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In Bond Case, German Court Debates Fate of Euro

June 11, 2013 by Leave a Comment

Technically, the Federal Constitutional Court was merely considering whether measures by the central bank to contain the euro crisis infringed on German law. But the oral arguments, on suits brought by numerous citizen groups, inevitably turned into a debate on the future of the euro currency project itself.

The star witnesses at the hearings were two friends and former classmates who symbolize German ambivalence about the common currency.

Jörg Asmussen, a member of the European Central Bank’s executive board, defended the bank’s promise last year to buy bonds in any quantity necessary to eliminate fears of euro zone breakup.

Jens Weidmann, president of the German central bank, the Bundesbank, said the E.C.B. would violate European treaties if it bought bonds — which it has not yet had to do.

As the justices pointed out, the court does not have the power to block actions by the European Central Bank. But it might restrict participation by the German government or the Bundesbank in measures designed to address the crisis. As the euro zone’s paymaster, Germany plays a crucial role in any efforts to prop up the common currency.

Some complainants clearly hoped for a ruling that would effectively force Germany to leave the euro.

Karl Albrecht Schachtschneider, a retired law professor and well-known euro opponent, told the court he hoped that “the euro adventure will be brought to an end for the good of Germany and the good of Europe.”

Others did not go that far, but argued that the E.C.B. had bypassed elected officials when it declared itself ready to buy bonds of euro zone members.

“The price of the so-called euro rescue may not be to injure democracy,” said Dietrich Murswiek. He argued before the court on behalf of Peter Gauweiler, a member of the German Parliament who is one of the individuals and political groups that have filed suits against the central bank’s crisis measures.

On the opposite side, Wolfgang Schäuble, the German finance minister, warned that the cost to Germany would be incalculable if the country left the currency union. And he pointed out that under the European Central Bank, inflation has been lower than it was with the deutsche mark. “The E.C.B. is acting within its mandate,” he told the court.

Mr. Schäuble said the central bank could be put into an impossible position if it were faced with conflicting rulings by courts in different euro zone countries.

The hearing, in a fenced-off court and police complex in a wooded area outside Karlsruhe, a city in southwest Germany near the border with France, drew an eclectic group of Germans on both the left and right who deride the euro as a travesty and long to bring back the deutsche mark. Outside a security checkpoint, several dozen anti-euro protesters chanted and waved signs as witnesses and media arrived in the morning. One sign called for Mr. Asmussen, the central bank’s board member, to be thrown in jail, an indication of the emotion that some Germans attach to the issue.

During his appearance before the court, Mr. Asmussen sought to assuage concerns that German taxpayers could be left with bill if the E.C.B. suffers losses from buying government bonds. Unlike a commercial bank, the European Central Bank can operate at a loss, he said. That would mean it would not need to ask governments for money to cover short-term losses.

Answering accusations that the central bank is remote from the democratic process, Mr. Asmussen said its measures had in fact given elected officials time they needed to deal with the crisis.

“The risk of not acting would have been greater,” he told the high court.

Mr. Weidmann, who studied economics at the University of Bonn with Mr. Asmussen, argued a point of view widely held in Germany: that the E.C.B. is making it too easy for struggling members of the euro zone to continue their wayward ways.

“Interest rates have a central disciplinary function,” Mr. Weidmann said. “Monetary policy can’t solve the problems of the euro zone. Only political leaders can solve the problems.”

Article source: http://www.nytimes.com/2013/06/12/business/economy/german-court-weighs-bond-buying-by-european-central-bank.html?partner=rss&emc=rss

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Merkel and Sarkozy Push Debt Restraint in Euro Zone

December 6, 2011 by Leave a Comment

Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France, meeting here at the start of a crucial week that will end with a European Union summit meeting on Thursday and Friday, called for amendments to European treaties that would include centralized oversight over budgets and automatic sanctions against countries that violate firmer rules on deficits.

The changes are among the most sweeping proposed since European countries began coordinating their economic policies in the aftermath of World War II. They would effectively subordinate economic sovereignty to collective discipline enforced by European technocrats in Brussels.

“We want to make sure that the imbalances that led to the situation in the euro zone today cannot happen again,” Mr. Sarkozy told a joint news conference. “Therefore we want a new treaty, to make clear to the peoples of Europe that things cannot continue as they are.”

It is unclear if promises of future action will be enough to pacify markets, which have been testing the resolve of European leaders for months. They initially responded with relief on Monday, with stocks and the euro rising, but lost some of those gains after Standard Poor’s put 15 European nations on credit watch because of disagreements about how to tackle short-term and long-term threats to financial stability.

Mrs. Merkel, warmly embracing the French president despite their often testy relationship, insisted that the euro zone must be effectively re-established under a different set of rules. “We want structural changes that go beyond agreements,” she said. “We need binding debt brakes.”

By pressing for a new treaty the French and German leaders took big risks on two fronts. Their proposal threatens to divide the 17 European Union countries that use the euro from the 27 nations that are part of the larger European Union, some of which, like Britain, are likely to reject intrusive budget oversight from Brussels. And it remains uncertain how warmly national parliaments and voters even within the euro zone will embrace the changes.

The two leaders are aiming to develop a clear consensus among the other members of the euro zone that they will push ahead with a new treaty. They appear to be calculating that such a signal of solidarity will be enough to persuade the European Central Bank, the only institution in Europe with enough financial firepower to defend the ability of member states to raise money on bond markets, that it has enough political cover to move more aggressively to protect vulnerable countries like Italy and Spain.

