Finance and economics
The German courts and the ECB
It isn't over
European monetary policy has not been given the reprieve markets believe
AS A working rule, the shorter a statement the more it says.
A commitment made by the European Central Bank in September 2012 runs to fewer than 500 words, but it was enough to send the bond vigilantes packing.
The ECB promised to make unlimited purchases of the sovereign debt of governments on the ropes.
These Outright Monetary Transactions, whose dreary name disguises their punch, proved so potent a deterrent that they never had to be deployed.
But if quiescent markets were to turn nasty again, requiring OMT to be fired, would the central bank be acting within its powers?
For more than a year the German constitutional court in Karlsruhe has been contemplating this question.
Even though the place to decide whether a European body is abiding by European law is in Luxembourg at the European Court of Justice, the court in Karlsruhe insists on its right to examine whether the acts of a European institution are infringing the German constitution.
The judges finally issued a ruling on February 7th.
The judgment of the majority was far harsher than the yes, but verdict that had originally been expected.
Instead the court found that the central bank had overstepped its mandate and that OMT was a backdoor to monetary financing of governments, outlawed under European treaties.
But the markets heaved a collective sigh of relief as they noted that in an unprecedented move the court had referred crucial points in the case to the ECJ.
Since the European court is thought of as a champion of European integration, OMT should be safe in its hands.
But referring points in the case to the ECJ does not mean deferring to it.
The view that the constitutional court has thrown in the towel is incorrect, says Bruno de Witte, a professor of European Union law at Maastricht University; rather the German judges have given their interpretation and are asking the ECJ for its views.
They will take these into account when passing their final judgment, based as before on whether OMT infringes Germany's basic law.
If the European court simply upholds the ECB's defence of bond buying, which is that it lies squarely within the central bank's monetary-policy mandate, then that could set the stage for a clash of the courts.
Given how harsh its ruling has been, the German court might insist that, notwithstanding a favourable judgment from the ECJ, OMT is incompatible with the constitution.
Though it could not prevail upon the central bank to revise OMT, the court could try to prevent the German Bundesbank from participating in it.
Can such a battle between Karlsruhe and Luxembourg be avoided?
In effect the German court sets out its terms for a compromise.
In the event of a restructuring, it does not want the ECB to be on an equal footing with private creditors, accepting losses like them on debt acquired through OMT.
The court also says that the policy should, where possible, avoid interfering with price formation which may refer to setting targets for bond yields.
These demands could probably be met without defanging OMT.
The third stipulation—that purchases should not be unlimited—might castrate it.
Yet even on this point there may be room for compromise by recognising that OMT does have effective limits since it would only target bonds between one and three years from maturity.
At this level of judicial jousting, realpolitik rather than the strict letter of the law prevails.
Though it might be tempting for the ECJ to slap down the constitutional court, Germany underpins the euro and the single currency is central to the integrationist project.
A face-saving fudge seems the most likely outcome; the ECJ after all sits in the city that gave its name to a paragon of the genre, the Luxembourg compromise on EU members' voting rights.
The ECB's formal commitment of September 2012 may have been short, but it was a good deal longer than the impromptu vow made by Mario Draghi six weeks earlier to do whatever it takes to save the euro, which turned out to be OMT.
In fact the ECB boss added a crucial and usually omitted rider to his pithy pledge: within our mandate.
That qualification is now being spelt out by the judges.
When they have resolved the matter to their satisfaction it seems unlikely that OMT will be quite so mighty a weapon as it appeared to be when it was first unveiled.
1.enough to 足以
That's not enough to trigger renewed recession.
It tells you enough to get started right away.
2.require to 要求
Drain piping may require to be protected against freezing.
These objects require to be quarantined on the spot.
3.abide by 遵守；信守
The rules of the race lay out certain regulations which each musher must abide by.
In his separation agreement, hurd agreed to abide by section 7 for two years.
4.insist on 坚持，强调
Customize the product or insist on the cookie-cutter model?
I insist on quietness in my room.