The European Central Bank governor’s statement about the commitment to keep the euro has spread widely but will notnecessarily come true. Germany’s Federal Constitutional Court (BVerfG) might make this commitment harder to achieve.
In September of 2012, the ECB introduced a new monetary policy instrument – Outright Monetary Transactions – to deal with the problems plaguing the euro. Outright Monetary Transactions are a programme to purchase sovereign bonds issued by euro Member States. However, Germany’s Federal Constitutional Court has concluded that this instrument “exceeds the European Central Bank’s monetary policy mandate and thus infringes the powers of the Member States, and that it violates the prohibition of monetary financing of the budget.”
This conclusion shows that at long last there is a high-level institution which has dared to declare that which is obvious, i.e. that not all measures to save the euro are acceptable, while the ECB governor’s views are harmful.
Why is this conclusion significant not only for the euro and the euro zone members but also for Lithuania which is seeking to adopt the euro? Firstly, it raises the question about what position Lithuania should adopt on this matter. Lithuania is concerned about the quality of the currency it is going to adopt: is it reliable and will it provide a solid economic foundation? If Germany raises the issue of the legitimacy and negative long-term implications of a monetary policy instrument installed by the ECB, should not this be a concern for Lithuania too?
The final decision regarding the legitimacy of the new instrument will be issued by the European Court of Justice as the sole institution which has the authority to investigate the compliance of ECB’s policies with international agreements between EU member states.
On the 18th of March Germany’s Federal Constitutional Court will announce its final decision regarding participation in the European Stability Mechanism.