Should the ECB Spend an Unlimited Amount on Bonds?

The European Central Bank did not place any limit on its program in which the bank purchases bonds of heavily indebted states so as to keep their borrowing costs (i.e., the bonds’ interest rates) from increasing. The program, called Outright Monetary Transactions, had already accomplished that even before spending a euro. Anticipation that the ECB would enter a state bond market if its interest rate rose high enough was enough to keep the rates from skyrocketing.  So, the announcement that the ECB would spend what “would be adequate to meet [the] objectives” is perhaps more important than how much the central bank actually spends.[1]  According to Joerg Asmussen, an executive board member of the ECB, the OMT was “economically necessary, legally permissible and effective.”[2]  He made the comment as a court in the state of Germany was preparing to consider whether the OMT “infringes on the constitution’s insistence on sovereign parliamentary control over budget matters.”[3]  Hence, a tension between “legally permissible” and “infringes on . . . sovereign parliamentary control” threatened to kill a program that had already succeeded before buying one bond. Fortunately, legal experts were saying that the German court might defer to the European Court of Justice, the E.U.’s supreme court.

The full essay is at Essays on the E.U. Political Economy, available at Amazon.

Bailouts, Bond-Buying: E.U. Plows Ahead!

On September 12, 2012, a psychological threshold was reached in the E.U. on the way toward “ever closer union.” That is to say, at the end of that day Europeans could feel an overdue sense that come what may, the euro would be protected. Moreover, the E.U. (at least for the states willing to sign up for greater E.U. enforcement of state deficit and debt limits) would proceed along with further incremental shifts of governmental sovereignty from the states to the union thereof. The sense of relief was palpable in Europe as state and federal officials as well as commentators and citizens breathed a collective sigh of relief.

Most pressingly, the constitutional court of the state of Germany announced that that state could in fact contribute to the fund to bailout indebted states. The court held that the state legislature would have to pass any increases because the further integration of the E.U. must not be allowed to proceed without commensurate democratic legitimacy and the rule of law. The President of the E.U. Parliament observed that this holds at the E.U. level as well.

The complete essay is at Essays on Two Federal Empires.

The German Court in the E.U.: Exasperating or Mitigating Germany's Veto in the E.U.?

Did Angela Merkel violate the property rights of residents in the state of Germany by agreeing to the initial bank bailout in the E.U.? Should she have gotten the approval of the Bundestag first? According to a German state court on September 7, 2011, “no and a qualified yes.” The court ruled that the approval of the Bundestag’s budget committee is necessary for significant increases in the European Financial Stability Facility. The question as put by The Wall Street Journal the day before the ruling can be viewed as whether parliamentary politics on the state level should be allowed to potentially slow or obstruct the E.U.’s crisis-response ability. That is, should the prerogatives of state officials be strengthened just when the E.U.’s monetary affairs require more rather than less fiscal coordination?  By requiring the approval of the budget committee in the lower house of the state legislature, the German state court ruling avoids the potentially aggravating effects of a wider circle of state legislators. Even so, other states could follow suit with respect to their committees, making it more difficult for state officials to function at the E.U. level.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

The European Union: Dissolution or Consolidation?

In its 1993 Maastricht decision, the German Constitutional Court ruled that national authorities are not bound to respect and apply Community law to the extent that it exceeds the outer boundaries of Germany’s transfer of sovereignty to the E.U.  The Court also ruled that no transfer of sovereignty is valid to the extent that it results in a violation of the fundamental individual rights guaranteed in the German Constitution.  Nevertheless, a subsequent ruling on this subject indicated a willingness to rely on the European Court of Justice (ECJ) for the vindication of those fundamental rights.

The complete essay is at Essays on Two Federal Empires.