Yesterday’s decision by Germany’s Federal Constitutional Court (BVerfG, Karlsruhe), to suspend proceedings about the legality of the OMT program issued by ECB-president Mario Draghi on Sept 6, 2012, marked a “historic first”. It is not, as most observers put it, a bow (of respect) from Karlsruhe. Far from accepting that decisions about EU affairs will henceforward be taken by the ECJ, it is much more a show of determination: Karlsruhe reserves the right to call the shots about German commitment, as I have commented at Bruegel’s Guntram Wolff’s take on why Karlsruhe got it wrong.
The point you are making is a sensible one from a practical perspective which markets apply. However, what markets should understand: the decision at hands is not about practicability and accordance of market needs. The question is solely one of constitutionality within the framework provided by the German Basic Law.
It is striking how much observers in the markets and in EU institutions highlight the fact that Karlsruhe created a precedent by refering problems to the ECJ. This is widely seen as »putting the case« in the hands of the ECJ altogether. It is important to understand: whilst this is something many would like to see from Karlsruhe (as an act of acknowledgment of supremacy for the ECJ), this is not what the senate did!
Regardless of the fact that the decision to suspend proceedings throughout 99 of its 104 side numbers deals with questions of EU primary law, with Karlsruhe venturing to provide their take on what it wants the ECJ to decide, the case itself centers around the question of confirmity of the OMT with German Basic Law. The questions put before the ECJ serve to qualify the nature of the OMT. They do not (!) serve as an indicator of whether or not the German court will appove of the OMT.
Markets which want to assess the prowess of the OMT will need to understand: it is not a question of whether Karlsruhe will have to accept or contend the findings of Luxemburg.
The key to understanding what Karlsruhe did is laid out at the very end of the 51 pages of decision: in side number 103, the senate clarified that any decisions about OMT-with EU primary law notwithstandig, it will take these into account for assessing the one question which is addressed to the effect of OMT for the Bundesbank, and thus for the Bundestag’s budgetary sovereignty. The delicacy of the case is only revealed by focussing on this question: if the ECJ will pass a “clean health certificate” for OMT conformity in President Draghi’s “whatever it takes” dimension, and without the limitations Karlsruhe wants to see – which is what markets want to know – this will consequently then pose a risk for the Bundesbank’s liability to cover these costs, which are as yet fictitious. That can – and will – only be taken as a confirmation for Karlsruhe of the infringement of constitutional identity according to Art 79 (3) of German Basic Law. Only if the ECJ follows Karlsruhe and limits the OMT’s scope and size can a possible risk for Bundesbank obligations be assessed and receive confirmation of being within the range of authority which Bundestag and Government do have in constructing European integration short of a referendum.
Either way, the OMT’s fate seems to be sealed. It is not what Mr. Draghi wanted it to be. At least, that is what the Court in Karlsruhe has made quite clear, and for which it commands all necessary measures to require the German Government to comply with. Be not mistaken: it is the German Constitutional Court which intends to call the shots on the OMT. Art 79 (3) will be its sword, all it takes is the ECJ to decide on whether it needs to be drawn (in case of an “all clear”) or just shown (with effect of Luxemburg merely “confirming” Karlsruhe’s concerns).
Markets my not like it, but it is all contained in the 51 pages issued yesterday!