Selfish Germany is dynamiting the eurozone
The currency union will splinter if Italy, Spain and Greece are starved of help from the central bank
“If the law supposes that,” says Mr Bumble in Oliver Twist, “the law is a ass – a idiot.”
Judges are prone to unduly legalistic rulings that seem bizarrely out of touch with the real world, but perhaps no more so than in Germany, whose Federal Constitutional Court last week effectively determined that the European Central Bank’s (ECB) bond buying programme was illegal, or to be more precise, that the European Court of Justice’s (ECJ) prior approval of the programme was “incomprehensive” and “meaningless”.
The effect of the judgment is at one and the same time to challenge the higher authority of the ECJ and the independent right of the ECB to set monetary policy. It is an exocet aimed straight to the heart of the European Union and its monetary union.
Are the grey haired oracles who sit on the BVerfG, to give the court its German acronym, idiots or heroes?
In explaining himself, one of them suggested that he was fed up concerning himself with minority human rights issues and was instead siding with the “silent middle” in defending savers and pensioners from those who would destroy them.
Yet whether one sympathises with this mindset or not, this is not the moment to be dynamiting the entire stadium. To deliberately foment a constitutional crisis in the middle of an unprecedented medical and economic emergency is to pile Pelion on Ossa.
It is also a shameful indictment of Germany’s propensity to regard the EU as no more than a conduit for its own self interest, bending the rules when it suits but ruthlessly imposing them on others when it does not.
The Constitutional Court is of course not the same thing as the German government, some of whose members view the court’s kamikaze disregard for what’s going on in the outside world with the same horror as other EU member states. Some face-saving way of ignoring the court’s instructions will no doubt be found.
The episode nonetheless highlights anew the inescapable fault lines of the Continent’s aspiring United States of Europe.
Let’s side pocket the point of principle here, which is whether it is Germany’s national court, or the European Court of Justice, that rules supreme, and instead focus on the judgment’s practical implications. By challenging the ECB’s right to monetise the debt of member states, the judges are in effect denying those states a perfectly legitimate and effective way of addressing the economic consequences of the coronavirus pandemic.
In Britain, the only reason why the Chancellor, Rishi Sunak, can afford to pay furloughed workers, guarantee bank loans, and generally ramp up spending against a backdrop of collapsing tax revenues is that the Bank of England is buying up much of the new debt the Government is issuing to fund the shortfall.
Christine Lagarde, president of the European Central Bank, lives in dread of the German Constitutional Court's wrecking ball. But its judges claim to be strengthening the EU, not weakening it
Christine Lagarde, president of the European Central Bank, lives in dread of the German Constitutional Court's wrecking ball. But its judges claim to be strengthening the EU, not weakening it
Similarly, its bond buying can be used to ease the kind of punishing post-Covid austerity imagined in an internal UK Treasury discussion paper leaked to the Telegraph this week. The same monetary therapy is being applied in the United States, Japan, China, and everywhere else with its own sovereign central bank.
If the likes of France, Italy, Spain, and Greece are denied that lifeline, they’ll go under as fast as a rusty ship in a storm. Brutal tax rises and spending cuts would indeed be their inescapable future.
It matters less to Germany, which is among the most solvent countries in the world, and can therefore easily afford to bankroll its pandemic response without recourse to monetary financing.
As it is, and with treaties on state aid suspended, Germany has been throwing money at its economy on an almost unimaginable scale. Its judges seem to want to starve others of the ability to do the same. Far from being a benign economic hegemon at the heart of Europe, Germany finds itself accused of returning to its bad old imperialist ways.
For Americans, the defining economic experience of the last one hundred years was the Great Depression. Their biggest fear is mass unemployment. But for Germans it is hyperinflation, and the destabilising destruction of middle class savings that past episodes of it have visited on them. They have a consequent, almost pathological, aversion to debt monetisation.
The Constitutional Court therefore regards its ruling not as an attempt to weaken Europe, but “to strengthen it”. By defending the principles of sound money, the court lessens the risks of a populist backlash against the EU in its own backyard.
And therein lies the nub of the problem. What may be good for Germany and its immediate economic satellites is very probably bad for everyone else. In its supposed efforts to defuse populism in Germany, the court only exacerbates it elsewhere in Europe.
For all its pretence at solidarity, Europe can seemingly never escape these countervailing, centrifugal forces. If Germans don’t allow less solvent neighbours their monetary tranquilisers, the EU will splinter irreparably. The economic damage the pandemic has already inflicted on Europe will look like a mere warm up for the shock to come. Idiots indeed.
