In September 2012, the European Central Bank announced a new bond-buying scheme called Outright Monetary Transactions. The announcement, which came shortly after European Central Bank chief Mario Draghi said the bank would do anything to preserve the currency union, eased financial pressures in the eurozone. But in Germany, some political and academic groups denounced the program, claiming it was legally unjustified.
They took the matter to the German constitutional court, which has no jurisdiction over the European Central Bank. On Feb. 7, the court delegated the matter to the European Court of Justice but noted that according to its own interpretation, the program was incompatible with German law. The court said rectifying the issue would require imposing restrictions on the OMT scheme.
Over the decades, the European Court of Justice has established the primacy of European law over national law despite challenges by national courts. But the supremacy of European law will likely face more challenges in the next few years as the crisis persists and the interpretation of countries' EU membership and European treaties are contested. In the case of the central bank's bond-buying program, there will be pressure on the court to clarify the limits on the bank's mandate because the matter is not yet closed for the German constitutional court.
Since it is politically and economically stable, Germany can currently tolerate this kind of a legal battle. However, the fight will probably move into the political realm as the crisis makes the clash between sovereignty and supranationalism — a clash that could be overlooked during times of prosperity — more apparent. Other countries, including the United Kingdom and Hungary, are also questioning the supremacy of Brussels over national institutions. National governments will be more inclined to challenge EU institutions for power and will have to decide whether they are willing to change national legislation and revise European treaties to justify greater European integration — an unlikely outcome given rising nationalism and Euroskepticism.
As the leading European power, Berlin will have the challenge of ensuring that the rest of Europe remains interested in cohesion. At the same time, a large domestic faction, unconvinced of the benefits of further integration, will be confronting the German government.
Growing Discontent in Germany
Challenges from conservative and Euroskeptical political factions will likely militate against the claim that the European Central Bank can do whatever it takes to preserve the eurozone.
German groups questioning the democratic legitimacy of the bailouts and European Central Bank intervention will likely become more outspoken. How quickly these groups gain strength will depend on Germany's economic health, which is currently sound, and the evolution of the bank's monetary policy. Germany's strong export-oriented economy has avoided crisis by diversifying its exports outside Europe, and due to low interest rates — a consequence of Germany's image as a haven within the eurozone — the Germans have not seen domestic spending constrained like in other countries.
However, this trend cannot last. Since Europe is Germany's primary export market, continued economic weakness on the Continent will eventually affect unemployment in Germany, making it more difficult for Berlin to justifying providing financial assistance to other countries. Potential European Central Bank measures, such as buying private debt to help small and medium-sized companies or establishing a cross-border fund to aid banks under the banking union, are also likely to generate more criticism within Germany.
Even if Germany maintains low unemployment, there will be other troublesome issues besides monetary policy, such as immigration.
Contained Dissent
Popular discontent in Germany is slower to affect European integration for several reasons. First, stable sovereign borrowing costs, low inflation and a stable economy mute criticisms of the European Central Bank and Berlin's own crisis strategy. Germany also does not have a culture of consulting its population on single issues; there was no German referendum on reunification or the introduction of the euro. Therefore, it has more leeway to make the unpopular decisions that are often necessary in a crisis. A situation like the one in Switzerland — where the government and business groups oppose immigration quotas because of complications that will arise in bilateral relations with the European Union, but are overruled by the public will — is unlikely to occur in Germany.
Prominent German politicians such as German Finance Minister Wolfgang Schaeuble have said a referendum on Germany's relationship with the European Union will probably be necessary in the coming years. EU institutions will undergo structural changes, and further sacrifices on Germany's part will be required. Yet the hurdles to holding a referendum in Germany are high, and elections remain the most important avenue through which the population can change policy. That Chancellor Angela Merkel's Christian Democratic Union is still the most popular party and is in coalition with the second-largest party, the Social Democratic Party, which advocates solidarity in Europe, suggests that Merkel's government has enough political power to take steps to preserve the eurozone without encountering significant opposition in parliament.
The country's previous center-right government adamantly opposed a bailout for Greece in 2010. Understanding the importance of the European Union and the eurozone, however, Berlin shifted its position. It has agreed to numerous bailouts and has accepted delays in reforms required of struggling countries. In addition, industrial groups, which at times have asserted that loose monetary policy is taking pressure off countries to implement important reforms, support European Central Bank intervention when the survival of the eurozone is at stake and small and medium-sized companies are having trouble gaining access to credit.
Berlin's demand for austerity and reluctance to support bailouts — both contributing to Europe's current unemployment crisis — demonstrate the limits of Berlin's ability to preserve the eurozone. The German population has not been asked how much European integration — and consequential weakening of the German state — it can accept.
The German elite have tried to emphasize the benefits Germany draws from a united Europe with things such as the Ich Will Europe (I Want Europe) campaign in late 2012, and support for the current government shows that most Germans stand behind the idea of European integration. But the German constitutional court, one of the most respected institutions in Germany, has raised concerns that exemplify how perilous Berlin's path is.
In response to the rise of Euroskepticism, political elite across the Continent will be inclined to clarify areas in which they see limits to European integration. This is already the case in the United Kingdom and the Netherlands, where governments have called for boundaries for Brussels' power. Germany's political elite will increasingly get tangled up in contradicting arguments, calling for closer integration but also the preservation of national sovereignty to show it puts the concerns of its domestic constituency first. This dilemma will not be resolved without changes to the institutional structure of the European Union.
