ECB and Inflation

[Iormlund]

There are again calls that Germany should lessen its trade surplus/current account surplus. I always wonder what kind of policies the government could actually enact to achieve that.

Significant deficit spending.  Wage increases.

I don't think Germany needs more deficit spending. They can barely balance their books in a period of extremely favorable conditions as it is.

The best solution to trade balance is simply to make the periphery more competitive vis a vis Germany. To do that we need structural reforms and debt relief (so the process doesn't take 20 or 30 years). We should simply implement a roadmap for monetizing debt in exchange for concrete reforms. Such an avenue should be open to every Euro country interested (including Germany).

[Admiral Yi]

Not sure how debt forgiveness would improve your competitive position.

[Sheilbh]

This interview seems to have got some people excited that the ECB's about to go Anglo-Saxon:

ECB's Praet: All Options on Table
Central Bank Could Adopt Negative Deposit Rate, Asset Purchases If Needed

By BRIAN BLACKSTONE CONNECT
Updated Nov. 13, 2013 2:13 p.m. ET
FRANKFURT—The European Central Bank could adopt negative interest rates or purchase assets from banks if needed to lift inflation closer to its target, a top ECB official said, rebutting concerns that the central bank is running out of tools or is unwilling to use them.

"If our mandate is at risk we are going to take all the measures that we think we should take to fulfill that mandate. That's a very clear signal," ECB executive board member Peter Praet said in an interview Tuesday with The Wall Street Journal.

Annual inflation in the euro zone slowed to 0.7% in October, far below the central bank's target of just below 2% over the medium term. The euro dipped briefly after the comments appeared on the Journal's website.

Mr. Praet didn't rule out what some analysts see as the strongest, and most controversial, option: purchases of assets from banks to reduce borrowing costs in the private sector.

"The balance-sheet capacity of the central bank can also be used," said Mr. Praet, whose views carry added weight as he also heads the ECB's powerful economics division. "This includes outright purchases that any central bank can do."

Additional stimulus from the ECB isn't needed right now, Mr. Praet signaled, noting that inflation risks for the euro zone as a whole are balanced after last week's unexpected ECB interest-rate cut.

On Thursday the central bank reduced its key lending rate to 0.25%, a record low.

The move came days after the October inflation report fanned fears that the euro zone may slip into a period of excessively low inflation or, in some places, persistent declines in consumer prices, known as deflation. This cripples economic activity by holding wages and profits down and hampering efforts by the private sector and governments to reduce debt.

Some of the countries hit hardest by the euro zone's debt crisis, including Ireland, Greece, Cyprus and Spain, have inflation rates of zero or lower.

The ECB could do more if necessary, Mr. Praet said. "On standard measures, interest rates, we still have room and that would also include the deposit facility," he said.

The central bank's deposit rate has been set at zero for several months. Making it negative would effectively levy a fee on commercial banks that park funds at the ECB.

That would be aimed at spurring bank lending to the private sector, which would boost growth and inflation. However, a negative deposit rate would also weigh on bank profits.

Another option is to make more cash available to financial institutions, as it has in the past with cheap, long-term loans, known as LTROs, Mr. Praet said.

The ECB has so far resisted large-scale asset purchases as a means to boost growth.

The Federal Reserve and Bank of Japan 8301.TO +2.36%  have used this tool, known as quantitative easing, aggressively to spur lending and keep inflation from falling too low, buying large swaths of government and private debt.

The ECB purchased safe bank and government bonds at the height of the global financial crisis and Europe's sovereign-debt crisis, but in small amounts compared with other major central banks.

Such bond purchases are deeply unpopular in Germany, where long-standing fears of inflation inspire doubts about easy-money policies.

Jens Weidmann, who heads the German central bank as well as serving on the ECB's Governing Council, opposed the ECB's decision last year to create a program to buy government bonds. Nevertheless, the program, which hasn't even been used, has been widely credited with helping calm the bloc's debt crisis.

