ESince May 2010, when the European Central Bank began bailing out Greece, continental leaders have sought to reassure markets that the aid was a one-time measure. But there is nothing more permanent than a temporary solution. The aftermath of the financial crash meant that Italy, Spain and Portugal would have gone insolvent had it not been for the ECB’s large-scale bond purchases. In return, recipient states had to swallow the bitter pill of austerity.
The fact that the ECB is effectively financing government spending, in violation of European constitutional treaties, by buying their debt has been swept under the rug. No one could support the alternative policy of expelling countries from the Eurozone. Monetary financing normalized during the pandemic when Europe, like the rest of the world, had to spend whatever it took to keep the economies going. It was the right thing to do.
There would always have been accountability. What is at stake is nothing less than the future of the euro zone and therefore of the European Union. With registration inflation and rising interest rates in the United States, the ECB was under pressure to end its bond purchases and follow suit. This week, the ECB raised its rates, which front-loading member countries’ borrowing costs. But he also announced a new instrument allow as many bond purchases as necessary. For the ECB, it was over with the old, inside with the old.
This fudge represents a real shift of power away from “monetary sound” nations such as Germany and the Netherlands, who believe – in the words of Jens Weidmann, former head of the Bundesbank – that the fact central banks can create money ‘out of thin air’” is “nightmarishbecause it leads to ruinous inflation. Opposed to this view is a group led by France and Italy, whose last prime minister, Mario Draghi, was head of the ECB when it unleashed its unlimited firepower.
The second group of nations have long fared worse in the showdown with Berlin. However, this time they had influence because high energy prices threaten to paralyze Germany, whose ruthless approach debt negotiations has not been forgotten – nor forgiven. European solidarity was conspicuous by its absence when Greece, Spain and Portugal all refused a request from the European Commission to reduce gas consumption by 15% before a possible winter supply shortage.
Germany used to decide because its debt is the benchmark for the eurozone. Bonds from weaker economies are trading at a spread to Berlin’s – and if that widens too much, it can make interest payments unsustainable. It was Mr Draghi who pledged the ECB to buy as much debt as needed to close those gaps, infuriating Berlin for blaming its constituents for the debts of eurozone members. The German Constitutional Court tried to compel the ECB, but to no avail. There is no indication that he will be successful in the future. Yet the court asked the right question by asking how decisions that “determine the overall financial burden imposed on citizensin Germany were not within the purview of the Bundestag.
Being an EU citizen has taken on a meaning that is not tied to national debt or taxes. For states inside the single currency, there is no monetary sovereignty – leaving the of the euro zone central bankers to actually decide how much a government can spend. This cannot be good for European democracy.