German High Court Blows Up Euro, Says ‘Oh Wait,’ Abdicates


Just about every central bank can print money with utter abandon, monetize government debt, water down the currency, inflict inflation upon the people, enrich the bankers and banks it represents, and fulfill other civic duties. But the European Central Bank is unique; it has some limitations, imposed on it by EU treaties – because whatever it does, it does to the people of not just one but eighteen countries.

Yet in September 2012, in the midst of the now forgotten but still simmering debt crisis, ECB President Mario Draghi, who knows how to make his former colleagues at Goldman Sachs a buck or two, uttered some purposefully vague but magic words that turned into an immense power grab: “whatever it takes,” and “unlimited.”

With these words he promised to buy in “unlimited” quantities the crappy, heavily discounted bonds of Spain, Italy, and other over-indebted Eurozone countries. It was a guarantee that the value of those bonds would soar. Hedge funds, banks, the hot money all loaded up on this stuff, and values soared, and risk premiums and yields plunged, and it bailed out the holders of these bonds, including the largest banks in Italy that might have toppled otherwise, and stocks soared in sympathy, as did unemployment and other problems, but what the heck, the promise wasn’t about curing sick economies. It was about enriching bondholders and speculators.

This money-printing and bond-buying promise, lovingly dubbed Outright Monetary Transactions (OMT), became the bailing wire and duct tape that has kept the Eurozone together to this day.

But it’s illegal under the EU treaties. And it’s unconstitutional in Germany because any losses by the ECB would ultimately have to be borne in part by German taxpayers, thus violating the constitutional requirement that budget matters be controlled by Parliament, not by institutions outside the country. At least that’s what tens of thousands of Germans asserted when they filed a complaint with the German Constitutional Court. Among the plaintiffs were media-savvy economist Hans-Werner Sinn, numerous other economists, law professors, politicians, euroskeptics of all political persuasions, conservatives, libertarians, lots of regular folks who were worried about the future of their kids….

And Friday, they prevailed. By a vote of six to two, the Court demolished OMT as violating both, the German Constitution and European treaties that governed the ECB. The Court peeled off the duct tape and untwisted the bailing wire that kept the Eurozone together.

The Court pointed out that the ECB is prohibited by treaty from buying debt directly from issuing governments. “It’s obvious that this prohibition shall not be circumvented by functionally equivalent measures,” it wrote. And the way the OMT is set up, it “aims at a prohibited circumvention….”

And the ECB’s clever justification for the OMT, claiming that the “monetary transmission mechanism” had been “disrupted” during the debt crisis, and that these bond purchases were necessary to fix the disruption? The Court smacked that down specifically…..

……After ruling that the ECB exceeds its monetary policy mandate, “infringes the powers of the Member States,” and “violates the prohibition of monetary financing of the budget,” what did the Court do? It abdicated.

Fearing the collapse of the markets, fearing that the trillions of dollars and euros that this guarantee had created out of nothing would revert to nothing, fearing even more the consequences of becoming the eight Germans who blew up the euro, they shuffled the mess to the European Court of Justice for guidance (thereby) kicking the can down the road till 2015.


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