Sunday, November 23, 2014

Europe’s Crisis Goes to Court

TILBURG – Throughout Europe and beyond, economists are debating potential solutions to the eurozone’s sovereign-debt crisis. But these discussions often neglect, or at least downplay, one crucial element of any resolution: the German Constitutional Court (Bundesverfassungsgericht) in Karlsruhe, which is responsible for determining whether measures taken by Europe’s leaders are legal under German law.

On September 12, the court will determine whether the European Stability Mechanism (ESM), Europe’s permanent emergency fund, complies with Germany’s constitution. Although German policymakers backed the ESM in June, ratification is on hold until the court’s ruling.

While other eurozone countries have similar courts, these tribunals have significantly less clout. The Supreme Court of Ireland, for example, has referred such matters to the European Court of Justice. And the recent ruling by France’s highest court that the ESM complies with the country’s constitution received little media attention, highlighting its relative insignificance.

But Germany’s court is far more powerful, making it a decisive player in determining Europe’s agenda. And, given that the court’s verdict regarding the ESM’s constitutionality is crucial to the eurozone’s survival, its authority extends beyond the legal domain, into economics and politics.

Arguments about the euro crisis that disregard the “Karlsruhe factor,” therefore, amount to little more than sterile intellectual debate. For example, most proposals involve some kind of fiscal union, which would inevitably entail the partial transfer of fiscal sovereignty from national governments to the European Union. But the court, not German policymakers, has the final say regarding further fiscal integration.

Recently, some economists and politicians have begun to take notice of the Karlsruhe factor, but most of them mistakenly expect the court to create rules for resolving the crisis. In fact, guidelines were established last September, when the court ruled on which aspects of the European Financial Stability Facility (EFSF) – the precursor to the ESM and the eurozone’s current temporary emergency fund – were unacceptable, and laid out criteria that any potential solution must meet.

For example, the court determined that the German parliament would have to be consulted each time a member country requested assistance, asserting that fiscal sovereignty forms the core of national sovereignty. Otherwise, German voters would be rendered powerless, constituting a breach of the German constitution.

Likewise, the court has prohibited the creation of a permanent European stability mechanism that would entail financial obligations over which Germany’s parliament had no direct control. As a result, decisions taken by European politicians during their regular or emergency meetings may be reversible, particularly if they would undermine the German parliament’s fiscal authority.

It would be a mistake to assume that Germany’s government could ignore or circumvent the court’s decision. Given strong public support for the constitutional court, no German policymaker would consider challenging its verdict. A ruling against the ESM in September would solidify further the court’s central role in determining Europe’s future.

To be sure, the German judges have not overstepped their bounds by defining what action Germany must take. Rather, they have established parameters within which German – and thus European – policymakers are obliged to remain. Simply put, all proposed solutions to the euro crisis must be evaluated according to the court’s rulings.

Moreover, the court decided long ago that only the German public – not the government – may transfer fiscal sovereignty to Brussels. Neither Chancellor Angela Merkel nor the parliament may decide; every viable proposal must be submitted to a popular referendum.

Rather than waste time debating proposals that have no chance of being approved, economists and policymakers should be working within the parameters established by the German court. Indeed, saving the euro will require a comprehensive solution that not only meets the court’s standards, but also enjoys the support of the German public.

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    1. CommentedMargaret Bowker

      A very useful explanation. Thank you. The majority seem to think the ESM will be ruled legal on the 12th, but should it not be, perhaps the 500 billion can be transferred to the EFSF in some way so that the process of sorting out Eurozone disparities, yields etc, the hiatus in which is affecting the global economy, can properly begin.

    2. CommentedZsolt Hermann

      This article is a beautiful example how misguided we are, and how much we are heading head against the wall with our eyes closed.
      This article seems to suggest, as the other comment also noted, as if the ruling of the German Constitutional Court, which is basically a national institution, based on the subjective self interest of the actual country, would be more important, and superior to the actual situation outside of that actual country.
      This is our typical human delusion, that somehow humans are above the global, natural system they exist in, and the rules, constitutions they set up based on their human mind is overriding everything else.
      The whole global crisis represents this illusion, that humanity has crashed against a wall, driving our dreamlike socio-economic model, based on the childish belief and excitement that we entered the toy store where everything is free, and we can take and do whatever we like, we can create laws and rules and everything around us will simply adjust to what we want.
      Even now when with each passing day it is ever clearer that we lost control over the institutions we ourselves built and feel in the world as if we arrived with a spaceship from another Galaxy, we still stubbornly and proudly declare that whatever "this and that" court decides will stand and has to be obeyed.
      In this Germany, the country that benefited the most from the Union and common currency while things were free flowing, still excepts all other members to dance to their tunes so they can continue enjoying the greatest benefit from the connection.
      It does not free up any other members from their responsibility as all of the and each of us always want to benefit the most of any situation regardless of how it affects others.
      This attitude and behavior resembles a cancer cell when we find ourselves in today's global, totally interdependent integral network.
      From now on only mutual, equal and fully considerate decisions or action can take humanity forward, where the emphasis is on the common benefit and the well being of the whole, since in a single unified system we evolved into, the prosperity and health of the individual elements directly depend on the state of the whole.

    3. CommentedJosé Luiz Sarmento Ferreira

      This article sounds very much like a German ultimatum to the rest of the Eurozone. If this is the message Germany wants to send, many Europeans are likely to read it as a trilema:

      1. Politicians and economists all over Europe, not to mention 500 million Europeans, accept for all time to live by the rules set by the German Constitutional Court, even if they have to bend their own Constitutions to them.

      2. Someone finds a way to persuade the German public that most Constitutions, including their own, will have to change if the Euro is to survive.

      3. Either Germany or everybody else leaves the Euro.

      The third option strikes me as the most likely.