As predicted, Germany’s Bundesverfassungsgericht (Federal Constitutional Court, or “FCC”) has blessed (link no longer available) the European bailout fund (European Stability Mechanism, or “ESM”) as compatible with Germany’s Constitution, with several provisos, qualifications, and restrictions.
Much as I’d like to take credit for my crystal ball, the outcome was foreordained at least in its broad outlines. By institutional design, the FCC is much closer to the political branches than our Supreme Court. Especially with respect to European affairs, there’s a mutual understanding that the government won’t force the Court’s hand; in return, the Court won’t say anything that seriously derails the government’s policies and commitments. (When the players are uncertain about their counterpart’s tolerance, they pick up the phone and ask in advance.) The FCC’s rulings are best understood as part of a signaling game. So what are the signals in this case, and what are they worth?
- Start with the “headline” signal: Germany’s ESM commitment, the FCC warned, must really end at 190 billion Euros. You, government, have represented to us in your briefs and oral argument that you really mean it: mean it. Berlin very probably welcomed this part of the ruling: though dressed up as a stern warning, its more likely purpose is to strengthen Mrs. Merkel’s hand in the European councils. Those bodies have responded with howls of laughter: at the end of the day, they know, Germany will do “whatever it takes” (Mrs. Merkel’s own words) to “save” the Euro. Besides which, the FCC’s insistence that the ESM mustn’t become a bottomless pit has already been compromised by EU institutions and practices that weren’t before the Court. The ECB has been buying up sovereign debt, in flagrant violation of the EU Treaties; if and when those go bad, Germany will have to make good on its share. And then, there are the so-called “Target 2 balances”: as a result of capital flight from Southern economies, the Bundesbank has racked up upwards of 800 billion Euros in payment obligations from those countries’ central banks. What happens when those banks go actually (not just technically) insolvent? Excellent question.
- The FCC reaffirmed prior rulings to the effect that the German Bundestag must be informed of the ESM’s decisions in a timely and effective fashion, regardless of ESM provisions regarding secrecy and non-disclosure. In other words, the ESM must not become an EU TARP: if it decides to buy a piece of Spain (or its distressed assets), the German legislature must consent in advance. This is worth something—not because the Bundestag will ever say “no” (it won’t, and everyone knows it) but because it keeps the issue alive in German politics. German Finance Minister Schaeuble, the Darth Vader of the European financial system, urged that in the wake of the FCC’s “no problem” ruling ESM critics should at long last shut up. The Court’s insistence on parliamentary accountability ensures that he won’t get his wish.
- In a somewhat unexpected part of its ruling, the FCC held that the ESM mustn’t become a de facto banking authority: Germany can’t assent to an ESM that can borrow money from the ECB and then go and buy up sovereign debt. That holding blocks one way—disfavored by the German government in any event—of collectivizing member-states’ debt. The EU will have to find some other way to accomplish that result, and the natural mechanism is the ECB itself. Of course, the ECB’s assumption of that function would undermine its much-heralded independence and violate the EU Treaties yet again, and the FCC’s ruling may have increased the pressure in that direction; but that is water under the bridge anyhow.
Upshot: the FCC probably did what it could by way of asserting legal and especially constitutional limitations. The problem isn’t so much that its signals are mere signals: in the end, that’s also true of our version of judicial review. The FCC’s true problem is that its rulings tumble into a political culture whose cynicism knows no bounds.
Germany’s ratification of the ESM must now be accompanied by codicils and annexes that stipulate, in a manner recognized for purposes of international law, Germany’s understanding of the documents. What is that worth, though, coming from a country that, along with every other EU member, treats international agreements as little more than a negotiating draft for the next summit, six weeks hence? And what does a “when you say ‘red line’ you must mean ‘red line’” ruling mean to a government that has stipulated and then routinely transgressed red lines for four years running?
“The Constitutional Court has confirmed what we have been saying all along,” Minister Schaeuble commented. Yes, Mr. Schaeuble. Except that what you have been saying won’t be worth a damn tomorrow. From bond traders to barroom brawlers, from statesmen to the Stammtisch, nobody believes a word you are saying , and everyone knows that you know that no one believes you. What everyone wants to know is how and when you are going to walk it back.
Against this backdrop, the FCC is playing a very dangerous game. By conditionally endorsing the ESM, the Court has lent its prestige to the government’s EU commitments: we, the justices, assure you, the German people, that what you see if what you get: 190 billion is it. That Mrs. Merkel and Mr. Schaeuble will lie to you is a given. That they will not do it again, we are here to assure you. The Court’s awkward bet is that the ESM will be enough to prevent yet another round of “stabilization” mechanisms; or that if it isn’t, the government will be mindful of the capital it borrowed from the Court.
My prediction: the ESM will very likely last—until late March 2013, when it will have served its intended purpose of helping Mrs. Merkel over the elections that month. Soon thereafter, it will be back to vee must do vateffer to save the Euro. And the government (of whatever partisan or coalition coloration) will do with the borrowed rule-of-law capital what Greece does with Germany’s capital: it will waste it, and not even say “thank you.”
When that happens, as surely it will, maybe the best the FCC could do for the rule of law is to openly call game, set, and match for European politics: it can’t be constrained. And maybe hum a few Springsteen lines: No way to make the screen door slam. All the promises will be broken. It’s a town for the losers and we’re pulling out of here to win.