They have the potential to throw the stock exchange into turmoil, trigger frenzy on bond markets and bring down the German government. So the eyes and ears of the eurozone will be on the eight red-robed judges of Germany‘s highest court this week when they deliver a long-awaited verdict over whether a financial rescue fund considered crucial to the future of the euro gets the green light.
The constitutional court is under international pressure to rule in favour of the European stability mechanism and fiscal pact. A dissenting ruling from the court, based in Karlsruhe, southwestern Germany, would probably cause havoc on money markets and cast doubt on the future of Europe’s single currency.
“The German constitutional court cannot afford to be seen as not being independent, but it also cannot afford to be seen as the court that brought down the government,” said Constanze Stelzenmüller, a senior transatlantic fellow at the German Marshall Fund in Berlin. “They’re going to have to try to square the circle; in other words, not bring down the government at the same time as asserting their independence.”
The ruling, due on Wednesday, is expected to give the go-ahead to the ESM, a permanent bailout mechanism, and the fiscal pact, but with caveats such as constraints on future decision-making or a ruling that Germany’s basic law has to be rewritten if there is to be further EU integration.
A government insider told the Observer, on condition of anonymity, that the court “is very independent and always good for a surprise. Nobody knows what will happen on 12 September.” A poll published on Friday on Spiegel Online showed that 54% of Germans were in favour of the court blocking the legislation, reflecting the degree to which public opposition to bailouts is increasing.
The poll was released a day after the European Central Bank president, Mario Draghi, divulged plans for making unlimited bond purchases to lower borrowing costs for crisis countries in the eurozone. The announcement unleashed a wave of condemnation across much of Germany’s media and among a growing band of eurosceptics, who said the scheme would stoke inflation. German fears of a repeat of its 20th-century experiences of hyperinflation and the catastrophic consequences run deep.
“A black day for the euro, and for all of us!” a headline in the tabloid Bild said last week. It said the ECB had effectively written a blank cheque to indebted states by offering to buy their bonds. Jens Weidmann, head of the Bundesbank, issued a statement calling the Draghi decision “tantamount to financing governments by printing bank notes” and accusing the Italian banker of breaking ECB rules.
Analysts noted that the once mighty Bundesbank had been sidelined. “Germans feel utterly deserted and mocked by the fact that their Bundesbank has been so completely isolated, as has Germany,” said Gunnar Beck, a specialist in EU law at London’s School of Oriental and African Studies.”While this looks like an attractive solution in the short term, in the long term it’s disastrous, as it takes away any incentive for reform from the countries in crisis.”
Beck said the Draghi ruling had set off alarm bells for many Germans. “Like many Germans over 40, I grew up being told of my grandparents’ experience as very young people in the 1920s who experienced hyperinflation and were ruined by it,” he said. “It’s a collective phobia. Then, as now, it’s the people who are least guilty, who invested conservatively, who are the ones who are asked to pay for the losses of the risk-takers.”
Beck said it was likely Draghi had been informed of what the court’s decision will be on Wednesday, ahead of making his announcement. “Draghi, or let’s call him Draghiavelli, is a shrewd operator who waited for the moment when his solution would seem the most opportune,” he said. “He must have been given the OK by Merkel and she wouldn’t have done that if she hadn’t known how the court would decide on Wednesday.” He said the Draghi announcement would add pressure on the court, whose decision was vital to the future of the euro.
The case was brought by a group of more than 12,000 plaintiffs, including a growing band of eurosceptics from academia, Angela Merkel‘s coalition and the hardline Left party. Karlsruhe shocked the political establishment in July by saying it needed two months to examine complaints that the rescue fund violated the constitution. Political observers believe the anti-euro group has the makings of a new party, unprecedented for Germany, where there are no anti-European parties.
“There’s a certain angst now among politicians that people are distancing themselves from Europe for the first time, as the Germans wake up to the fact that Europe can no longer be united by Germany’s war guilt, but needs to be united by the idea of a common, successful currency and by making it work,” said Wolfgang Nowak, a former adviser to chancellor Gerhard Schröder. “Germans would probably do themselves a service by leaving the euro, but this is something that is unsayable in German politics.”