The Bundesbank is calling the shots now

Our Chief Economics Commentator on the collective failure of Europe's politicians; and, below, the beginnings of a Coalition growth strategy

Share

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.

h.mcrae@independent.co.uk

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

SSRS Report Developer - Urgent Contract - London - £300pd

£300 Per Annum: Clearwater People Solutions Ltd: SSRS Report Developer – 3 Mon...

KS1 Teacher

£95 - £150 per day: Randstad Education Birmingham: Key Stage 1 teacher require...

HR Business Partner - Essex - £39,000 plus benefits

£32000 - £39000 per annum + benefits + bonus: Ashdown Group: Generalist HR Man...

Trainee Recruitment Consultant

£18000 - £30000 per annum + uncapped: SThree: Do you feel like your sales role...

Day In a Page

Read Next
The influx of hundreds of thousands of eastern European workers has significantly altered the composition of some parts of Britain  

Immigration is the issue many in Labour fear most

Nigel Morris
The Lord Mayor of London Fiona Woolf heads the inquiry  

Why should Fiona Woolf be expected to remember every dinner date?

Mark Steel
Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster