With luck, something similar is about to happen again, to the relief of the whole European Union.
Last month, Germany’s constitutional court threw a legal bomb into the firmament of the euro area. In a sweeping verdict, the red-robed judges in Karlsruhe ruled that a higher authority, the European Court of Justice in Luxembourg, had strayed beyond its remit by giving a green light to the European Central Bank’s public sector purchase program (PSPP). The ECB has used this quantitative-easing instrument to buy 2.7 trillion euros ($3.1 trillion) in government bonds since 2015.
The ruling was explosive. First, it meant that the Bundesbank, the ECB’s largest shareholder, would be barred from participating in the PSPP if the ECB couldn’t prove by Aug. 5 — to the German government and parliament — that the program was “proportionate” in weighing economic benefits against costs. Second, it brought the European Union to the brink of a constitutional crisis, as a national court had overruled the EU’s top court, potentially inviting judges in other member states, such as Hungary and Poland, to do the same.
While German conservatives, who have long looked askance at the ECB’s easy-money policy, celebrated, those on the extreme right went further. The Alternative for Germany, a euroskeptic party, is now suing the German government and parliament to stop yet another of the ECB’s bond-buying tools, called the “pandemic emergency purchase program” (PEPP). It was adopted in response to Covid-19 and is slated to reach 1.35 trillion euros by next June.
A disastrous confrontation was in the making between the EU’s institutions and its largest member state. But then, as so often in Germany’s consensus-driven culture, the establishment began speaking up. First, there were the politicians. Having understood that Karlsruhe had in effect called a limit to monetary policy, Merkel performed a stunning policy U-turn and, with French President Emmanuel Macron, endorsed a groundbreaking fiscal plan for the EU.
Then German legal scholars and other experts weighed in. In one notable collaboration, six well-known German economists published a meticulous deconstruction of Karlsruhe’s reasoning. According to their argument, the judges had gone against a long-running German consensus, reinforced by the court’s own precedents and European treaties.
In this tradition, a central bank must be completely independent and have only price stability as its goal, and no other economic objectives. Before the introduction of the euro, the Bundesbank never proved to Germany’s parliament that it had weighed lower inflation against, say, higher unemployment. Why should the ECB start balancing different goals now?
Even the constitutional court is suddenly, albeit cautiously, waving olive branches. Astrid Wallrabenstein, who became one of its judges this week, told a newspaper that, as in “real life,” the important thing now is “how you carry on after a bust-up,” and that it helps just to say sorry and let bygones be bygones, so that all involved can get over their “injuries.”
With this consensus taking shape, the end of the saga could be merely procedural. Jens Weidmann, head of the Bundesbank and thus a member of the ECB’s governing council, has apparently volunteered to be the messenger. After the ECB publishes its previous meeting minutes this week — including instances of the council weighing up proportionality in pursuing QE — he will pass those on to the relevant Bundestag committee, which will no doubt be swiftly and utterly convinced.
And so the Bundestag can adjourn at the end of the month for its summer break. When it returns, the whole sorry mess will probably be sorted out “without drama,” as Germany’s finance minister has promised. Until the next batch of Germans complains about something else.
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.”
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