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Thus spoke Zarathustra, a.k.a. the German Constitutional Court in Karlsruhe, about the legality of the European Central Bank's sovereign bond purchasing program known as outright monetary transactions or OMT. The court indicated that the program might in principle be illegal, but instead of ruling that way, it asked another court—the European Court of Justice (ECJ)—to take what is almost certain to be the opposite conclusion. Voila. The judges at Karlsruhe stick to narrow legal principles, while avoiding a threat to economic recovery. This is all predictable. German establishment institutions are always keen to appear principled, only to act in a pragmatic manner.
Sadly, many London-based observers harbor a residual dread about institutions like the Bundesbank and the Constitutional Court. They blame Germany for a willingness of supposedly dogmatic domestic institutions to let the house burn down to prove a principled point. The reality has proven to be different.
For example, the Bundesbank opposed the European Central Bank's Securities Market Program (SMP) of bond purchases program in 2010. But two members of the ECB Governing Council (then Bundesbank President Axel Weber and Jürgen Stark) resigned over it, without any impact whatsoever on ECB policy.
Similar, Bundesbank President Jens Weidmann's opposition to the OMT program was a cost-free gesture towards the Bundesbank, carried out with the knowledge that a majority of the ECB Governing Council would simply carry on unabated. Wiedmann's position did, however, play into the hands of the German political establishment, stealing some thunder from the euro-skeptic Alternative für Deutschland party in the German elections. Also, in the ECB's fight against other euro area member state governments' requests for bond market support in 2010–12, Bundesbank rhetoric made it easier for ECB presidents Jean Claude Trichet and Mario Draghi to say no. The Bundesbank thereby played a useful "bad cop" role for the European System of Central Banks (ESCB) as well.
The German Constitutional Court has flirted with legal blocks on European integration, only to pragmatically decide otherwise. Karlsruhe in the end approved the Lisbon Treaty, though it did say that future surrenders of German sovereignty would have to be approved by a referendum. And it approved the new euro area bailouts while insisting that the Bundestag be directly informed about deliberations and required to vote when German fiscal resources are called upon.
The Constitutional Court should be applauded for promoting direct democracy with its referendum demand and representative democracy with its demand for Bundestag consultation—while allowing the process to continue and the stabilization of the euro area to take place.
The ruling on the OMT is similarly pragmatic. It astutely rescues the German government—which repeatedly has expressed its political support for the OMT—from a political headache and potential requirement to change the German constitution, which the ruling Grand Coalition has the votes to carry out. Second (as reflected also in the two dissenting votes on the court), the ruling rescues the Constitutional Court from charges of judicial activism and infringement on the right of the German parliament to exercise discretion in its policymaking.
In German jurisprudence, it seems questionable, even if the Constitutional Court has a mandate, to go so directly against a repeatedly reelected super majority of the German Bundestag. Now instead, a majority of the Constitutional Court gets to adhere to its narrow legal principles, safe in the knowledge that it will have very little real world impact. In addition, the still latent interventionist streak implied by the German court helps Chancellor Angela Merkel draw some more credible red lines for what Germany can accept in the European Union and thereby strengthens her negotiating hand with the rest of the member states.
In the German political establishment, every institution has its role to play—but it is rarely the one reported in the press.
