Fisher Investments Editorial Staff
Geopolitics, Developed Markets, Media Hype/Myths

Predictable Politicking

By, 09/11/2012

If there’s anything predictable about the eurozone these days, it’s politicking. No Greek budget or German bailout decision seems able to sail through—all have seen numerous challenges and threatened delays before passing in 11th-hour compromises. This predictable politicking, it seems, drove developments in both nations Monday.

We begin in Athens, where troika officials supposedly rejected parts of Greece’s new austerity package. At least, that’s how many mainstream outlets portrayed matters—which seems off base considering the package the troika reviewed was a work in progress. The actual events are far less dramatic, and more in keeping with a normal negotiation process. Greece’s cabinet outlined €11.5 billion in budget cuts to meet the conditions for next month’s €31.5 billion aid tranche. But they asterisked €2 billion of these with “to be determined,” and the troika politely asked for more details before signing off. That Greece would get an “incomplete” grade on a project that wasn’t, well, complete, is hardly shocking.

Greece’s coalition leaders seemed unfazed—they’d already planned to reconvene Wednesday to hash out that last €2 billion, and the troika’s request simply gives them clearer guidelines. The full austerity package isn’t due until Friday, so negotiations on spending cuts and, by extension, the aid tranche appear more or less on track. Of course, where Greece is concerned, even “on track” negotiations involve brinksmanship—aid talks have regularly gone to the wire before officials ultimately give Greece its money. The same likely happens as the troika’s October decision approaches.

Meanwhile, in Germany, anti-euro parliamentarian Peter Gauweiler upped his challenge of the ESM at the Constitutional Court. The German justices were originally scheduled to rule Wednesday on whether to hear his case against the ESM’s constitutionality and grant an injunction against German President Joachim Gauck’s signing the ESM bill into law. Now, Gauweiler is asking the court to delay this decision until it rules on his new petition to challenge the ECB’s Outright Monetary Transactions (OMT) program, which he argues “created an entirely new situation” rendering all previous ESM discussions “invalid.” Describing OMT as an “unlimited ultra- and hyper-bailout fund,” he claims the court shouldn’t approve the ESM treaty (assuming, he reminds them, it’s even constitutional) until the ECB revises the program. The court held an emergency session Monday and will announce Tuesday morning whether it will delay Wednesday’s ruling. 

At every turn, the court has upheld Germany’s eurozone bailout participation. Justices have imposed extra conditions, like full parliamentary ratification of every bailout-related decision, but they haven’t thwarted any eurozone backstops. But 37,000 citizens signed Gauweiler’s petition on the main case—the most ever to support a constitutional challenge—and the court has thus far moved rather slowly, likely aiming to limit allegations of making a hasty, undemocratic decision if they support the ESM. Considering OMT was not well-received among the German people and media, it’s entirely possible the judges feel compelled to exercise similar care with Gauweiler’s latest petition.

At the same time, it’s tough to envision Germany’s court having grounds to overrule the ECB’s plans. The court can only rule on Germany’s participation in European programs. It has no jurisdiction over the programs themselves—it couldn’t just declare the ESM, EFSF or anything else invalid across the entire eurozone. And while these programs would be severely hampered without German participation, it wouldn’t be the final straw for the euro. Moreover, the ECB is independent—per Article 130 of the Lisbon Treaty, it operates without the influence of governments, politicians or anyone else. A German court saying what the ECB can and can’t do would seem to violate EU law. Only the European Court of Justice (ECJ) may overrule ECB decisions, and only if the ECB were indeed judged to have acted outside its mandate. Thus far, no one has filed a suit with the ECJ to challenge OMT.

Overall, the latest German court challenge seems unlikely to accomplish anything other than helping anti-euro politicians curry some popular favor. Most observers still expect the court to continue supporting Germany’s bailout participation, whether that decision comes Tuesday, Wednesday or sometime next year.

Of course, when and if Greece and Germany iron out these latest wrinkles, it won’t be an all-clear. Rather, it’ll likely just clear the way for more politicking over other things.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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