The German Constitutional Court Case & The Integrity of the Euro

01 Jun 2020

On the eve of the verdict – at the beginning of May, the Süddeutsche Zeitung, which is the main quality newspaper of Munich, had its Deputy Chief of economic reporting in their Berlin bureau say that “There were great nerves felt in Berlin.” This was due to the fact that, if the wrong verdict i.e. that Germany was not constitutionally able to participate in European Central Bank bonds purchasing and if that were to come out, then the very next morning the Government was going to send a very strong signal to the world about the integrity of the euro. 

The final line in the editorial piece, rather incongruously said, “After all, let’s remember that ‘Alternativa for Deutschland’ the anti-establishment party got going on an anti-euro platform. It’s almost as if the squashing of a small party in Germany is the key consideration here, rather than the prosperity and stability of markets and savings. 

Then we move on to what happens immediately after this verdict. 

President Von Der Leyen, who was of course a German front-rank Politician and Minister before she went on to preside over the European Commission, issued a rather punchy and brief statement on May 10th by threatening something which in the two treaties on the European Union that came out of Lisbon (the TEU and the TFEU, one new and one revised) is the ultimate sanction or weapon of the European Commission against member states. And that is infringement proceedings. Which means ‘we’ think that new member states have breached the terms of the treaties. So, she is saying that the last word on the EU law is always spoken in Luxembourg and nowhere else. Non-Germans might miss what she is saying there. She is almost bearing her teeth back across the Rhine toward her own German political class, which is quite wedded to the law through the constitutional court in Germany, and is saying ‘no,’ this is a new law the EU has from the outset. That it has its own legal order and that only the EU’s own court of justice is qualified to judge what is lawful. 

Von Der Leyen regards it as an upstart measure by the German constitutional court to say, “No, without any kind of proportion of your involvement being evidenced in German Government, it is not lawful for you to participate in this, because you are putting German savers and the entire tax system on the hook for unknown debts.” 

The German trade paper ‘Handelsblatt,’ responded to the piece. And was quite an eye-opener too. They have insiders who are saying that the famously opaque ECB, for which the main complaint against is, that it never has a responsibility and accountability to anyone because basically… it has diplomatic immunity. The ECB is now letting it be known through these controlled leaks, that it itself or possibly the non-German Central Banks within the Eurozone member states, are preparing to buy out Germany’s share in this purchase scheme which has been going on since 2015. (It’s the European version of quantitative easing). And if things get to a place of ‘push comes to shove,’ the ECB is letting the Handelsblatt know that it might even sue the German National Bank, to oblige it to participate in Bond purchasing. 

One example of reaction to this news came from the Dutch equivalent of The Guardian (De Volkskrant), which is usually quite smug, pro-EU in such matters, but instead gave space to a columnist to say that all that’s happened here is, the Germans have re-iterated their own understanding, that “There’s no such thing as free money. And what is taking the Netherlands so long to work this out?”

In addition - A handful of retired frontbenchers in Dutch politics are starting to say ‘We have to get rid of the Euro now’ – which is something that Joseph E. Stiglitz, author of L’EURO was already saying in 2016. 

Other Dutch commentators have said things along the lines of… “The EU is toast, and we’re looking for Euro Armageddon.”

It’s uncertain as to what is going on with the EU at the moment, but there was supposed to be a negotiation on the table with the UK about their future relationship happening right about now, however it doesn’t seem to be happening to any great degree at all or looking likely for the coming weeks. As for the state of things right now, rather than making headway on their key goals they actually seem to be drawing back from them. And with respect to covid-19, there was clearly no EU response – instead, it was managed solely at a national level. 

So, what is going on? Is the EU going to be in existence in 12-24 months as many are secretly speculating? 

What we do know is, the key consideration from the EU legalistic point of view within the EU lawyer bubble is, that they would point to these two treaties mentioned above which have articles saying that there cannot be measures taken by the EU through the European Commission directives or regulations, or financial measures which have as their primary motive – the promotion of public health. The member states have never signed that away, so that will be the defense that they will fall back on when asked “Why aren’t you promoting public health.” 

It’s undoubtedly not an argument that would be welcomed or carry much weight in Italy or Spain after the shocking results and deaths of this Spring, but in its entirety, the whole EU situation is a strange one. It will be interesting to see which direction the EU is heading as Europe moves out of covid-19 and forward in the re-opening and rebuilding process.