Fate of the Euro

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Europe’s long-term bailout measures for Spain and Greece depend on German ratification. After the German legislature gave final approval to the European Stability Mechanism (ESM) for establishing a European bailout fund, the German Federal Constitutional Court said it would rule whether the ESM compromises German sovereignty. The German high court will decide whether to impose a temporary injunction against the ESM on Sept. 12. How long will the injunction last? Supposedly, a final court decision could take several months.

The plaintiffs in the case argue that a $610 billion bailout plan effectively negates German budget sovereignty. Strictly speaking, such a measure is unlikely to be constitutional. German voters would be locked into a situation without remedy. Some portion of their money would go to other countries, at the discretion of the ESM. Germany would then be Europe’s cow, giving milk whenever needed. And a cow has no sovereignty.

Given Germany’s position within the European Union, what defense of German sovereignty can be made? Hasn’t German sovereignty already been compromised beyond the point of redemption? Besides, the Germans have marched for decades under a European banner, desperate to shed Hitler’s nationalist legacy. Germany must do good deeds now and forever. Germany must be Europe’s cow.

Without any doubt, Germany’s commitment to Europe has something of atonement about it – as well as economic optimism. But now the economic optimism is evaporating, and the generation that lived through the war is passing away, and some Germans would draw a line in the sand. “Perhaps we shouldn’t feel guilty any longer,” they say. “Perhaps Germany isn’t obliged to bail out other countries.” The question, however, is whether such Germans are to be found in the German Constitutional Court. The astute observer does not think so. The high court judges are good Europeans. They are not German nationalists. Furthermore, they do not want to be blamed for a general financial collapse.

Look for special legal wording suggested by the judges – some minor change to the ESM that would make it more “German” in the pan-European sense, and more constitutional. Given the stakes, it is inconceivable that the court will find against the ESM. German sovereignty will get the short end of the stick – for now. The judges are already Euro-committed in terms of ideology and the culture under which they operate. Last month German Finance Minister Wolfgang Schäuble warned of severe consequences if the high court were to block German ratification of the ESM. “A considerable delay could result in additional, significant uncertainty in euro zone markets,” Schäuble told the court.

German taxpayers aren’t the only Europeans unhappy at the prospect of losing budget sovereignty. French, Dutch and Finnish voters are nonplussed. And this is only the beginning of the crisis – the beginning of a long string of bailouts. A most sobering piece on this question was jointly penned by Niall Ferguson and Nouriel Roubini on June 12, under the title “This Time, Europe Really Is on the Brink.” According to Ferguson and Roubini, “Already there has been a substantial re-nationalization of the European financial system. This centrifugal process could easily continue to the point of complete disintegration.”

Ferguson and Roubini warn that the Germans haven’t learned from their own history. Germany, they explained, “would do well to remember how a European banking crisis two years before 1933 contributed directly to the breakdown of democracy not just in their own country but right across the European continent.” Of course, there is a small problem with Ferguson and Roubini’s argument; namely, there isn’t a Nazi Party waiting in the wings to take power in today’s Germany. Hitler isn’t on the ballot, nor is there any way to appoint him Chancellor. And besides, the breakup of the European Union or the collapse of the euro hardly signifies the rise of a new Nazi movement. For many observers, like Russian dissident Vladimir Bukovsky, the European Union is the threat to liberty and its collapse would be welcome.

Yes, the crisis is bad – as Ferguson and Roubini claim. But who is to find a way out? The continued existence of the euro may spell endless stagnation and eventual failure under a system that actually works against the market. Furthermore, how can moral hazard disappear in Greece, Italy or Spain when Holland, Germany and Finland are called upon to pay the price? And what will prevent Greece or Spain from leaving the euro zone when austerity proves to be a living death? Isn’t it better to declare bankruptcy and start over? Was the euro zone ever workable in the first place, or was it doomed from the start?

The judges in Germany will probably decide in favor of the ESM. But theirs is not the last word.

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About JR Nyquist

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