The ECB's charter forbids it from financing governments, and Mr. Praet said the bank must respect such legal constraints. However the rules "do not exclude that you intervene in the markets outright," he said.

Mr. Weidmann was also in the minority of ECB officials who opposed last week's rate reduction, preferring to wait for more information on the inflation outlook. This has led to some concern that if the ECB can't unanimously agree on a cut to its key lending rate, reaching consensus on more outside-the-box monetary policies will prove tricky.

"For some decisions it's easier than others" to gain consensus, Mr. Praet said. "One thing is clear: the Governing Council has been able to decide. That's really the message."

The need for more aggressive stimulus is increasingly being debated by economists and investors.

Economists at BNP Paribas BNP.FR +2.19%  argue the ECB should buy €50 billion ($67 billion) per month of government bonds of euro-zone countries and start doing so "the sooner the better." Still the French bank places the odds of that happening at under 50-50, "probably by a wide margin," in part because of likely resistance from the ECB's conservative wing.

Mr. Praet rejected fears, particularly in Germany, that low ECB interest rates harm savers by reducing the interest rate they earn on deposits. Low interest rates tend to favor borrowers over savers.

"Creditors and debtors always have an interest in a stable anchor, which is price stability in the medium term," Mr. Praet said. "The action to reduce uncertainty is good for the climate for savers."

The comments sent the euro tumbling to a session low of $1.3391, from $1.3455, just minutes after they appeared on the Journal's newswire and website. The currency later rallied to trade at $1.3447, from $1.3435 late Tuesday.

The euro losses were held in check, as many investors believe the ECB will not make a sudden shift to negative deposit rates, electing instead to stimulate the economy through less-dramatic steps, such as lowering its main refinancing rate below 0.25% or cutting minimum reserve requirements for banks.

—Todd Buell, Christopher Lawton and Ira Iosebashvili contributed to this article.

Write to Brian Blackstone at [email protected]

The emphasis that the Governing Council has been able to decide seems important, it's pointing out that the ECB actually has a majority for this sort of thing.

[Zanza]

http://blogs.wsj.com/moneybeat/2013/11/14/german-gdp-release-highlights-rebalancing/

Germany's quarterly expansion was solely driven by domestic demand, as both private consumption and public spending slightly increased and corporate investment continued to recover. By comparison, net exports were a drag on third-quarter GDP growth.

German private consumption growth since 2009 has been the strongest of all 17 euro-zone countries, except for Luxembourg, ING economist Carsten Brzeski said. This has helped bring down Germany's trade surplus vis-à-vis the rest of the euro zone.

In fact, it has fallen to below 2% of GDP in the second quarter of this year from nearly 5.5% of GDP in 2007, UniCredit's chief German economist, Andreas Rees, said.

While exports to the euro zone declined, imports rose significantly, highlighting what Mr. Rees calls "an enormous rebalancing" between Germany and the rest of the euro zone. If this speed of adjustment continues, Germany's trade balance with the euro zone will hit zero in about four years' time, he said.

This shows that the country's high trade surplus stems from strong demand for German industrial goods from outside the 17-nation euro bloc.

[Iormlund]

Not sure how debt forgiveness would improve your competitive position.

I'll give you a practical example: Drawing on my experience, I have dozens of ideas, big and small, on how I would improve things if I got the chance to become the boss. I know what technologies to use, who to hire, and so on.

What I don't have, are the means to do so. Because there are no clients to be had. And even if I wooed some, the bank would ask me for an interest rate much higher than say, in Bavaria. And even if I got the contracts and the loan, there is no guarantee that my customers would actually pay me in time to avoid bankruptcy or at all.

So all those ideas are pretty much useless and will not result in enhanced competitiveness. Not at my non-existant new business. Nor at my old employer, which has rid itself from younger employees - those that could bring new ideas.

Now extrapolate that to an entire country.

