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Few observers feel the euro crisis is over, as elevated debt levels leave many euro area members vulnerable to some sort of economic or political accident. Political risk may be the most difficult to deal with. An election result could trigger a market reaction that will force interest rates to 'unsustainable’ levels well before the economic policies feared by the markets are implemented and then go on to result in the forecast economic problem.
Most commentaries on the Karlsruhe decision focus on the constitutional implications of EU 'primary law’ – the EU Treaties - taking precedence over the German constitution. The German Constitutional Court has asked for clarification about whether the ECB is acting within its powers in creating OMTs. But this overlooks the practical mechanics of the process of launching an OMT – a process that requires a euro area political decision by the ESM’s Board of Governors – whose day-job is Finance Minister of their state. The ESM can only be deployed when it is “indispensable to safeguard the stability of the euro area as a whole”.
Would a political risk that has yet to produce any adverse economic developments qualify? Would German 'skeptics’ challenge it? Of course they would! And this is before the ECB even starts to thinks about an intervention that is more political than economic, let alone monetary. Perhaps a eurobill programme – such as the Temporary Eurobill Fund (TEF) advocated by this author – would be a better way of buying some time for such a crisis to cool.
Graham Bishop - Consultant on EU Integration - Political, Financial, Economic, Budgetary