Monetary Law Blog

German Court Upholds Greek Bailout

While upholding the aid to Greece and a euro rescue package, the German Constitutional Court has concluded that for future financial guarantees the Federal Government should obtain prior approval from the German Parliament.

On September 7, the Court rejected three constitutional complaints directed against German and European legal instruments and other measures in connection with the aid to Greece and with a euro rescue package.

The Court decided that by adopting these Acts, the German Parliament did not impair in a constitutionally impermissible manner its right to adopt the budget and control its implementation by the Government or the budget autonomy of future Parliaments.

However, the Court also noted that § 1.4 of the German Euro Stabilization Mechanism Act merely obliges the Federal Government to strive to reach an agreement with the Parliament’s Budget Committee before giving guarantees. This is not sufficient, so the Court concluded; instead, guaranteeing parliamentary budget autonomy requires an interpretation to the effect that the Federal Government is in principle obliged to always obtain prior approval by the Budget Committee before giving guarantees.

 

Does The Euro Have A Future?

This week the Economist Conferences is organizing a Euro Zone Dialogue to discuss whether the euro has a future.

Last week Oxford Economics organized a gathering where a similar topic was discussed in a presentation on 'The Outlook For Europe.'  (Please note, though, that the recently introduced 'exit clause' in the EU Treaty appears to be lacking in the presentation's discussion on how to leave the EU.)

The Future of The Euro

Lorenzo Bini Smaghi explains "Why the Greek Crisis Will Not Ruin Europe's Monetary Union" in the current issue of Foreign Affairs. Bini Smaghi is a member of the Executive Board of the European Central Bank.

Here is an excerpt: "Forecasting the euro’s demise was premature. The EU and eurozone countries were able to respond to the financial crisis with appropriate corrective measures: many countries adopted strong fiscal adjustment packages; eurozone countries have announced, and in some cases already implemented, unprecedented structural reforms, not least of which was their joint decision to coordinate and publish the results of their bank stress tests; the new European Financial Stability Fund has been established and can be used to support other eurozone countries in distress, and a task force on reform will offer and approve concrete proposals to strengthen eurozone governance by the end of the year."

Euro Area Enlargement 2011

At its recent meeting the European Council welcomed the EU Commission's proposal that Estonia adopt the euro on January 1, 2011. Estonia is going to be the 17th member of the Euro Area.

See item #26 in the Council's conclusions of June 17, 2010.

European financial stabilisation mechanism

The EU's finance ministers have adopted a regulation establishing a European financial stabilisation mechanism with a total volume of up to 500 billion euros.  The mechanism is part of a comprehensive package of measures to redress the financial situation in Europe.

 

According to the regulation, member states in difficulties caused by exceptional circumstances beyond their control may ask for financial assistance from the mechanism. These circumstances could be a serious deterioration in the international economic and financial environment. It should allow the Union to respond in a coordinated, rapid and effective manner. Its activation will be subject to strong conditionality to preserve the sustainability of public finances of the beneficiary member state and enable it to regain its capacity to finance itself on the financial markets. Loans will be managed by the European Central Bank.

 

The facility foresees a lending envelope of up to 60 billion euros. In addition, euro area member states are ready to complement such resources through a Special Purpose Vehicle up to a volume of 440 billion euros. This instrument is guaranteed on a pro rata basis by participating member states in a coordinated manner. It will expire after three years. The International Monetary Fund (IMF) will participate in financing arrangements and is expected to provide at least half as much as the EU contribution.

 

At the same time, the EU will urgently start working on the necessary reforms to complement the existing framework to ensure fiscal sustainability in the euro area. Ministers underlined the importance of strengthening fiscal discipline and establishing a permanent crisis resolution framework. In addition, they emphasised the need to make rapid progress on financial market regulation and supervision. They explored among possible initiatives a stability fee, which would commit the financial sector to bear its share of the burden in case of a crisis, and a global transaction tax.

 

Source/copyright: EU website

 

German Constitutional Court Rejects Greek Challenge; for the time-being

Germany's Constitutional Court has refused to grant a temporary injunction blocking Germany's contribution to a European aid plan for Greece. The Court will later consider whether Germany's €22.4 billion ($28 billion) contribution violates European treaties and the German constitution.

CEP: "Greek bailout is unconstitutional"

Typically, the cover of a magazine would show attractive people or pictures of war and misery. You wouldn't find a legal provision quoted on the cover of a magazine. Der Spiegel, a German weekly, thought otherwise and has headlined, on its cover: "Die Euro-Lüge" (The Euro-lie), then quoting--not literally though--Article 125(1) of the Treaty on the Functioning of the European Union: "A Member State shall not be liable for the commitments of another Member State."

And this week, the Freiburg-based Centrum für Europäische Politik (Centre for European Policy) published a paper ('Rechtsbruch durch Bail-out-Darlehen') arguing that the bailout of Greece by other EU Member States is an infringement of European law and the German Constitution. Just recently, CEP's had published two other analyses with a similar message: 'Der Kompromiss von Brüssel schafft weder Klarheit noch Rechtssicherheit' and 'Keinen Euro nach Athen tragen'

East African Monetary Union

Opening remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, during the East African Legislative Assembly Workshop on the East African Monetary Union, Nairobi, 4 March 2010.

The Greek crisis and the future of the euro zone

Reuters.com has ran an article analyzing five scenarios of the Greek crisis:

1. Greece rescues itself
2. Greece muddles along in 'slow burn' crisis
3. Greece heads toward default
4. EU bails out Greece
5. EU launches wider bailout

In every scenario Reuters describes the scenario, gives an estimate of the probability of the scenario, and analyzes market implications.

The Road to Monetary Union in East Africa

Keynote address by Prof Emmanuel Tumusiime-Mutebile, Governor of the Bank of Uganda, at the Validation Workshop of the Draft Final Report of the Monetary Union Study: 18-20 January 2010, Kampala