ESM Action next? “…whatever it takes….”
From Spiegel. The court battle against the permanent euro bailout fund, the ESM, has become the largest in German legal history. Yet despite widespread concerns, fund head Klaus Regling is preparing for action. The most important question surrounding the fund, however, remains to be answered: Will it work?
Before that can happen, though, the ESM must still clear some legal hurdles. On Sept. 12, the German Constitutional Court will rule on lawsuits seeking to prevent the government of German Chancellor Angela Merkel from participating in the new bailout fund with its €700 billion ($880 billion) firewall.
Some 37,000 Germans have joined the complaint, making it the largest such case in the history of the court. Most prominently, however, the list of plaintiffs includes Peter Gauweiler, a politician with the Christian Social Union, the Bavarian sister party to Merkel’s Christian Democratic Union (CDU), former Justice Minister Herta Däubler-Gmelin of the center-left opposition Social Democrats (SPD), and a group of professors led by economist Wilhelm Hankel, a prominent critic of the euro. They all fear that joining the rescue fund necessarily means that Germany’s parliament would lose its constitutionally guaranteed right to oversee the budget.
Guest post by Peter Tchir.
Once again, the fate of the world or at least the markets rests on the shoulder of two men. Ben and Mario hold center stage over the next few days.
I believe Ben will disappoint and rather than highlighting what can be done, will take this opportunity to preach on fiscal policy and to talk about what can’t be done with monetary policy. It won’t do much damage to the markets, but isn’t going to support the rally in the short term. I will be on Bloomberg TV today at 5 to discuss my reaction to what he actually says and does.
Draghi, on the hand, I think will come through. It will be tricky as the market has decided it wants certain things (ESM banking license, full support along the entire curve, etc.) that are outside of his “mandate” to deliver. So there may some initial disappointment, but I think he will be able to push the market along.
The immediate response of many is that he cannot do anything meaningful. That Spain and Italy are in solvency modes with deteriorating budgets, so what can monetary policy do?
Super Mario has been in the office for a while now, but what has the ECB actually accomplished since he joined, except the mighty LTRO? Yes, the LTRO was a great liquidity injection, where Spanish banks have been buying Spanish bonds. This is just like moving money from the left to the right pocket, with leverage….With the ECB balance sheet having expanded aggressively, we should be asking ourselves; are they in control of the situation? From Macrobusiness.
Overnight the president of the European Central Bank, Mario Draghi, gave a speech to the Hearing at the Committee on Economic and Monetary Affairs of the European Parliament. The speech was not particularly out of line with what Mr Draghi usually says, such as:
Available indicators for the first quarter of 2012 broadly confirm a stabilisation in economic activity at a low level. Latest developments in survey data are mixed, highlighting prevailing uncertainty. Looking ahead, growth should be supported by foreign demand, the very low short-term interest rates as well as our non-standard measures. At the same time, downside risks relate in particular to a renewed intensification of tensions in euro area sovereign debt markets and their potential spillover to the real economy. Further increases in commodity prices may also hamper economic activity.
This is the same speech lead-in we have been hearing since Mario Draghi took over the helm of the ECB from Jean-Claude Trichet. Given recent PMI data much of this statements appears to be completely disconnected from the reality of what is happening in Europe, but this isn’t the first time I have noted Mr Draghi’s apparent delusion.