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The Euro Is Irreversible! … Or is it?: On OMT, Austerity and the Threat of “Grexit”

Published online by Cambridge University Press:  06 March 2019

Michael A. Wilkinson

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The promise of the ECB to act effectively as the Eurozone's ‘lender of last resort’ was widely praised as a central plank in a broader strategy to protect the Euro and avoid financial meltdown in its Member States. “Never has so much effect been gained by doing so little. Words alone, it seemed, calmed the markets. …” The OMT program appeared as a “watershed” in the Eurozone crisis, “one of the most effective announcements any central bank has ever made.”

Type
Special Section
Information
German Law Journal , Volume 16 , Issue 4 , 01 September 2015 , pp. 1049 - 1072
Copyright
Copyright © 2015 by German Law Journal GbR 

References

1 Blyth, Mark, Austerity: The History of a Dangerous Idea 247 (2013).Google Scholar

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4 Jones, Erik, The Forgotten Financial Union: How You Can Have a Euro Crisis Without A Euro, in The Future of the Euro 63 (Matthias Matthijs & Mark Blyth eds., 2015). The subsequent lowering of Spanish, Italian, and Greece yields was directly attributed to the ECB's program, without it ever having to be triggered in practice, and in the case of Spain and Italy, without ever entering a structural adjustment program through participation in EFSF or ESM (an apparently trivial fact that needs to be kept in mind, as it later resurfaces).Google Scholar

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The reality of the Euro crisis is that constitutional law arguments replace political arguments, which goes far beyond an attempt to respect the constitutional framework. The Federal government is not entirely innocent in this development, as they do play the ‘Karlsruhe-card’ domestically and in negotiations in Brussels… Clearly, some government bureaucrats have no sense of the potential damage to the community of law that comes with kind of reasoning.

As Franz Mayer puts it, as the Constitutional Court increasingly “over-reaches,” “politicians increasingly try to anticipate” its “sensitivities.” Franz Mayer, Rebels without a Cause? A Critical Analysis of the German Constitutional Court's OMT Reference, 15 German L. J. 111, 135 (2014).Google Scholar

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32 Although the ECB has the possibility to hold the bonds to maturity, a Member State “cannot be certain” that will happen.Google Scholar

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47 European banks, not least those in the core in German and France “were attracted to the margin of interest that could be procured on peripheral euro-zone state bonds and concluded that the risk that the margin represented—massively underpriced as it was by the markets—would ultimately have to be borne by the European Central Bank (ECB) in the interests of the systemic stability of the currency union, not themselves.”' Helen Thompson, Austerity as Ideology: The Bait and Switch of the Banking Crisis, 1 Comp. Eur. Pols. 729, 730 (2013).Google Scholar

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49 The story of course begins pre-Greek bailout. The “European rescue of the Washington Consensus” begins with the financial assistance granted to Hungary, Latvia and Romania in 2008. On the link between the mutation of Hungary and the Debt Crisis, see Kilpatrick, Claire, Constitutions, social rights and sovereign debt states in Europe: a challenging new area of constitutional inquiry (EUI Law, Working Papers 2015/34).Google Scholar

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53 Id. at para. 78 (“It is undisputed that interest rates for the government bonds of a given State play a decisive role in the setting of the interest rates applicable to the various economic actors in that State, in the value of the portfolios of financial institutions holding such bonds and in the ability of those institutions to obtain liquidity.”).Google Scholar

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66 Including e.g. Joseph Stiglitz, Paul Krugmann, Jeffrey Sachs, Thomas Picketty, Jurgen Habermas.Google Scholar

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71 See How Germany Prevailed in the Greek Bail-Out, N. Y. Times (July 29, 2015), http://www.nytimes.com/2015/07/30/world/europe/how-germany-prevailed-in-the-greek-bailout.html. According to the article, the plan originated from Slovenia.Google Scholar

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73 See Interview with Jürgen Habermas (July 16, 2015), available at http://www.theguardian.com/commentisfree/2015/jul/16/jurgen-habermas-eu-greece-debt-deal. This aspect of Eurozone politics is not often addressed. Conditionality (austerity) is what Blyth calls a “class-specific put-option.” It protects the top seventy percent who have assets and hurts the bottom thirty percent who most depend on public services.Google Scholar

74 See generally Ramraj, Victor, No Doctrine More Pernicious? Emergencies and the Limits of Legality, in Emergencies and the Limits of Legality 3–29 (Ramraj ed., 2008).Google Scholar

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