There haven’t been many headlines from Europe recently. The financial crisis seems to be in the past, and European stock markets generated nice gains the last few years. But that’s only the surface analysis. In fact, European leaders haven’t done anything except stabilize the continent at depression levels. Growth is very modest. Unemployment still is very high and generating a range of social problems. The structure of the continent’s governing structures make it difficult to enact any policies that will do more than provide stopgaps to the serious problems. Stratfor.com updates the situation.
There’s a growing consensus that the European Central Bank needs to implement something similar to the quantitative easing policies of the U.S. and U.K. The ECB isn’t allowed to buy bonds the way those two central banks have. More importantly, a German court is reviewing a case in which it could sharply restrict the powers of the ECB, making it extremely unlikely that the ECB would be able to pursue aggressive policies. If the court does rule that way, it could change public perception enough to cause another panic and crisis.
Much like the U.S. Supreme Court, upon which Germany’s highest court was partially modeled after World War II, the German Federal Constitutional Court is the final interpreter of constitutional law. Accordingly, it has the last word on the legality of any treaties, agreements or actions undertaken by Germany at the European level.
The court already has challenged German involvement in some of the more creative legal acrobatics undertaken by the European Union. These include the establishment of the EU emergency bond-buying plan known as the Outright Monetary Transactions program. In that case, the German Federal Constitutional Court proceeded with caution and referred the case to the European Court of Justice. But there are strong indications that it could be more aggressive in future cases. A rejection of government moves in a landmark case, such as one involving potential German participation in a strengthened quantitative easing program, could derail the Continent’s recovery.