[citizen k]

Eurozone recovery fades as growth stalls:
http://money.cnn.com/2013/11/14/news/economy/europe-economy-gdp/index.html?iid=HP_LN&hpt=ieu_c2

LONDON (CNNMoney)
Europe's recovery from 18 months of recession stalled in the third quarter as exports slowed and the region's second-biggest economy slipped back into reverse gear.

The 17-nation eurozone's first estimate of GDP showed growth of just 0.1% over the previous quarter, when the economy grew by 0.3% after contracting for six consecutive quarters through the depths of the region's debt crisis.

Analysts were predicting growth would slow as one-off factors such as a seasonal rebound in German construction faded, but the regional figures were weaker than some had expected.

Subdued global growth and a relatively strong euro hit exports from Europe's leading economies. Germany's rate of growth more than halved to 0.3%, while the French economy shrank by 0.1%.

The figures confirm suspicions that the eurozone is struggling to generate any real momentum, as record levels of unemployment, weak investment, tight credit conditions and government austerity -- albeit at a slower pace than last year -- are weighing on demand.

Industrial production and retail sales both fell in September, and inflation plunged to 0.7%. That prompted the European Central Bank to cut interest rates to a new record low last week in an attempt to prevent the region slipping into deflation and stagnation.

And ECB President Mario Draghi said the bank was ready to take further measures, including another rate cut, if the move fails to have the desired effect.

Related: Are German exports holding back Europe?

Unemployment won't start falling until 2015 at the earliest, according to recent EU forecasts. The European Commission has trimmed its estimate of GDP growth next year to 1.1%, and said it was too early to declare an end to the region's crisis.

With 19 million out of work and wages barely rising, domestic demand in the eurozone remains very weak.

"While there's not much difference between the second and third quarter GDP figures, the deceleration is, psychologically speaking, a major setback for the eurozone," said Nicholas Spiro, managing director of Spiro Sovereign Strategy.

German domestic demand was responsible for most of the slim growth, with a recovery in exports from countries such as Spain and Portugal helping too.

Italy's economy continued to shrink, although by much less than in previous quarters, but France was weaker than expected.

Last week, ratings agency S&P downgraded France on fears the government will be unable to restore the economy's competitiveness, and the Organization for Economic Cooperation and Development weighed in Thursday, urging the country to be more ambitious with its reforms.

It highlighted relatively high tax rates, insufficient research and development, strict product market regulation and barriers to competition in business services.

Related: Surging U.K. economy surprises central bank

The faltering nature of the eurozone recovery contrasts strongly with accelerating growth and a surge in confidence in the U.K., where the talk is now about when the Bank of England will move to tighten monetary policy.

The central bank raised its growth forecasts on Wednesday and said it expected unemployment to fall much faster than expected just a few months back. Governor Mark Carney said he would be prepared to raise interest rates before May 2015 if it was the right decision for the economy.

[Sheilbh]

I don't normally post Ambrose Evans-Pritchard because he's a bit florid, but I thought this piece interesting:

Downgraded Netherlands is another victim of EMU money mess
By Ambrose Evans-Pritchard Economics Last updated: November 29th, 2013

Standard & Poor's has stripped The Netherlands of its AAA rating. It is a symbolic gesture. The spread between 10-year German Bunds and Dutch bonds has barely moved.

It matters a great deal more in Dutch politics, though the ever-entertaining Jeroen Dijsselbloem said the downgrade to AA+ was "encouraging" for reform efforts. We are glad that the Dutch finance minister is encouraged.

S&P more or less said the Netherlands has tipped into a bad equilibrium. The trend growth of per capita income is "persistently lower" than peers. The economy will contract by 1.2pc this year. Real per capita growth will average minus 0.1pc from 2006-2016. Output will not regain its peak until 2017.

The erosion of real income is actually worse in the UK but the British adjustment has happened in an entirely different way, through a burst of inflation and a lower pound. The outcome is chalk and cheese.

Dutch debtors are in a trap. House prices have fallen 20pc from the peak and are expected to fall yet further. Some 16pc of mortgages are already under water. Dutch household debt is 110pc of GDP, and total private/public debt is 300pc of GDP – far higher than Italy.


