The Ongoing Train-wreck of EU governance: Bundesbank Sues ECB
Sometimes it appears that the EU is run by children. The rest of the time it is obviously true. This is one of the latter occurrences. Bundesbank President Jens Weidmann the anti-hero of the European Depression, has thrown his toys out of the pram. After being out-voted 22-1 on the ECB governing council on instituting the ECB’s bond buying program, he stamped his feet and yelled “I’m telling Mummy”. `Mummy’, in this case, being the German Constitutional Court.
The OMO program is the one truly successful program the ECB has produced. The mere threat of its existence, announced last June, has calmed sovereign bond markets. Jens’ Weidmann apparently believed that it constitutes `direct funding of sovereigns’ and has asked the German Constitutional Court to rule on whether the ECB is violating its own mandate.
This all happened last summer, and so why am I bringing it up now? Because the German Court is finally ready to make a ruling. If the court rules against the ECB, what does that even mean? Is a supra-national organisation going to be held hostage to legal rulings of each and every state? What is Draghi to do? What will Merkel do? How will the ECB be held to account? Will it merely ask the Cyprus High court for a dissenting opinion, I am sure they would have no trouble sticking one in Germany’s eye, and then claim that in the absence of a consensus legal opinion they intend to ignore everyone.
Will Germany threaten to stop funding the ECB? A comical threat against an institution that holds the printing presses, and in fact, legally owns all of the currency in circulation. Will Germany boycott ECB rate meetings, which I would regard as very good news, as it would almost certainly lead to more policy easing.
There is going to be one very bad outcome if this court case comes out against the ECB, the return of massive uncertainty and volatility to peripheral sovereign bonds. Does anyone want to see the Germany attempt to put another millstone around Spain’s neck?
There is nothing good to come out of this, just extra pain for a Eurozone that is continuing to implode in the absence of any serious policy easing.