Mrs. Merkel and Mr. Sarkozy did not directly address the role of the central bank, which operates independently. But many European analysts have concluded that the Germans, who have been among the most wary of an expanded role for the bank, will implicitly endorse a bolder intervention in the markets if European nations accept more intrusive rules.

Mr. Sarkozy said the Franco-German aim was to have treaty changes drafted and agreed upon by the end of March. But ratification will take longer. In France, for instance, Mr. Sarkozy will not try to ratify any treaty change until after legislative elections that finish on June 17. Even if he is re-elected president in May, not a sure thing, he may lose his majority in Parliament.

There is another crucial issue, too, which is the process of ratification. If Ireland decides that these changes are fundamental enough to be approved by referendum, it may slow matters further. Ireland rejected the last European treaty in a referendum, before European colleagues forced Dublin to vote again.

And it may be that voters are wary of “more Europe,” and that their growing disaffection has not been overtaken by their concerns over the fate of the euro.

The two leaders, to reach a joint position, did some bargaining on Monday. Mrs. Merkel wanted oversight of national budgets to be exercised by Brussels, with the European Court of Justice the ultimate arbiter, with the power to veto budgets and send them back to national parliaments to review. Mr. Sarkozy, the political inheritor of Gaullism, did not want to give any supranational body that much authority over an elected national parliament, a view shared by other countries, too.

Stephen Castle contributed reporting from Brussels.

Article source: http://www.nytimes.com/2011/12/06/world/europe/leaders-piece-together-an-effort-to-keep-the-euro-intact.html?partner=rss&emc=rss

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Leaders Piece Together an Effort to Keep the Euro Intact

December 5, 2011 by Leave a Comment

Important disagreements persist, and the two primary leaders of the euro zone, Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France, will meet on Monday in Paris to try to hammer out a joint proposal for the summit meeting. That gathering begins on Thursday evening, and is considered a last chance this year to set the euro right, even as some investors and analysts are beginning to predict its collapse.

“The survival of the euro zone is in play,” one senior European official said. “So far it’s been too little, too late.”

The emerging solution is being negotiated under great pressure from the markets, the banks, the voters and the Obama administration, which wants an end to the uncertainty about the euro that is dragging down the global economy.

In the process, European leaders will begin to change the fundamental structure of the union, creating a form of centralized oversight of national budgets, with sanctions for the profligate, to reassure investors that this kind of sovereign-debt crisis is finally being managed and should not happen again.

The immediate focus of worry is on Italy and Spain, which have been buffeted by market speculation even as they move to fix their economies. That process took an important step on Sunday, as Italy’s cabinet agreed to a package of austerity measures to put the country in line for aid that would improve its financial stability.

The new euro package, as European and American officials describe it, is being negotiated along four main lines. It combines new promises of fiscal discipline that will be embedded in amendments to European treaties; a leveraging of the current bailout fund, the European Financial Stability Facility, to perhaps two or even three times its current balance; a tranche of money from the International Monetary Fund to augment the bailout fund; and quiet political cover for the European Central Bank to keep buying Italian and Spanish bonds aggressively in the interim, to ensure that those two countries — the third- and fourth-largest economies in the euro zone — are not driven into default by ruinous interest rates on their debt.

After consecutive, expensive failures to stabilize the markets and protect the euro, the broad plan emerging this week may have a better chance at succeeding, analysts say, in part because it weaves together measures that deal with the various issues of the euro, particularly the provision of a central authority that can monitor and override national budget decisions if they break the rules.

Still, even if all the parts are agreed upon in the meetings, which are bound to be fraught, the fundamental imbalances in the euro zone between north and south and between surplus countries and debtor ones will not go away. The euro will still be a single currency for 17 disparate nations in the European Union.

One dividing line is that the Germans, along with the Dutch and the Finns, remain adamantly opposed to what some consider the simplest solution: allowing the European Central Bank to become the euro zone’s lender of last resort and to buy sovereign bonds on the primary market, in unlimited amounts. Mrs. Merkel is also dead-set for now against collective debt instruments, like “eurobonds,” that would put taxpayers, particularly German ones, on the hook for the debt of others, which her government regards as illegal.

So Mr. Sarkozy and other European leaders are working on a less elegant and more phased way to create a pool of bailout money that is large enough to convince the markets there is little chance of a default on Italian and Spanish bonds, which should drive down rates to sustainable levels, European and American officials say.

Mrs. Merkel says it is time to get the euro’s fundamentals right. She is insisting on treaty changes to promote more fiscal discipline, including a limit on budget deficits, with outside supervision and surveillance of national budgets before they become dangerous, and clear sanctions for countries that fail to adhere to the firmer rules. Berlin wants the new standards backed up by the European Court of Justice or perhaps the European Commission, with the power to reject budgets that break the rules and return them for revision.

She would like the treaty changes to be accepted by all 27 members of the European Union, but failing that, she said she would accept treaty changes within the euro zone, with other countries who want to join in the future, like Poland, free to commit to the tougher rules now. Many countries, and not only Britain, are opposed to institutionalizing a two- or even three-tier European Union, fearing that their interests will be sacrificed and their voices diminished.

Article source: http://www.nytimes.com/2011/12/06/world/europe/leaders-piece-together-an-effort-to-keep-the-euro-intact.html?partner=rss&emc=rss

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