It is dangerous to flirt with deflation when debt ratios are so high, yet that is exactly what is now happening in Holland. The latest data from Eurostat shows that HICP inflation has been running at around minus 0.8 annualised, once adjusted for taxes, as you can see here.

The Netherlands has great reserves of wealth, much of it is locked up in pension funds. It should be able to muddle through provided the deflation scare abates – as confidently expected by all those officials who never saw it coming in the first place – and provided the eurozone economy does in fact rebound next year.

What is clear is that the country no longer has a safety buffer. Any external shock will push Holland into Japanese-style deflation, greatly complicating Dutch debt dynamics. This is not a risk that any advanced economy should ever take.

The whole saga has been a case of misaligned of monetary policy for the Netherlands, degenerating over time into plain policy error. The ECB's interest rates were too low for Dutch needs during the credit bubble. Monetary policy has since been too tight, trapping the country in a slow bust. Dutch M3 money growth dropped to minus 3.6pc in October, as you can see in this chart from Ed Yardeni.


The reality is that even The Netherlands has been destabilised by monetary union despite being a creditor state and despite close trade ties to Germany. The country is now stuck. S&P expects the Dutch current account surplus to rise to 10pc of GDP from 2013-2016. And no, this is not a sign of health. Extreme imbalances are always bad. A deformed structure has become entrenched.

What surprises me is that the Dutch central bank has gone along with the ECB's over-tight policy so lamely. Why did Governor Klaas Knot vote with the hawks against the ECB's rate cut earlier this month? Is it some sort of Calvinist solidarity, "zachte heelmeesters maken stinkende wonden" as the old Dutch saying goes?

Why is he lining up with the hardliners when the ECB is missing its own M3 and inflation targets by a country mile, and when this policy mistake is doing so much damage to both Europe and his country?

No doubt Mr Knot has many excellent technical explanations. I would like to hear them. Perhaps the Tweede Kamer would like to hear them too.

So far because everyone's always been focused on government debt the worry about deflation has been about that debt dynamic. But the problems in the Netherlands (where the government's running a deficit over the GSP limit, so having to cut the budget and raise taxes) show how the effects of deflation on household and corporate debt could be really important too. What would the effects be? He compares it to Japan, but surely it's very different because they're like Italy massive government debt but enormous private sector savings.

I'd read before that the Netherlands were in trouble because of a household debt bubble but presumably if the Eurozone can't solve it this could also start to affect other high private sector debt nations like Finland and Belgium.

Also while there's some good points I'm not convinced the German Grand Coalition agreement's going to be great for promoting demand, reform and a vibrant Euro-economy

Key points of the deal

National minimum wage of 8.50 euros, from January 2015
Opposition to mutualisation of eurozone countries' debt
No more new debt at federal level from 2015
Children born in Germany to foreign parents after 1990 allowed dual citizenship
Electricity to be 40-45% from renewable sources by 2025, but subsidies cut
Levy for foreign motorists using German motorways
Workers who contributed to pensions for 45 years able to retire at 63

Also just to come back to the purdah questions. While the coalition negotiations were happening, there was the deal agreed with Iran. How did that work, constitutionally, in Germany? Westerwelle was there, I think, despite his party no longer having any seats. It's a major foreign policy decision. How is that taken during the negotiations? Do the SPD temporarily join the cabinet because it's a decision that will bind their government too?

[Sheilbh]

Interesting piece on the German Constitutional Court's ruling. I always find stories about their judgements really interesting because it's so alien from the British system (and given their costumes, possibly earth):

Europe or Democracy? What German Court Ruling Means for the Euro

By SPIEGEL Staff


REUTERS
The German Constitutional Court last June during hearings on the ECB bond buying program.

Germany's Constitutional Court ruling last Friday marks a significant escalation in efforts to rein in the European Central Bank. The ruling's message? Either the European Court of Justice has to stop bond purchases or German justices will.

