The make believe world of eurozone rules

The disagreement between Germany and the European Court of Justice is not about the law, but politics and economics.

By Wolfgang Münchau

Whenever you are in a room with European officials and discuss the euro, there is usually somebody who raises his finger and says: “This is all well and good, but it is ‘against the rules’.” It then gets very quiet.

“Against the rules” is a big thing in Europe. Most people do not really know what the rules are. But they do know that rules have to be followed.

The situation reminds me of a short story by Franz Kafka, Before the Law, where a man tries to seek entrance to a courthouse. A door keeper tells him that this is possible in principle, but not at the moment.

The man spends his entire life in front of the court waiting to be admitted. At the end of his life he was told that he could have gone through the door at any time. That man followed the wrong set of rules — rules of the mind, not of the law.

Rules of the mind is what we are dealing with in the European debate about the single currency. Many of these rules either do not exist, or they constitute some rather far-fetched interpretation of existing rules.

During the recent Greek crisis, I came across a completely new rule. I first heard it from Wolfgang Schäuble, the German finance minister. It says that countries are not allowed to default inside the eurozone. But a default was perfectly fine once they leave the euro, on the other hand.

I later read that Otmar Issing, the former chief economist of the European Central Bank, used almost exactly the same phrase as Mr Schäuble in an Italian newspaper interview. If so many important people say it, then surely it must be true, mustn’t it?

Actually, as it turns out, there is no such rule. There is only Article 125 of the European Treaty on the Functioning of the European Union. Article 125 says that countries should not take on the debt of other countries. This is also known as the “no-bailout” clause — though that, as it turns out, is a rather loaded interpretation.

In its landmark Pringle ruling — relating to an Irish case in 2012 — the European Court of Justice said bailouts are fine, even under Article 125, as long as the purpose of the bailout is to render the fiscal position of the recipient country sustainable in the long run.

In another landmark ruling, from June this year, the ECJ supported Mario Draghi’s promise to do whatever it takes to help a country subject to a speculative attack.

The ECB president’s pledge had previously been challenged by the German constitutional court. In both cases, the ECJ did not support the predominant German legal interpretation.

So what then can we infer from the previous ECJ rulings in the absence of an explicit ruling from the court on debt relief?

An interesting article by three authors from Bruegel, a European think-tank, concludes that debt relief is almost certainly consistent with current law.

The argument goes as follows: in the Pringle case, the court gave the go-ahead for bailouts in principle as long as they are intended to stabilise public finances. In the ruling on the ECB’s backstop, the court accepted the principle that the ECB could incur a loss on its asset purchases, as long as the bank follows its own mandate.

Add the two together, and you have debt relief. I am not sure whether the ECJ would follow this argument precisely if this ever came to court. The court would probably impose some constraints. But I would be surprised if the ECJ were to follow the German interpretation now when it rejected it previously.

Why do Germany and the ECJ disagree so much? The overt reason is that European law on monetary union is internally inconsistent, and thus open to different interpretation. It neither allows an exit, a default nor a bailout, and has therefore no clear procedure in the event of a financial crisis.

The German view is that the “no bailout” clause is the strongest of them all and must therefore take precedence. Others disagree.

In addition, German constitutional lawyers do not allow economic considerations to enter their legal arguments, while the ECJ justices do. At a deeper level, the disagreement is not about the law, but about politics and economics. The new “no-default” rule is a political aspiration dressed up as legal constraint.

What is really happening is that Germany does not want to grant Greece debt relief for political reasons, and is using European law as a pretext. Likewise, when Mr Schäuble proposes a Greek exit from the euro, ask yourself what rule that is consistent with.

The fact is they are making up the rules as they go along to suit their own political purposes.

Bron: Financial Times

EU judge gives Jean-Claude Juncker the ‘key task’ of defeating Euroscepticism

Europe’s most senior judge has told Jean-Claude Juncker that his political mission is to prevent Eurosceptics from trampling on “the fruits of European integration”.

Vassilios Skouris, the president of the Court of Justice, Europe’s highest judicial body, made the extraordinary comments in a ceremony aimed at upholding the political independence of the European Commission. He instructed Mr Juncker that his “key task” was to prevent the critics of the European Union from reducing the powers of institutions such as the Luxembourg court he oversees, or the commission in Brussels.

“I would like to say a few words about your mission,” Mr Skouris said. “You are taking up office during the worst financial and economic crisis that Europe has suffered at a time when the European ideal is beset by criticism from Eurosceptic circles. Thus your key task is to prevent the fruits of European integration being trampled in the dust.”

The European Court of Justice is the EU’s highest legal authority and has the power to override governments or strike down national laws that are judged to be in breach of European legislation.

The ECJ’s critics have frequently accused the court and its judges of using judicial means to expand the EU’s powers. Bill Cash, Conservative MP for Stone and the chairman of the House of Commons European scrutiny select committee, said the comments raised fresh concerns about the judicial impartiality of the EU court.

“These comments make clear the reasons why Eurosceptics are deeply concerned that the impartiality of this court is undermined and compromised by these sorts of political motivations,” he said.

Daniel Hannan,Conservative MEP for South East England, said: “We’ve known for a long time that Euro-judges make things up as they go along, that they’re prepared to disregard the plain text of the treaties in pursuit of deeper integration. But for someone to come out and say it so blatantly shows how confident they now are”.

Lees deze column van Bruna Waterfield verder op The Telegraph