The German Constitutional Court’s decision is legal since it was expected and necessary: the ECB must explain why it is acting outside of its mandate and why it has been buying government bonds from troubled nations since 2015. It happened in Karlsruhe, where the Court meets: why should the central bank be interested with politics if its mission is restricted to maintaining the single currency and keeping inflation low?
Karlsruhe is not an apocalypse: on a legal level, it has become evident that the euro’s design, as currently conceived, cannot work. There is no entity capable of making responsible decisions for the greatest common interest without full European political representation. A shared monetary area cannot exist without fiscal harmonization and reliable transfers of resources to the weakest areas.
I’ll never get tired of saying that a currency region without these two components – political representation and fiscal transfers – cannot function. It is one of the monetary economy’s underpinnings. The ECB’s purchase of government bonds is a required abnormality in order to correct the euro’s flaw. In comparison to the real industrial, infrastructure, and employment programs that need be implemented, European development funds are modest and poorly managed.
Because it will be a court punishment rather than a political one – thank goodness we still have separation of powers – the impact on the German electorate will be significant. At most, the ECB’s purchase of government bonds is financed by inflation, which is a concealed tax. The procedure that leads from the purchase of stocks to a spike in prices is too complex for xenophobic voters’ coarse palates, therefore it is allowed in the end: Bild fails to make a nice headline. Germans pay without knowing it and without casting a vote for the Chancellor in a city other than Berlin.
If, on the other hand, we switched to fiscal transfers, perhaps with a structured and integrated investment plan, the money would be better spent, but the voters of the new right would not forgive the government.
Because without ECB money infusions, the euro plan would be seriously jeopardized, with the only option being to switch to a structured fiscal coordination plan. But it will never happen because the Germans will never accept it.
We’re talking about a continent that, even in the face of a health disaster like the coronavirus, has acted opportunistically rather than in unity. It is a formally united continent, but one in which a VAT number in Berlin resulted in quick rewards of 15,000 euros, while a few hundred euros were distributed with enormous bureaucracy in Italy. It’s a system in which social and economic disparities widen rather than narrow over time, as was the case with Europe’s and the euro’s first objectives.
It’s a so-called union that, by comparison to other unions like the American or British ones, has a laughable name. Consider a scenario in which New York is suffering from Covid-19 damage, and the federal government provides financial assistance, then debits the funds from the New York account. Then, perhaps, the other states that have lent the money – say, California or Florida – will propose a help fund with tight return requirements. It would seem ludicrous, but it is the indisputable rule in Europe.
From here, we cannot conclude that all Germans are anti-European: there are elites and greens who appreciate Germany’s benefits in the euro system and who believe that history cannot be repeated indefinitely. People’s stomachs, on the other hand, do not want to hear about donating money to Italians. Coronavirus death and joblessness: those who have overspent must pay the price. What are the benefits of the euro? It’s all nonsense, falsehoods, and excuses.
The euro circulates in Italy in much the same way as the offshore dollar did in Lebanon in the 1980s: it is a stable currency that we don’t control but require for exchange. It won’t last much longer. Beyond the German constitutional decisions, perhaps it is time for a change.