Last Friday, when six justices on Germany's Constitutional Court cast doubt on European efforts to save the euro, the man who initiated the case was sitting obliviously at his desk. It was only when his secretary burst excitedly into his office that Peter Gauweiler understood that his case had created legal history.

Gauweiler, a member of German parliament who also has a legal firm located in Munich, managed to convince a majority of justices on the court's second senate that the ECB's program to save the European common currency is contrary to European law. The court referred the case onward to the European Court of Justice in Luxembourg, a first for the Karlsruhe-based German court. "Karlsruhe has shown ECB President Mario Draghi what a bazooka really is," Gauweiler crowed.
Gauweiler is likely the only German parliamentarian for whom the ruling is cause for such elation. The case regarding the legality of ECB efforts to assist ailing euro-zone member states has been ongoing for more than a year -- and Friday's move to refer the issue onward to Luxembourg has triggered concern and impatience among politicians in Berlin and the rest of Europe.

Sending the case to Luxembourg only appears to be an act of European conviction at first glance. In truth, it is nothing less than a final reckoning with the crisis-management strategy pursued by the ECB. There can be no doubt about it: The Constitutional Court is threatening to cause trouble.

The German justices insist that the German constitution sets limits on the ECB's strategy in the crisis. And that could have consequences that go far beyond the jurisdiction of the court in Karlsruhe. In a worst-case scenario, the Constitutional Court could forbid Berlin from contributing to efforts to save the euro or even force Germany to leave the currency zone entirely.

Premature Relief?

At first, however, the ECB reacted with relief on Friday when the German ruling was announced. It is what they had hoped for, said many within the Frankfurt-based bank. The European court is seen as being much more conciliatory than the German court and most believe that a complete cancellation of the bond-buy program (known officially as "Outright Monetary Transactions" or OMT) is unlikely. "The constitutional court is apparently unable to deal with the complexities of the issue and is now seeking to push responsibility onto the European Court of Justice," says Michael Hüther from the Cologne Institute for Economic Research.

But the relief might be premature. Even if the ECB wins the battle in the Luxembourg courtroom, it remains to be seen if the German court would be satisfied. A thorough reading of the decision reveals that, after spending months looking into the OMT program, a majority of the German justices have come to the conclusion for the first time that Draghi's bond purchases are unconstitutional. Only massive changes could make it acceptable.

Clemens Furst, head of the Center for European Economic Research, calls last Friday's ruling a "thunderbolt." The German court, he said, has made it clear that it finds OMT to be extremely problematic. "It is a clear signal," he says.

Hans-Werner Sinn, the euro-skeptic head of the Munich-based Ifo Institute, believes that the German court's position "will not remain without consequences for ECB monetary policies." Furthermore, the ruling "will strengthen the position of euro critics and the general skepticism Germans have of the ECB."

Politicians in Berlin, by contrast, are furious. "Why not just go ahead and continually review everything the government does?" snapped one conservative. He says the referral to the European court could slow euro-zone policy for the foreseeable future.

"Stability can only be established where there is trust," warns Michael Meister, parliamentary state-secretary in the Finance Ministry. "And you can't establish trust where there are open legal questions in the euro zone."

'Important Boost'

Conservatives are even more concerned because both Chancellor Angela Merkel's Christian Democrats and their Bavarian sister party, the Christian Social Union, face a not insignificant challenge in the run-up to the European Parliamentary elections in May from the anti-euro party Alternative for Germany (AfD). Of course, members of AfD are extremely pleased with last Friday's ruling. "I am enormously satisfied with the decision," says party head Bernd Lucke. "Finally, a court has found that the ECB's bond-buying program is a clear violation of European law." He adds that the ruling provides "an important boost for the campaign."

It is also a clear indication that Germany's highest court is extremely skeptical of the ECB. Draghi's 2012 announcement that the ECB would embark on unlimited sovereign bond purchases from ailing euro-zone member states, the court found, is incompatible with European law. The ruling notes that OMT "exceeds the mandate" of the ECB and "encroaches on the responsibility of the member states for economic policy." Furthermore, it finds that the purchasing of sovereign bonds on secondary markets represents a "circumvention" of the prohibition against direct state financing.

