Bailout hopes could hit Berlin Wall

Dr Stefan Auer Dr Stefan Auer

First published in The Australian on August 10, 2012.

The single European currency was made to last forever. Its political aim has always been to cement European unity, making it irreversible. Indeed, there are no legal provisions in any of the EU treaties for a member state ever to leave the eurozone.

This doesn't mean it won't happen; what it means is that the exit is likely to be disorderly. Hence the spectre captured in an ugly neologism, Grexit, is very real. But even that must wait at least until September 12th.

Whatever the intentions, the eurozone's future appears very shaky and its fate is bound up with the establishment of the European Stability Mechanism worth 500 billion ($586bn).

What the top German judges must decide is whether the newly created bailout fund is compatible with the German constitution. This might sound odd: a German court is de facto deciding on Europe's fate. But there is nothing fundamentally new about this constellation, just the urgency of the matter being decided is bringing the old constellation into sharper relief.

The dialogical relationship between the European Court of Justice in Luxembourg and national constitutional courts is the legal and institutional expression of the ideal of shared sovereignty.

The highest German court has been hugely influential both in German and European politics.

In a number of rulings, the court outlined the limits to European integration, seeking the right balance between Germany's enduring commitment to Europe and its commitment to liberal democracy. These two fundamental rationales of the post-World War II Federal Republic of Germany are now on a massive collision course.

The challenge for the court is to reconcile the urgent needs of the eurozone with its mandate to protect German democracy, underpinned by the Rechtsstaat, the rule of law. If the German Constitutional Court decides in favour of the ESM, it is likely to contradict its own provisions spelled out in the decision made with respect to the Lisbon Treaty of 2009.

Back then the court explicitly argued that certain competencies, including control over state finances, must remain under the control of the federal republic. It spelled out limits as to how much power Berlin could transfer to Brussels. A United States of Europe with the shared responsibility for member states budgets is impermissible under the German constitution.

The tension between the speed with which the markets react and the sluggish pace of democratic politics is well known.

If any reminder were needed, Mario Draghi, president of the European Central Bank, delivered it a few days ago with remarks about EU's commitment to the preservation of the eurozone, which had an immediate impact on the value of Spanish and Italian government bonds. The markets' enthusiasm lasted only a week, once its participants understood the ECB will need longer to translate words into actions.

That problem of misalignment between politics and the marketplace exists even at a national level: parliaments need time to deliberate. Slowness is an indispensable feature of any functioning democracy. In Europe the problem is exacerbated by a highly complex system of EU governance. But how does the speed of global markets measure up to eternity? This is not an obscure philosophical question.

The legality of the European Stability Mechanism has been challenged, among others, on the basis of the so-called "eternity" clause of the German constitution, which stipulates that certain provisions in that text must not be altered. Ever.

Or at least for the time being. For Germany is yet to have a proper constitution. What the country has had is a temporary construct - the Basic Law - adopted in West Germany after the war to be replaced by something proper once Germany would be reunited. Well, Germany has been reunited, but the Basic Law remained largely unchanged. It may well be that the Germans will be forced to adopt a proper constitution owing to the European rather than German unification. Indeed, that would be the only way to get around a possible "no" verdict of the German Constitutional Court. That would be the only way to end Germany's eternal commitment to its current democratic system.

Dr Stefan Auer, the Jean Monnet Chair in EU Interdisciplinary Studies and senior lecturer in history and politics at La Trobe University, is the author of Whose Liberty is it Anyway? Europe at the Crossroads