Markus C. Kerber is professor of Public Finance and Political Economy at the Technology University of Berlin and is a visiting professor at the Institut d'études politiques (IEP) in Paris. In 2011, he led a legal challenge against the eurozone bailouts in the German constitutional court in Karlsruhe, but failed. Kerber contributed the following exclusivity to EurActiv.
"Even before beginning his eight-year term as president, Mario Draghi announced that the ECB would keep fulfilling its "duties" in face of the continuous crisis.
At least in the field of purchasing outright positions of bonds issued by the governments of fragile eurozone countries, the ECB has not dispensed with its controversial policy and plays its role as fiscal policy fire brigade more than ever.
On the contrary: In the first week of November, the ECB purchased - according to its official communication - government bonds for an amount of €9.5 billion. That has brought the overall amount of bonds purchased up to €183 billion.
French politicians, senior bank economists and finally the Portuguese president go even further. They claim for ECB the role of an unlimited buyer of eurozone government bonds.
Moreover, and in contrast to the US Federal Reserve, the public is kept uninformed about the precise amounts of different bonds purchased. Nor is it made known on which conditions bonds have been sold and acquired. The only reliable piece of information is the net amount of purchased bonds.
So, on top of the controversial legality of its action in the fields of bond purchases (quantitative easing) and the easing of refinancing conditions in favour of mainly Greek, Irish and Portuguese banks’ repo-operations (qualitative easing), the ECB under former President Jean-Claude Trichet – against firm opposition from ECB members representing Luxembourg, the Netherlands and Germany – prefers a standalone position in the world of central banking.
The legal framework: No fiscal union policy
Article 123-125 TFEU and Article 127-130 TFEU constitute the normative pillars of not only the limited powers of the ECB/ESCB but the foundations of a monetary union which remains a unique historic undertaking.
It is unique because it tries to achieve a monetary union without prior political union and leaves economic and fiscal policy – though subject to rules – quite clearly to the member states, thus banning any temptation of a fiscal union.
Therefore, the sustainability of such a monetary union decisively depends on the respectful obedience of the rules mentioned above. If these rules under the cover of market failure or under the pretext of fiscal emergency in some member states are circumvented, the normative pillars of the ECB will come tumbling down as easily as the walls of the Stability and Growth Pact did.
That does not only bring about an immense cost to the ECB's reputation. The ECB also exposes itself to the risk of losing its widely secured institutional independence by throwing itself into the trap of fiscal policy.
Irrespective of the intention of the rulings given by the different European Law Courts summarised as the effet utile-doctrine, the self-empowered suspension of the normative pillars will generate financial and political damage beyond repair. May it be remembered that German and other nations’ consent to European Monetary Union was conditional: It was clearly subject to the promise that there will be no fiscal union and that the ECB will never turn under the mask of temporary measures into an eternally bad bank.
Article 18 Statute of the ESCB/ECB cannot be disconnected from Article 2 Statute of the ESCB/ECB and Article 2 TFEU “creating a system of unrestricted competition” and must be construed in that light keeping the central objective, the achievement of internal market, in mind. So Article 123-125 TFEU are the normative implementation of the above mentioned meta-goal.
The breaches of European law in detail
- Article 123 TFEU is violated by the purchase of the marketable securities on the primary market for fiscal purposes; even the purchase of marketable securities on the secondary market would be illicit in as much as it is no longer motivated by monetary considerations. Council Regulation (EC) N° 3603/93 of 13 December 1993 obliges “member states to take appropriate measures to ensure that the prohibitions referred to in Article 104 of the Treaty [equivalent to Article 123 TFEU] are applied effectively and fully; whereas, in particular, purchases made on the secondary market must not be used to circumvent the objective of that article.”
- Article 124 TFEU is violated by privileging marketable securities issued and guaranteed by certain countries (Greece/Ireland/Portugal); economically former and future issues by these countries are supported by the ECB and ESCB. That is a manifest distortion of competition and a discrimination against other eurozone countries.
- Article 125 TFEU is violated by circumventing or rendering ineffective the bail-out prohibition pursuant to it. Article 125 is as § 2 makes it clear a far reaching prohibition. ECB wrongly assumes - for example in its opinion on the ESM-draft – that it is not subject to the overall objective of “financial stability”.
- In as much as the intervention of ECB on the market of sovereign debt distorts competition between sovereign issuers of the eurozone, its practice is already incompatible with the overall objective of the TFEU: creating a single market without restraints of competition. Or shall we sacrifice competition and the welfare benefits of the single market for the ever more improbable rescue of the euro? That violation is particularly severe because Article 3 TEU, Article 51 TEU and Protocol No. 27 commit all Community institutions to respect the objective of creating a system of unrestricted competition. The ECB has done the contrary: it has in the name of euro rescuing organised a counterrevolution against market economy.
But apart from this principal objection to the extended interpretation of open market operations for supporting ailing eurozone states, the logic of the arguments put forward in the above mentioned decision is doubtful.
- Decisions 6 May 2010, 31 March 2011, 7 July 2011 softening “temporarily” the requirements for the eligibility of marketable debt instruments issued or guaranteed by the Greek, Irish and Portuguese government (qualitative easing): Accepting not only temporarily inadequate collaterals within the framework of repo-operations exposes ESCB to the risk of recapitalisation unless there is an exit strategy.
The judicial concept of ECB crisis policy
The German legal philosopher and professor of public law Carl Schmitt thought the true hour of state power was the emergency. The time of the Weimar Republic was very appropriate for that purpose. Schmitt argues: “The exception is more interesting than the rule. The rule proves nothing; the exception proves everything. In the exception the power of real life breaks through the crust of a mechanism that has become torpid by repetition."
Trichet in his ECB practice unconsciously copied that concept. Why? Fiscal Emergency in certain euro member states is a unique occasion to get rid of the rule of law. That leads directly to “unlimited ECB government”.
As a matter of fact ECB has become a de facto sovereign TFEU-legislator. What has started as a temporary suspension of rules has in the meantime become the definite and general revision of Article 123-125 TFEU and Article 127-130 TFEU.
In the meantime, the pending legal action in the European Court makes progress (plaintiff reference N°T-532/11). What remains to be seen is whether the General Court will declare the action of a citizen admissible. If the court does not have that wisdom, the ECB will be without any legal checks and balances and its way straight to its collapse as well as the collapse of the eurosystem will become inevitable."