The logic followed by Karlsruhe has been considered to be incontrovertible since the 2009 ruling on the Lisbon Treaty. Measures taken by European institutions that are not covered by treaties occur "ultra vires," meaning they violate the sovereignty of EU member states.

By extension, that means that if the German government and parliament do not protect the country from the multibillion euro policies of the ECB, then the Constitutional Court must step in -- even by way of a verdict which could force Berlin to withdraw from the euro zone. Germany, after all, is liable for a lion's share of the billions spent by the ECB on bailouts. That liability, however, limits parliament's constitutionally guaranteed control over how tax money is spent. Furthermore, that budgetary right is what gives German voters a say in economic and budgetary policy. Thus, the right to vote grants every German the power to challenge policy overreaches in the attempt to save the common European currency.

This link-up of law and politics, the court made clear on Friday, is preliminary, and thus "subject to the interpretation by the Court of Justice." But several of the ruling's passages seem to indicate that the repeated references to the preliminary nature of the Constitutional Court's finding are little more than politesse. Karlsruhe, the document makes clear, will not shy away from conflict.

Germany's Conditions

The German court's strategy is clear. Should justices in Luxembourg share the German interpretation, then the Constitutional Court could hide behind the European Court of Justice and pose as model Europeans in the ongoing battle over final jurisdiction on the Continent.

In the case, however, that Luxembourg doesn't completely share the view articulated in Friday's verdict, the German court has built a bridge. Should Luxembourg interpret OMT as being "in conformity with primary law," it could, within the conditions set by the German court, satisfy the Constitutional Court's concerns, the ruling notes.

Essentially, there are three conditions set by Karlsruhe to ensure that a bond-buying program not be ultra vires: An upper limit to the bond purchases must be set; debt haircuts for the countries in question must be excluded; and the same conditions that apply to recipients of European Stability Mechanism (ESM) aid must apply to those countries benefitting directly from the bond purchases.

It is, once again, the German hardline. The question as to whether such a program would sufficiently impress the markets is one to which Draghi would likely respond in the negative. But can European justices really set binding guidelines? And what happens if Luxembourg accepts only some of the conditions set by the German court?

Should the European Court of Justice come to a different conclusion than that reached by the German court, then the conflict promises to escalate. The German court, after all, has reserved the right to reject a European court ruling should it not fulfill the legal standards applied in German jurisprudence. Such a situation, in which the German high court simply disregards a ruling from the European Court of Justice, would be the worst-case scenario for Europe.

"Democracy is more important to us than the euro." That, roughly, is how court insiders describe the mood among the justices of the court's second senate. It is also an approach that helps one understand comments made by Constitutional Court President Andreas Vosskuhle during oral arguments last summer. The court, he said, is focused on establishing "legal boundaries to the ECB mandate" and seeks to "strengthen the guarantees provided by our constitution."

Many, though, find that intention to be little more than hubris -- including the two Constitutional Court justices that dissented in the 6-2 vote last Friday. Central bank tools applied in a crisis, they say, do not fit neatly into legal frameworks.

Hüther, from the Cologne Institute for Economic Research, says that the entire proceedings in Karlsruhe were misguided. "The discussion as to whether the ECB is allowed to purchase sovereign bonds should not be held before the court," he says. "That decision has to be made by the central bank, which is independent and thus not bound by the rulings of German justices either."

Marcel Fratzscher, president of the German Institute for Economic Research, agrees: "A central bank must be able to act without limits on monetary policy," he says. "If this right is restricted, it erodes its credibility." The German court ruling, he says, introduces new uncertainties because it opens up the possibility of court action on future monetary policy decisions.

