might paralyse German decision-making with
respect to euro affairs far more seriously than the court's rulings
will.
A strengthening of the Bundestag's authority, relative to that of the
executive branch of government, is at least in line with thinking
elsewhere in Europe. Mr. Ayrault, the French premier, speaking at the
weekend, stated that, if there was to be euro-zone integration, there
would have to be a role for national parliaments.
"Europe remains and will remain a federation of nation states," he
declared. France, clearly, is not abandoning its Gaullist traditions,
even with the Socialists now in office.
Mr. Ayrault's comment reflects dissatisfaction with the European
Parliament as an institution providing democratic legitimacy to the
euro project. The point is that the European people do not constitute
an entity for the European Parliament to represent. Mr Ayrault,
Germanophile though he may be, would not feel comfortable surrendering
the French parliament's ultimate say on what happens to France to an
EU-wide or euro zone-wide legislative body.
Consequently, though euro-zone leaders at the G20 summit assure their
counterparts outside the bloc that they will redouble their efforts to
achieve fiscal and political union, the mindset of Europe's
politicians is not really attuned to union, still less are the
attitudes of the populations in the euro zone member-states.
The chances of achieving a genuine union, as opposed to the kind of
arrangement that Mr. Trichet has proposed which, though falling well
short of union, might be labelled as such, seem remote.
The basic point is that a successful monetary union presupposes fiscal
and political union.
The architects of the euro believed that the single currency would
eventually force a deeper union between the countries using it. The
politicians, until now, have drawn back from pressing for political
union because they have been well aware that, however great the
economic fruits of such a union might be, there is no popular support
for it.
Perhaps the majority believes, rightly or wrongly, that it would never
get to enjoy those fruits. Still, national politicians' natural reflex
is to recoil from pressing political union on their peoples.
The forces released through the euro zone member-states' adoption of a
single currency are every bit as strong as its founders expected. But,
given popular revulsion against political union, they are likely to go
on wreaking havoc in Europe's economy and financial markets. The
denouement will most likely be chaotic.
Mme Lagarde has reported that the money pledged to the IMF's special
fund for support of nations affected by the euro crisis has risen to
$456 billion, from $430 billion prior to the G20 meeting. Russia and
India among others have come up with contributions, believed to be $10
billion apiece. The total could go higher still.
However, this is not undiluted good news. The reason why countries
outside the euro zone are willing to contribute is that they are now
concerned, as they were not previously, that the euro's troubles could
become a threat to global economic stability.
Meanwhile, the G20 draft communiqu?contains all the usual pledges. The
financial markets no longer take these as indications that specific
future actions will be forthcoming. The lack of meaning in the G20's
statements is clear from the communiqu?s passage on growth.
"We are committed to take all the policy measures needed to strengthen
demand, help global growth and restore confidence," it states. This
only adds to our knowledge if we had previously supposed that G20
nations had been intent on stifling demand, hampering growth and
damaging confidence. Even Mrs. Merkel believes that her favoured
economic strategies are the ones that will lead to sustainable growth
and long-lasting confidence.
The G20 also say they are committed to facing up to short- and medium
term-risks and to maximising job creation. Would they have us believe
that thus far they have not been so committed? If that were indeed the
case, why would we believe their assurances now?
Write to Stephen Lewis at sjlewis@monumentsecurities.com
(Stephen Lewis is chief economist at Monument Securities Ltd., London,
independent brokers specializing in institutional business.)
Opinions expressed are those of the author, and not of Dow Jones Newswires.
This column is published for information only, and it neither
constitutes, nor is to be construed as, an offer to buy or sell
investments. The information and opinions expressed herein are based
on sources the author believes to be reliable, but he cannot represent
that they are accurate or complete. Any information herein is given in
good faith, but is subject to change without notice. No liability is
accepted whatsoever by Monument Securities Ltd., employees and
associated companies for any direct or consequential loss arising from
this article.
(END) Dow Jones Newswires
June 19, 2012 08:10 ET (12:10 GMT)
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