Covid, as explained at the end post, has threatened the European Union (EU) by exacerbating an already severe north-south divide. Nor is this issue the only gap in the solidarity of unity. Fighting is ongoing between Germany on the one hand and the European Union Commission on the other over the behavior of the European Central Bank (ECB). Worse, these problems revolved around the issue of sovereignty pushing Britain out of unity. Partition is far from immanent, but the strife adds another threat to Europe’s entire super-national experiment.
Troubles started with the ECB’s immediate response to this year’s pandemic. Recognizing that the lockdown and quarantine instituted to fight the virus would hurt economic activity, monetary policymakers under the bank’s new president, Christine Lagarde, moved swiftly to ensure that markets and businesses have sufficient financial liquidity to deal with tensions. As interest rates are already low, the ECB is rewriting the previously implemented “quantitative easing” measures to help the eurozone economy recover from the 2008-09 financial crisis. In this practice, banks have entered the financial market to buy bonds and notes directly. Lagarde and others at the bank admit that the policy is not a panacea but insist that providing liquidity along with fiscal relief from member governments could ease the seemingly inevitable lockdown and quarantine pressures. Now German courts are challenging the practice.
Even in 2015, when the ECB first used the policy to help recover from the financial crisis, the German Constitutional Court (GCC) doubted the legality of such a purchase under German law. It began deliberating and asked the European Court to offer an opinion. After the European Court declared “quantitative easing” completely acceptable, the German court still considered it. Last May, the GCC said the practice was against the German constitution. The court’s objection hinges on a matter of proportionality. He wants the ECB to show how the gains from asset purchases outweigh the negative effects on certain groups, including German savers. Until the ECB makes a guarantee for court satisfaction, the ECB has ordered the German central bank, the Bundesbank, to stop cooperating with the ECB.
These seemingly mysterious legal issues have the power to threaten EU stability at the most fundamental level. On the one hand it is the most powerful economy in Europe and arguably its most important member. On the other hand is the ECB, which is certainly the most active and widely recognized union institution. If this is not serious enough, the European Commission has raised tensions even more by threatening legal action against a German court for opposing the European Court’s decision. If the Commission takes such action, it will raise this already difficult dispute to a question of sovereignty, the issue which prompted Britain to opt out four years ago.
It is likely that the parties involved will find a way to cover up their differences. As with similar issues in the past – with the notable exception of Brexit – all of the leaders involved have enough political capital at stake to fight for a union rescue outcome. But it is inevitable that this problem, especially along the north-south division, threatens the European Union. And because political, economic and financial stability in the rest of the western world remains vulnerable to European divisions, these problems also threaten the global economy.