Sunday 11 December 2016

Draghi's eurozone project needs Germany to lead from the front

Tragically out of their depth, but German judges could yet sink union

Published 16/02/2014 | 02:30

CAP IN HAND: Germany's Constitutional Court said earlier this month it had decided to refer a complaint against the European Central Bank's ‘unlimited’ bond-buying programme to the European Court. Reuters/Kai Pfaffenbach
CAP IN HAND: Germany's Constitutional Court said earlier this month it had decided to refer a complaint against the European Central Bank's ‘unlimited’ bond-buying programme to the European Court. Reuters/Kai Pfaffenbach

The German ambassador to Ireland, Eckhard Lubkemeier, contributed a thoughtful piece on the outlook for the European project in Thursday's Irish Times. While conceding that the European Union's handling of the economic crisis has yet to bear fruit, he stressed the role which the EU plays as the 'guarantor of a Europe at peace'. This is timely in a year which marks the centenary of the outbreak of World War I and the 75th anniversary of the outbreak of the World War II. But it is unconsciously timely for a second reason.

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The previous week in Karlsruhe, the German constitutional court, the GCC, handed down a majority judgement which sows the seeds of continuing discord in the European Union and undermines Mario Draghi's key policy at the European Central Bank. This policy, called OMT for Outright Monetary Transactions, entails essentially the willingness of the ECB to buy eurozone governments' bonds in the secondary market.

It was introduced in August 2012 in order to prevent possible defaults in Italy and Spain, countries too large to rescue through official lending programmes. Bond rates in these countries had risen to 7 per cent or so, a quite unsustainable level, and there were no buyers. Since Italy and Spain are too big to fail, the survival of Europe's common currency area was on the line.

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