The Greeting August

Guest contribution by Bernd Lucke on August 7, 2020, in Cicero

The German language has the informal derogatory term "Greeting August": a dignified gentleman who is greeted politely by everyone without anyone caring further about him. This is similar to how the European Central Bank (ECB) is currently treating the Federal Constitutional Court.

Let us remember: On May 5, 2020, the Federal Constitutional Court accused the ECB of exceeding its mandate with its purchase program for government bonds, PSPP. This was because the ECB failed to check the "proportionality" of the PSPP: Are the undesirable side effects of the program in a reasonable ratio to its supposed purpose, which is to increase the inflation rate? The Federal Constitutional Court demanded, for example, that the effects of the ECB's low-interest-rate policy on the depreciation of private retirement provision, the negative real interest rates on savings, rising property prices and rents, the financial stability of banks, and the spending behavior of the public sector be examined.

Many phone calls between Berlin and Frankfurt

The ECB responded as follows: With all due respect for the Federal Constitutional Court – a national court has no say over the ECB. One was therefore quite clear: The Federal Constitutional Court is nothing more than a Greeting August.

This attitude, however, put the Bundestag and the federal government in a bind. The Karlsruhe ruling was not directed against the ECB, which is indeed not subordinate to any German court. It is directed against the federal government and the Bundestag. It obliges the federal government and the Bundestag to compel the ECB to adhere to its legal mandate. Otherwise, the Deutsche Bundesbank may no longer participate in the ECB's mandate-exceeding measures.

There were therefore many phone calls between Berlin and Frankfurt. And a somewhat schizoid solution was reached: The ECB officially still does not care about the Constitutional Court's ruling. However, it sends some documents that were created on other occasions and for other purposes to Berlin. There, the federal government and the Bundestag assume that the ECB has presented the required proportionality assessment.

This happened on June 26. On that day, the documents arrived at the Federal Ministry of Finance. On the same day (!), Finance Minister Olaf Scholz wrote to Bundestag President Schäuble that his office had reviewed the documents and that the requirements of the Federal Constitutional Court had been met. The speed with which the officials of the BMF reviewed the documents suggests that there was not much to review. Or that the result of the review was predetermined from the start.

Only Irrelevant and Trivial Matters

Exactly how this happened is unknown. Because the ECB classified some of the submitted documents as confidential. And Scholz referred almost exclusively to these confidential documents.

The publicly accessible documents are obviously not a proportionality assessment. They do not mention retirement provision, negative real interest rates on savings, property prices and rents, or the stability of banks even once. They also make no attempt to quantify the interest-reducing effect of the PSPP. How can one assess proportionality when one does not know what effect has been triggered? The published documents contain only irrelevant and trivial matters.

This is the Greeting August principle. Formally, the ECB pretends to respect the Constitutional Court. Substantively, however, it ignores its ruling – at least as far as the published documents are concerned. Yes, the ECB almost ridicules the court because it has submitted documents that were already known partially as if they were something new and what was demanded by the court.

Only four deputies opposed

The confidential documents, however, could only be viewed by the members of the German Bundestag for a few days in the confidentiality section of the Bundestag. Some of the documents were not available in German. Although the matter is technically complex, no knowledgeable staff were allowed to be involved. Additionally, the members were not allowed to take notes or make copies. Therefore: Only those who have a photographic memory could later discuss it with colleagues.

On July 2, the Bundestag decided with the votes of Union, SPD, FDP, and Greens that the ECB had presented the required proportionality assessment. A small flaw: Four deputies from the Union and FDP opposed their faction leaders and stated in personal declarations that the documents did not meet the court's requirements.

Everything is fine again

And another detail that raises suspicion: In his letter on June 26, Olaf Scholz announced the submission of the documents to the Federal Constitutional Court. However, we complainants were informed by the court a few days ago curtly that it had not received any documents. And indeed, the ECB apparently only allowed the finance minister to make the confidential documents accessible to the Bundestag. There is no mention of the Greeting August Federal Constitutional Court.

Strange: The Federal Constitutional Court had accused the Bundestag and the federal government of breach of duty because they had not intervened against the ECB's mandate violation. Now the Bundestag and the federal government contentedly state that everything is fine again. A kind of acquittal in their own case, so to speak. The sinners give themselves absolution and no one but themselves can judge whether this is done rightly or wrongly.

Because the decisive documents are confidential. Not even the Federal Constitutional Court knows them. This is quite unusual. Because in Germany there is the principle of organ respect. According to this principle, the federal government and the Bundestag should inform the court out of respect for the Federal Constitutional Court. If they do not do this, they also treat the highest German court like a – I say it reluctantly – Greeting August.

We demand access to documents

We complainants have therefore requested that the Federal Constitutional Court order access to documents for us. We are surprised that the court does not also independently and for its own purposes demand this access to documents. But at least as complainants, we want to assure ourselves that the Bundestag and the federal government have indeed implemented what the ruling of May 5 imposed on them.

Finally, the question can be asked why the ECB is even engaging in this secrecy? If it is true that the side effects of its monetary policy are of reasonable scope, if it is true that the asset losses of savers are minor, the retirement provision not significantly weakened, property prices and rents are reasonable, the stability of banks is not endangered, and the incentives for sound budgetary policy are not undermined – why cannot this be made public? What would there be to hide? It is precisely the secrecy of the decisive documents that raises the suspicion that something is seriously wrong with the ECB's monetary policy. And that is why we demand access to documents.

Published in Cicero: The Federal Constitutional Court as “Greeting August”:

https://www.cicero.de/wirtschaft/ezb-geldpolitik-bundesverfassungsgericht-olaf-scholz-bernd-lucke