So is it legal for German taxpayers to be forced to pay to bail out Greece, Portugal and the other weak eurozone countries? That is the issue on which the German Constitutional Court will rule today. More specifically the court has to determine whether German participation in the planned permanent bailout fund, the European Stability Mechanism, is consistent with the constitution. Since Germany is the largest contributor to the fund, were her participation deemed illegal the plan would die, with the gravest implications for the long-term future of the eurozone.
The general expectation is that the court will indeed ratify the plan, though with safeguards of some sort. As so often with legal decisions, the detail will be crucial. But at least we will get a decision, for the court rejected an attempt to make it delay its ruling, the challenge being on the grounds that there was a new situation as a result of the plan announced last Thursday by the European Central Bank to buy unlimited quantities of the weaker countries’ bonds.
It is tempting to see this as yet another make-or-break moment for the euro. If the court were to reject the plan, the decision might indeed be the tipping point. But on the assumption that the mainstream expectations of a “Yes, but” ruling prove correct, it seems to me to be more interesting to see it in the context of the German political system, where power is more diffuse than, say, the UK.
Popular support in Germany for euro membership has plunged in recent months, with more than 50 per cent of people polled in July saying they would be better off with the deutschmark. The business community mostly still supports membership, but some companies have come out against.
There has also been a dramatic shift in power in Germany, away from the politicians and towards the Bundesbank. The head of the Bundesbank, Jens Weidmann, was the one member on the ECB council who voted against the bond-buying plan, and has become something of a national hero as a result. He said he considered resigning on the grounds that the bond market purchases would come “too close to state financing through printing money”.
The German political elite still supports the euro. Angela Merkel declared that if the euro were to fail, Europe would fail. You could, to be cruel, put that slightly differently: if the euro were to fail, European politicians would have failed. If mainstream politicians fail, you need an alternative political class untainted by their failure. So what seems to be happening is the emergence of just an alternative government, centred on the central bank.
To anyone in Britain or the United States, this would be unthinkable. A government led by the Bank of England or the Federal Reserve Board? But in Germany, the Bundesbank has been one of the great success stories of the post-war era. It gave Germany the world’s best currency.
The constitutional court, in making its ruling today, must acknowledge that the government is somewhere close to the limits of its legal authority and determine on which side of the line it falls. But it also has to bear in mind that the Bundesbank has the gravest doubts about the management of the eurozone, and indeed the policies of the government, and it carries far greater prestige than the politicians do.
Let the help go to good companies
The Coalition is gradually assembling its “growth strategy”. Last week, we had the easing of planning controls. Now, Vince Cable has said there is to be a business bank and a refocusing of industrial policy, with emphasis on aerospace, the car industry and science. His speech received a cautious welcome by John Cridland, the CBI director-general: “A valuable first step.”
For anyone with long memories of industrial policies in the past – the National Enterprise Board, the Ryder Report on British Leyland, the funds plunged into Inmos and so on – the idea that the Government can pick winners is laughable. But the notion that it can, at the margin, help sectors that are already succeeding is more encouraging.
There is a funding gap for small and medium-sized businesses, and not just because of an understandable reluctance to borrow. This is partly the result of increased capital requirements on banks and partly because of the retreat of foreign banks from the UK market. Banks everywhere have gone home.
What is sensible is the focus on growth companies. How can government help companies that are growing grow even faster? Nothing grand. Nothing dramatic. Nothing political. Look at who is doing well and ask what they need to do even better.