Europe’s Economic Groupthink

FRANKFURT – During the recent hearing on the constitutionality of the European Central Bank’s measures to prevent the eurozone from falling apart, Andreas Vosskuhle, President of Germany’s Constitutional Court, raised an important question: Do non-German economists condemn the ECB’s outright monetary transactions (OMT) as unequivocally as all but one of the German experts testifying?

Of course, there are German economists (not to mention Chancellor Angela Merkel’s government) who support ECB President Mario Draghi’s policies. Still, an overwhelming majority of German (and possibly Dutch and Finnish) economists seem to favor keeping the ECB on the sidelines in the eurozone crisis. It’s a fiscal issue, the typical German economist says, and monetary policy will not help; on the contrary, activating it will only make matters worse.

Of course, everyone would prefer it if the line between monetary and fiscal policy had not become blurred as a result of the crisis. But blindly sticking to principle would have been a highly risky option for the ECB. It would have meant accepting in 2012 what has been called “redenomination risk” – economic newspeak for a eurozone breakup.

Nonetheless, by launching its OMT scheme, the ECB has committed German (and other northern European) taxpayers, without their parliaments’ approval, to a potential obligation to bail out – well, whom, exactly? Indeed, it appears that the typical northern European taxpayer supports the typical stakeholder in northern European banks that are over-exposed to southern European debtors.