Wednesday, September 12, 2012

Eurozone: Move over politicians, here come the German Judges!

It’s not just the politicians who make decisions about how to rescue the foundering Euro: a Constitutional Court in Germany also has a say on the most important decisions:
Germany's Constitutional Court
Germany's top court has rejected calls to block the permanent eurozone rescue fund - the European Stability Mechanism (ESM) - and the European fiscal treaty.

Leader Angela Merkel called it "a good day", while markets rallied in relief.

But the Constitutional Court imposed conditions including a cap on Germany's contribution, which it said could only be overruled by the German parliament.
Another Hitler? The Role of the Constitutional Court:

The Court has the power to sign off on any constitutional amendments passed by the German Parliament, under the Eternity Clause.

The Eternity Clause is the answer arrived at by lawyers to solve questions such as:  If space is finite, as Einstein said, what lies beyond the end of space? Or, if the universe started with a Big Bang, what existed in the place that the universe occupies before the Big Bang? Philosophers might ponder for years over the answer to these questions, but we lawyers are made of firmer, more decisive stuff.

We simply invented the answer, and all lawyers have bought in to this.

An Eternity Clause simply lays down a rule within a country’s constitution that says that certain provisions of that constitution cannot be changed. Never. They last forever. And a constitutional court is set up to make sure that these changes never happen. Never ever.

Only a handful of countries have such Eternity Clauses. The German clause sits well with modern Germans because it answers a deep rooted need of the citizens to prevent another Hitler from simply grabbing control of Parliament and scrapping all democratic rights:

The Constitutional Court is in some people's eyes Germany's most powerful institution. 

Almost 80% of Germans trust it; less than half have confidence in the federal government and the Bundestag, the lower house. Although a political player, the court is seen to be above politics. Parties nominate judges, but they are usually approved unanimously by the legislature. Unlike America's Supreme Court justices, Germany's seek consensus and seldom write dissenting opinions. Any citizen may bring a constitutional case, an antidote to Nazi notions of justice, and some 6,000 a year do so…
The Court's Bunker

The court is revered partly because Germans' affinity for the rule of law is greater than for democracy, some scholars say. Germany's “constitutional patriotism” resembles the American idea of a nation founded on rights and values. But Germans have a different notion of these. American rights—to bear arms and speak freely, for example—are “small and hard”, argues Georg Nolte, a scholar at Humboldt University in Berlin. Germany's, by contrast, are “fat and flexible”…

Friction has increased over the balance between freedom and security. On rights it deems absolute, the court is implacable. In 2006 it said the air force could not shoot down a plane commandeered by terrorists even to prevent a greater disaster. The court often tells lawmakers to do a better job of balancing means and ends.
This court, this week, saved the Euro with its decision that Chancellor Merkel could fund Germany’s share of the rescue funds being cobbled together to buy bonds of the weak sisters of the Eurozone.

A Fund as big as Canada’s GDP:

What did the Court decide? That the EMS is OK when measured against the provisions of the German constitution that are protected by Germany’s eternity clause:

Collectively the ESM and the temporary European Financial Stability Fund form the centrepiece of the EU's "firewall" around the sovereign debt crisis. With a total lending capacity of around €800bn (including prior commitments to Greece from earlier bailouts), the funds have a financial strength equal to the size of Canadian GDP.

Around €80bn in hard capital from the 17 Eurozone members will provide the ESM's base, and it will have the ability to lend up to around €500bn when it's fully operational. 

The 15 percent capitalisation will be paid by the member states over a three year period (€32bn this year and next and €16bn in 2014). European leaders hope the fund will be strong enough to earn a triple-A credit grade from the three major ratings firms…

The fund will lend money to ailing economies - and perhaps take direct stakes in banks - in times of distress. Loans from the fund will be senior, in collateral terms, to all existing debts of the borrower expect those owed to the International Monetary Fund (or the pre-committed loans to Greece, Ireland and Portugal).

All systems are now green for the rescue fund.

The Justice Bunker:

The Court is located in a squat bunker, reminiscent of the air raid bunkers built during the Second World War to protect Berlin.
Berlin Bunker WWII

The ‘Justice Bunker’ is located in the city of Karlsruhe, in southwest Germany, near the Franco-German border. Karlsruhe, which means Charles Repose, was established in 1715 as the Karlsruhe Palace by good king Charles III, after he awoke from a dream of founding his new city.

It seems that Karlsruhe has wheel spoke similarities with Washington, D.C.:

Due to similarities to the United States capital city, it has been speculated that Karlsruhe was a model city for the cityscape of Washington, D.C.[4] Both cities have a centre — in Karlsruhe the palace and in D.C. the Capitol Building — from which the streets radiate outward. L'Enfant, Washington's city planner, had been given the plans of Karlsruhe (among numerous other European cities) as an inspiration.

Nice to know that justice – and plain old common sense – can come out of bunkers.

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