Just how intense the conflict between monetary policy and jurisprudence might become can be seen by the attempt made by German justices to access information regarding the true intentions of Draghi's announcement regarding unlimited sovereign bond purchases. The ECB considers the details of the resolution to be classified. "We have had to make do with press releases," complained one participant in the proceedings prior to oral arguments.


Graphic: The ECB's weapons and their effectiveness.

Not Good for the Markets

And that is how it should be. Clarity over the details of the program may be good for legal professionals, but it isn't good for the markets. Former Constitutional Court Justice Udo Di Fabio, who was instrumental in the court's Lisbon Treaty ruling, likewise sees how dangerous the conflict between jurisprudence and the markets can be for the markets. It is, of course, "difficult" for the ECB head to deal with such a situation, he says. "He announced a huge weapon and now the courts have begun discussing the conditions under which such a weapon can be used," Di Fabio says.

Already, the lack of clarity has begun to affect the ECB. After all, it wants to go even further. Even if the debt crisis appears to have passed, Europe's central bankers have begun combatting other apparitions. The inflation rate in the euro zone is currently so low that some economists have begun warning of deflation -- an economically damaging reduction in prices.

The ECB has long since developed contingency plans to combat such a development. Should the situation deteriorate further, the Frankfurt-based bank is prepared to unveil new monetary policy weapons. Furthermore, the possibility of the ECB purchasing certain types of securitized debt is likewise under consideration.

"Quantitative easing" is another key phrase that has re-entered the debate in recent weeks, a reference to broad and unconditional bond purchases of the type the US Federal Reserve has been undertaking for years. Such purchases go far beyond those made under the OMT program. But because they include bonds from all euro-zone member states, and not just those that are suffering under high interest rates, they are considered by many to be more compatible with the ECB's mandate.

Stronger Than Ever

Still, such ideas regularly trigger fierce debates with conservative monetary policy experts who want to prevent the ECB from devolving into a euro-zone development bank. The finding of the German Constitutional Court, say European central bankers, is even more critical than the skepticism voiced internally. The justices, it is felt, would likely forbid instruments such as Quantitative Easing as well.

They could be right. The Karlsruhe justices feel stronger than ever. For the first time, they dared to do what they had been threatening to do for years: They branded a European decision as ultra vires and thus found it to be inconsistent with the German constitution. Sending this finding to a European court has far-reaching implications for the court's reputation and authority: "The ruling will now be translated into the 23 other official EU languages and sent to all EU member states," one Constitutional Court insider noted with gratification.

Only an application for expedited proceedings could prevent the European Court of Justice from taking its time in examining the German ruling. Such an application, however, has not been made.

BY MELANIE AMANN, SVEN BÖLL, THOMAS DARNSTÄDT, DIETMAR HIPP, GORDON REPINSKI AND ANNE SEITH

Worth remembering Draghi's never used OMT. Just announcing he'd do 'whatever it takes' to save the Euro was enough to reassure the markets. I wonder if they'll start testing again if that's in doubt?

[The Minsky Moment]

The Euro: single currency or suicide pact?

[MadImmortalMan]

Germany leaving wouldn't help the periphery directly. They want inflation and their currency is controlled by an ECB with the sole mission of preventing inflation. German exodus would merely make things more chaotic and squeeze the rest with higher rates.

[PJL]

Germany leaving wouldn't help the periphery directly. They want inflation and their currency is controlled by an ECB with the sole mission of preventing inflation. German exodus would merely make things more chaotic and squeeze the rest with higher rates.

Don't agree. German exodus would provoke a big instant devaluation which would more than offset any potential problems with higher rates. This would definitely help create inflation in the system which is badly needed, especially in the periphery that's has the biggest deflation concerns.

[Zanza]

Germany will never leave the Euro.

[Gups]

Germany will never leave the Euro.

Never is a long time in politics.

[Tamas]

Germany will never leave the Euro.

Never is a long time in politics.

I think the Euro is basically the deutschmark at this stage.

[Ed Anger]

I don't want a euro currency breakup. I don't want my property over there valued in more worthless francs.

Fucking  President Hollindaise