From friend of Alhambra, Brian Cronin:
The Basic or Fundamental Law of the Federal Republic of Germany (Grundgesetz für die Bundesrepublik Deutschland) came into effect in May 1949 after much discussion between the occupying powers – the USA, UK and France – after World War Two. The guardian of the law is the Federal German Constitutional Court (Bundesverfassungsgericht or BverfG). It decides on the constitutionality of laws and government actions much like the US Supreme Court, though, as we have seen recently, SCOTUS has handed down some terrible decisions in our 236 year history.
The Bundestag backed what was agreed at the recent eurosummit by a wide margin last Thursday, to channel funds to Spain’s banks via the temporary European Financial Stability Facility (EFSF) and /or the European Financial Stability Mechanism (EFSM). But the ESM, the permanent bailout fund, has not yet been ratified in Germany. Though it passed both the Bundestag and the Bundesrat in June, some prominent voices have spoken out against the mechanism and have mounted a challenge in the BverfG. The court heard oral arguments two weeks ago but will not now rule until September 12. Ireland and Estonia have also not ratified the agreement either so until that happens the ESM cannot go into effect.
Since Germany provides about a quarter of the funds for the mechanism, they have to be on board. That said, it can go into effect if countries which account for 90% of committed funds do ratify it. The nearly two month delay could throw a monkey wrench into the whole operation and cause markets even more nervousness in the interim. Finance Minister Wolfgang Schäuble warned the court that a delay could have incalculable consequences. The executive warning the judiciary to choose wisely and not to make the wrong decision sounds eerily familiar to Americans. German President Joachim Gauck has said he will not sign the legislation until the court has ruled thus delaying ratification.
All this does not sit well with Chancellor Merkel who is becoming increasingly frustrated about all the delays. She is getting criticism from within her own party and coalition partners about the concessions she made at the recent summit in Brussels, despite all the punditry about her playing the long game, and the amount of money it will cost Germany.
So why is there a nearly two month delay? In the classic movie western “High Noon” (1952), Gary Cooper walked the streets of Hadleyville looking for people to help him against badman Frank Miller who was arriving on the noon train and his gang which was waiting for him at the station to exact revenge on the lawman. Marshal Will Kane could not find anyone willing to lend a hand and he had to take on the bad guys all by himself. Everybody in town had a reason for not being around when he needed help the most.
Europe is a bit like that in the summer. That most essential part of European life, the annual month-long vacation, is almost upon us. Streets empty, businesses close, traffic thins out, government offices shut down and parliaments recess as August approaches and they all head off either to the beaches, their summer homes or out of the country. Nobody is around to make a decision and you can’t find anyone to go on the record. More pets die, incidentally, in France in August than in the rest of the year, as owners head out of town and leave their pets behind. Vacation is sacrosanct and nothing gets in the way. Little wonder then that markets might begin to be nervous, especially this year, about the fate of the euro and the bailout funds in the balance.
I should point out that that although Great Britain is technically part of Europe but not part of the eurozone, it does not participate in this peculiar slice of life. Most Brits look on the annual European shutdown with some bemusement and not a little irritation. Evidence, if any were needed, that things are falling apart. It’s just about what you would expect, they would say. The reality, however, is that although politicians, parliamentarians and bureaucrats may not be at their desks, everyone these days has a cell phone or a laptop and is in constant contact with officials back home. And nobody is very far from an airport if the need arises. It just doesn’t look good.
Shorter vacations, longer hours and higher stress do not necessarily lead to better economic performance or reduce problems outside Europe either. The optics of leaders cavorting around on jet skis and living the high life while a goodly percentage of the population is out of work or living from paycheck to paycheck is not good politics. In Europe, however, everyone is in the same boat. Everyone takes August off. Just the same, the BverfG feels able to take its time, unhurried by considerations that it might be considered a pawn of the politicians. And that’s just as it should be.
Amidst all this go-slow, the International Monetary Fund has reduced their forecast for global growth from 4.1% to 3.9% and has called on countries to work together to promote growth, especially in the eurozone which is in a precarious situation according to the IMF’s Chief Economist Olivier Blanchard. “Europe is just not growing and that’s a very major issue”. It has warned of a serious risk of deflation and said that the eurozone is entering a critical phase. Far from cementing an integrated union, it has put in place “de-integrating forces” which have put the euro in jeopardy. It is urging the European Central Bank to do more to save the euro.
Europe is on one timetable and the IMF is on another. Hardly new news but it does reinforce the view that some high level digital extraction is required.
Meanwhile, there have been more protests in Spain at austerity measures imposed by the government, Valencia might be looking for money from the bailout fund and the IBEX suffered one of its worst days this past Friday. Greece is struggling to find ways to come up with the savings they need before the “troika” bankers show up in Athens next week to check on their progress. As a reminder, the troika is the triumvirate of lenders who hold the purse strings: the European Central Bank, the European Commission and the International Monetary Fund.
As for the lack of urgency on matters economic and political, we in America cannot scoff too much. Between now and the election on November 6, there are little more than 20 days that Congress is actually in session. Members head home in August to beat the drum for their re-election and to make the case as to why voters should still allow them to keep their jobs.
Meanwhile, we are headed towards the “fiscal cliff” or “taxmageddon” (pick your own descriptor) and it may be that it will all get sorted out in the dreaded lame duck session of Congress between election day and the swearing in of Congress and president in January. It’s not the way to run a republic and voters should be rightly incensed. As Chester A. Riley would say: “what a revoltin’ development this is!”