Germany’s Supreme Court Deserves Our Thanks

(Bloomberg Opinion) -- So orderly, so nit-picking, so German. This week, Germany’s constitutional court in Karlsruhe finally delivered its verdict on the European Central Bank’s most prominent bond-buying program. Weighing in at 110 pages, this ruling was historic. For the first time, a national court in effect overruled the European Court of Justice in Luxembourg..Well spaced out because of the new coronavirus rules, the red-robed judges didn’t exactly blow up the ECB policy in question, known as the public sector purchase program (or PSPP). But they sure gave the German government, parliament and central bank, as well as the ECB, a lot of work to do if they want to keep it..The court told the ECB that it has three months to prove that its bond purchases are “proportionate.” And it ordered Germany’s government and Bundestag to monitor the ECB’s efforts. Otherwise Germany’s Bundesbank, the ECB’s largest shareholder, may no longer participate in this particular form of quantitative easing, in effect neutering the program..Across much of the European Union, above all in the southern member states, mouths were once again agape over such Germanic intransigence, stubbornness and legalism. Don’t they get that the ECB is just trying to rescue the euro area’s economy and preserve its cohesion? Maybe the bank does, here and there, blur the boundaries between monetary policy, which is its remit, and economic policy, which isn’t. But that’s only because Europe’s governments, above all Germany’s, have long shirked their duty to help out with fiscal policy..And besides, many Europeans are wondering why, if there really are fundamental questions at stake in this case, only one member state, out of 19 in the euro area and 27 in the EU, is bothered about them. Other Europeans, including the judges of the EU’s top court, are trying to be pragmatic and magnanimous in interpreting the European treaties. Only the Germans, it seems, will forever be so rule-bound..Some of the case’s plaintiffs, who include industrialists, conservative politicians and even a grandson of postwar Germany’s first chancellor, may indeed be sticklers. In general, they like very little about the ECB and probably yearn in secret for their old Deutsche Mark. But the judges in Karlsruhe didn’t exactly follow the plaintiffs’ logic. In particular, they exonerated the ECB from one central charge: that its bond purchases amounted to a covert way of printing money to finance government deficits..Instead, the judges emphasized other concerns. One point was that issue of proportionality I already mentioned. But their more interesting line of reasoning was buried in the fine print. It’s the question of how democratic the EU still is..If the ECB, unelected and indeed independent (as Germany in the 1990s insisted it must be), decides to mop up vast quantities of iffy bonds, then the national central banks that own the ECB still have to execute the trades. So the Bundesbank, for example, keeps accumulating risky assets on its own balance sheet. If those lose value, the German government will have to cough up money from its national budget. But the Bundestag, which has the constitutional duty to approve that budget, was never part of the decision. And if it’s beyond parliament, it’s also beyond voters..In the same way, ECB policy is eroding the budget sovereignty of all member states. It is thereby creeping beyond the functions envisioned in the European treaties. Precisely because “the EU has not evolved into a federal state,” the verdict reads, “certain tensions are thus inherent in the design of the European Union; they must be resolved in a cooperative manner.” By overruling the Luxembourg court, Karlsruhe is objecting to an interpretation of the ECB’s actions so liberal that it “would essentially amount to a treaty amendment.”.What the judges didn’t explicitly say, of course, is that this mission creep — this treaty change on the down-low — is not a bug but a feature of EU policy. National leaders, above all German Chancellor Angela Merkel, have never made the hard choices about their currency union, either during the euro crisis or in this pandemic. Should the euro area have its own budget? Its own tax revenues? Its own government and treasurer? Its own debt?.Whenever these questions threaten to come through the front door of politics, they’re quickly pushed in through the back door instead. Thus the Germans, Dutch, Austrians and other northern members keep saying no to mutualized debt, for example, by nixing euro bonds and now coronabonds. But they keep nodding to incremental forms of joint liability within the EU’s institutions, from the ECB to the European Stability Mechanism, the bloc’s rescue fund. .The message from Karlsruhe is that this obfuscation must stop. If you want to save the euro permanently, the judges are saying, write new rules into the European treaties and explain them to your voters. These German judges would be happy to apply them, because they actually love Europe..But if you’re not ready to have a proper currency union, with joint debt and governance, then at least be honest enough to admit that. In that case, we must have an open and democratic debate about how, gradually and cautiously, to unravel the euro area as it is. This is the fundamental question for Europeans of this generation. The red-robed judges of Karlsruhe deserve our gratitude for trying to force us to confront the choice..This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners..Andreas Kluth is a columnist for Bloomberg Opinion. He was previously editor in chief of Handelsblatt Global and a writer for the Economist. He's the author of "Hannibal and Me." .©2020 Bloomberg L.P.

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Germany’s Supreme Court Deserves Our Thanks

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