Is the European Central Bank out of control?
In the German constitutional court last week, ECB board member Yves Mersch made a bold statement.
He declared member states of the EU to be mutually financially liable for each other. The president of the court Andreas Voßkuhle had summoned attorneys to take part in what became a heated debate about the legality of outright monetary transactions (OMT) policy. This was the latest stage in a series of tortuous interactions between the German court and the ECJ.
Although never put into practice, OMT would allow the ECB to purchase unlimited amounts of public bonds to support fragile countries of the eurozone and prevent them from defaulting, amounting to a life insurance policy for Italy, France and co.
Shortly after the announcement of the OMT programme in 2012, the German court faced several complaints requesting that it declare OMT incompatible with the German constitution.
The judges made it clear that they shared the plaintiffs’ concerns when in January 2014 , they submitted to the ECJ – for the first time in their history by way of preliminary ruling request – the question of compatibility of OMT with the European treaties.
In the European Court’s subsequent ruling of June 2015, the ECB’s programme was given clearance by ruling that insofar as the ECB intends to conduct monetary policy, it complied with the European Treaties.
In the latest phase, the German constitutional court can now either accept the ECJ outcome, abandoning its previous reservations or – less probably – reject the preliminary ruling. The latter outcome would enable it to pursue its existing line of reasoning, developed over years of German constitutional history.
The attorneys representing the plaintiffs made a strong plea to the court, to reject the judgement as incompatible with European law.
The representative of the ECB – board member Mersch – tried his best to soothe the court’s anxieties, by playing down the probability of an OMT programme.
Nonetheless, a striking statement escaped from him: “European Monetary Union is a risky project and all member states are tied to each other by mutual liability”.
Mersch thus put a unilateral end to the no bail out clause of Art. 125 TFEU.
Is the ECB now out of control?
The decision by the German constitutional court is not to be expected soon, but would potentially have a historic impact on the institutional economics of the European Community.
If the court qualifies the ECJ’s ruling as simply incompatible with German law, a clash of legal civilisations cannot be avoided. This is fairly unlikely because the two courts have an abiding interest in cohabitation.
The legally-aware public will be curious to see the nature of any compromise to be found by the court of Karlsruhe.