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Rescues Violating the German Constitution:The Federal Court Decides on a Theory of Finance


  • Adalbert Winkler


The Federal German Constitutional Court has made it clear that it considers the OMT program to be in violation of the ECB’s mandate. This paper argues that the Court’s decision reflects an endorsement of the efficient-market hypothesis. If financial markets are efficient, interference of any kind in these markets cannot be regarded as monetary policy and hence violates the ECB’s mandate. In 1962, Helmut Schmidt, who was then Minister of the Interior of the city-state of Hamburg, violated the German constitution by making use of the Federal Armed Forces [Bundeswehr] within the country’s borders in a non-military context, specifically to rescue fellow citizens during the great North Sea flood of that year. However, despite acting unconstitutionally he was seen as being in compliance with his mandate. This contrasts with Mario Draghi who – without having yet bought a single sovereign bond – has been accused of violating the German constitution because the Court ignored alternative theories of finance which have been put forward in the debate among economists about the proper conduct of monetary policy in a financial crisis.

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  • Adalbert Winkler, 2014. "Rescues Violating the German Constitution:The Federal Court Decides on a Theory of Finance," FMG Special Papers sp231, Financial Markets Group.
  • Handle: RePEc:fmg:fmgsps:sp231

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    References listed on IDEAS

    1. Adalbert Winkler, 2013. "Ordnung und Vertrauen – Zentralbank und Staat in der Eurokrise," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 14(3-4), pages 198-218, August.
    2. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    3. Rudolf Richter, 2013. "Geldwertsicherung im internationalen Goldstandard und in einer Währungsunion von Staaten mit Papierstandard aus institutionenökonomischer Sicht," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 14(1-2), pages 132-149, February.
    4. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
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    Cited by:

    1. Bachar Fakhry & Christian Richter, 2018. "Does the Federal Constitutional Court Ruling Mean the German Financial Market is Efficient?," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 4(2), pages 111-125, December.
    2. De Grauwe, Paul & Ji, Yuemei, 2015. "Has the Eurozone become less fragile? Some empirical tests," Journal of Policy Modeling, Elsevier, vol. 37(3), pages 404-414.
    3. Jorg Bibow, 2015. "The Euro's Savior? Assessing the ECB's Crisis Management Performance and Potential for Crisis Resolution," Economics Working Paper Archive wp_845, Levy Economics Institute.
    4. De Grauwe, Paul, 2016. "The legacy of the Eurozone crisis and how to overcome it," Journal of Empirical Finance, Elsevier, vol. 39(PB), pages 147-155.
    5. Paul De Grauwe & Yuemei Ji, 2014. "The Future of the Eurozone," Manchester School, University of Manchester, vol. 82(S1), pages 15-34, September.

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