Farce of the Bundesbank
By Staff News & Analysis - April 29, 2013

Bundesbank declares 'war' on Mario Draghi bond bail-out at Germany's top court. Germany's Bundesbank has issued a devastating attack on the bond rescue policies of the European Central Bank, rendering the eurozone's key crisis measure almost unworkable. The Draghi plan mobilized the ECB as lender of last resort and led to a spectacular fall in borrowing costs across the EMU periphery, buying nine months of financial calm. The hardline central bank – known as the temple of monetary orthodoxy – told Germany's top court that the ECB's pledge to shore up Italian and Spanish debt entails huge risks and violates fundamental principles. "It is not the duty of the ECB to rescue states in crisis," it wrote in a 29-page document leaked to Handelsblatt. – UK Telegraph

Dominant Social Theme: German hawks face down the terrible and spendthrift Eurocracy.

Free-Market Analysis: Excuse our cynicism. This all looks to us like a kind of monetary passion play. The outcome is predictable and the drama is being presented for the gratifications of the rubes.

We are supposed to worry – or at least follow with fascination – what the German constitutional court will rule. Let's see … destroy the EU with a single vote or continue the status quo …

Any justice interested in self-preservation is not going to vote against the EU and spend the rest of his or her (short) life dreading plane trips and auto ignitions.

The justices will do as they have done before. We will be most surprised if they don't express grave concern over the ECB's accommodative policies and then rule there is nothing Germany can do about them.

It will be a lie, of course. Specifically, Germans were wooed by Eurocrats with firm guarantees that the German Miracle would not be milked on behalf of the rest of Europe.

And now, of course, that is just what is happening. Germany is to be impoverished to raise up the PIGS – and France besides.

This was actually the plan, as we have often pointed out, but what was not planned for was that the entire spectacle would play out over the Internet. People don't just get their news from the mainstream media anymore. And what's on the Internet and reported by the alternative media every day doesn't make Brussels look especially good.

This article, a somewhat dithery one, nonetheless makes the case against Brussels clearly enough:

The Bundesbank unleashed a point by point assault on every claim made by ECB chief Mario Draghi to justify emergency rescue policies – or Outright Monetary Transactions (OMT) – unveiled last summer to stop Spain's debt crisis spiralling out of control.

The Draghi plan mobilized the ECB as lender of last resort and led to a spectacular fall in borrowing costs across the EMU periphery, buying nine months of financial calm. The credibility of the pledge rests entirely on German consent. Analysts say the crisis could erupt again at any moment if that is called into question.

"The report borders on economic warfare," said Harvinder Sian from RBS. "We think there is going to be fear and dread in the market that the court will reject OMT."

The document said OMT entails the purchase of "bad bonds", violates ECB independence and entails a high risk of heavy losses in the "not unlikely" event that debtor states are forced out of EMU.

It said Greek debacle had shown that conditions cannot be enforced, and, in any case, is "very questionable" whether it is desirable to drive down the borrowing costs of profligate states.

To cap it all, the Bundesbank said the ECB has no mandate to uphold the "current composition of monetary union". Its task is to uphold price stability and let the chips fall where they may.

While the Bundesbank's president, Jens Weidmann, has openly criticised the Draghi plan before, the aggressive language in the report shocked economists…

Shock, shock, shock. We're not shocked. What the ECB is doing is clearly illegal. But when did that ever stop Brussels?

And when it comes to this Bundesbank challenge, we're not shocked, either. They've got to go through with it because 30 Germans are apparently bringing the lawsuit to the constitutional court – which is what mandated the Bundesbank opinion in the first place.

Three years ago when the ECB began its famous easing, the Bundesbank made hardly a peep. And now that the program has grown and blossomed fully, the Bundesbank is acting like the defender of EU solvency it is supposed to be.

The Bundesbank and the German elite are always portrayed by the mainstream media as at odds with Europe's more accommodative policy. But that's really not the case.

The German elites are just as globalist in their own way as the rest of Europe. It is the German CITIZENS who are increasingly against the euro and even the EU because Brussels is seen to have broken its solemn promises and Germans don't want to be sacrificed on the altar of European solvency.

It is Germans themselves, stubborn Germans, who are employing their democracy to try to derail the authoritarian juggernaut aimed directly at them.

Again, we doubt this particular gambit and decision will derail the onrushing fiscal doom, but let us not over-play our cynicism.

For it also seems to us that the tide is turning against this "great experiment" and that, while incidents like these do not of themselves stop the functioning of the euro and even the EU, over time enough such attacks will have an impact.

So let us hope some good comes out of this. Let us hope the German decision makes it increasingly difficult for the ECB to pursue its illegal policies and that the EU and the euro crack even further.

Neither the EU nor the euro is in great shape these days and each challenge further weakens this latest attempt at rebuilding Charlemagne's empire.

The outcome, of course, is still in doubt. But the Internet is a process not an episode. And the process seems to be relentlessly grinding down Brussels's best efforts.

After Thoughts

It couldn't, as we often point out, happen to a more deserving bunch.

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