The German Bundestag and the EU Summit
The German Constitutional Court’s decision on September 7 concerning the EFSF expansion reintroduced the Bundestag as a significant actor into the Eurozone crisis decision-making process. Specifically, it (the Bundesverfassungsgerichtsentscheidung) disallowed the parliament to pass on its budget responsibility to other actors via indetermined fiat (darf seine Budgetverantwortung nicht durch unbestimmte haushaltspolitische Ermächtigungen auf andere Akteure übertragen). This includes potential mechanisms who may lead to unforseeable financial costs occuring without previous constitutional approval (keinen finanzwirksamen Mechanismen ausliefern, die […] zu nicht überschaubaren haushaltsbedeutsamen Belastungen ohne vorherige konstitutive Zustimmung führen können). Finally, every significantly costly help measure has to be individually approved by the Bundestag (Jede ausgabenwirksame solidarische Hilfsmaßnahme des Bundes größeren Umfangs im internationalen oder unionalen Bereich muss vom Bundestag im Einzelnen bewilligt werden).
Practically this means a number of things, the most important of which today was that the German parliament voted on a broad outline of guidelines that directly determine the position Merkel may take in negotiations during the current EU summit. Such a summit preceding approval is a novelty in German politics. With Germany the only country financially sound enough to serve as a stop gap for the Eurozone crisis today’s Entschließungsantrag attracted a considerable amount of international attention. The combination of today’s parliamentary approval coupled with the constitutional limits outlined above allow for a few observations on the future role of Germany as the key player in the European debt drama that I will try to highlight here, while we are awaiting another – most likely inconclusive – Council conclusion.
a) The Bundestag’s decision today was based on a proposal concomittantly put forward by CDU/CSU and FDP as well as by the SPD and the Greens. In other words, the government passed up an opportunity for a proposal more stringently adherent to its party line(s) in favour of a broad domestic consensus allowing for a large majority and including opposition parties. Going forward it seems likely that this will be the future modus operandi from now on. While the reason for this may partly lie in continued intra-coalition troubles, I believe the reasoning behind this mainly is related to fears of a politically sensitive issue becoming a focal point of inter party contention resulting in a possible populist backlash. This really is an anti-democratic line of thinking but a four party consensus will in all likelihood smother anti-bailout media and political sentiments. Germany when it comes to the Eurozone crisis is now seemingly governed by a Super Grand Coalition with only Die Linke (The Left) out of the picture.
b) The Bundestag asked the government today to strictily adhere to the previously approved EFSF guarantee sums (die strikte Einhaltung des vorgegebenen Garantievolumens der EFSF zu gewährleisten). An additional expansion of the EFSF is thus being ruled out here, while leverage (Mitteleinsatz […] optimieren; vorhandene[…] Mittel möglichst effizient ein[setzen]) is what parliamentarians are demanding.
c) An interesting subplot at this point is that the Bundestag in emphasizing its opposition to ECB-credits and direct ECB purchases according to Article 123 TEU fails to definitely rule out that the EFSF may benefit from such treatment. While these credits may not be given to “Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States,” as “shall be prohibited […] the purchase directly from them,” this “shall not apply to publicly owned credit institutions.” The EFSF of course is limited liability company owned by the Eurozone member states, which could in all likelihood be rather easily turned into an institution fitting the latter descriptor not the former ones. This probably is just a legal oversight with no political ramnification to it but it’s definitely something to consider (UPDATE: I just remembered that Karl Whelan had already noticed this a month ago btw).
d) Concerning the ECB there is a certain irony to the Bundestag stating its opinion that the necessity of further secondary market bond purchases were no more present with the revised (and leveraged) EFSF in power (mit dem Inkrafttreten der EFSF die Notwendigkeit zur Fortführung des Sekundärmarktprogramms (SMP) der Europäischen Zentralbank entfällt) even while emphasizing the independence of the ECB a few lines further down. With the incoming ECB-President Draghi stressing earlier today that the ECB under his helm will continue to “prevent[…], with its use of non-standard measures, the malfunctioning of the money and financial markets from obstructing the monetary transmission mechanism,” this inclusion just looks like a peculiar all-encompassing German populist sentiment that will stand little chance on the ECB governing board.
Summing this all up then, what are we left with? Based on the Bundestag’s guidelines as well as the numerous draft versions of the summit conclusions and their technical details circulating online, this evening will bring nothing but another short-term patch for a huge Eurozone crisis wound. A masive – voluntary? – haircut (40, 50, 60%) for Greece, a fuzzy reform program from Italy supposedly brought about by Berlusconi’s political suicide (hallelujah), a promise of treaty reform proposed by the Commission sometime this fall, a forced bank recapitalization that will arguably decrease liquidity even further.
Yet, what is most important to note is that the current German government due to some extent to the court ruling outlined above but also its political preferences seems unlikely to come up with a proposal putting an end to the crisis until arguably until 2013, when elections in Germany will be held. Every change of the Eurozone’s bailout structure has to pass the Bundestag, more importantly constitutional change is required for the parliament to give up any of its budgetary prerogative. There is little political will within the governmental coalition – arguably not even in the opposition – to significantly increase the bailout once more especially without sufficient conditionality measures in place. These require treaty change then, which the Czechs have already declared would have to be passed via referendum. All of this takes time, which means we can expect a whole number of additional dramatic summits over the next two years.
Except of course if I am wrong and EU leaders will have sliced open the Gordian Knot this evening.