Calling time on the european central bank | thearticle

The German Constitutional Court, sitting in Karlsruhe, has decided to challenge a decision made in 2018 by the European Court of Justice to legitimise the European Central Bank’s bond buying

programme. This has led to consternation by the European establishment. This is being projected as a direct threat to the independence of the ECB — an assault on the rule of law — and an

incitement to the Poles and Hungarians, who are always ready to make trouble for Brussels. Foolishly, the President of the Commission Ursula von der Leyen has raised the possibility of

taking infringement proceedings against Germany. This could mean that Germany would be required by the ECJ to intervene in, and override, its own Constitutional Court, which is

constitutionally independent of Government, on an issue for which it was not responsible. Good luck with that. There’s law and there’s macroeconomic policy, and then there’s politics. Both

law and the need for a transparent macroeconomic policy are firmly on the side of Karlsruhe. But there is a real worry that politics — or, rather, _realpolitik — _will prevail. The current

EU framework is intended to protect the ECB’s single mandate of delivering price stability. That requirement was cut and pasted from the Bundesbank. But we live in different times. The ECB

insists that it has the necessary instruments to do its job and, also, the flexibility, in exceptional circumstances, to develop and use unconventional instruments to carry out its mandate.

The reality is that for all its portentous talk about necessity, proportionality and judicial control, the ECB has reached a stage where it is making it up as it goes along. A flawed and

asymmetric Eurozone is now mired in a limbo of negative interest rates and is dependent on an exponentially increasing set of ECB acronyms, kicked off by QE. It operates in the shadowlands:

there is a single currency and monetary policy, but no unified fiscal policy. That was a step too far for Project Europe — either political cowardice or the utter folly of Federalism, take

your pick. The consequence is that every time there is an exogenous “shock” to the Eurozone, the ECB is impelled to compromise its own statutes by more ducking and diving. Karlsruhe has

called time on this. Let us be clear. It is not attacking the Independence of the ECB. It’s saying that the ECB, under covering fire from the ECJ, has exceeded its mandate. It is affirming

that this has compromised the mandate and functioning of the Bundesbank and it wants to know what the ECB intends to do about it. The injured innocence of the ECB is not easy to watch.

Behind the marble and gilt, it is a tough streetfighter. One remembers the “strange oaths” that were uttered against Ireland in 2011 when the Irish government wanted to burn foolish

investors in a rogue bank. Or the treatment meted out to Greece in 2016 when it refused to accept its Bonds as collateral, putting politically oppressive pressure on a member government

going under for the third time. The present reality is that there is no prospect of fiscal union and no willingness to endorse debt-sharing. The ECB’s latest round of bond buying is the

fallback. It is not part of its mandate to compensate for political failure. In these circumstances, it is difficult for the ECB to argue that there is no alternative — yes, there is. The

ECB’s statutes are not fit for purpose. Provide the ECB with a dual mandate — like the US Fed — directed at price stability and_, also, _supporting employment and growth. Karlsruhe has done

us all a big favor by calling time.