The scary effect of constitutional courts on the politics of the European Union

IN BRITAIN it is the bogeyman that comes to take away naughty children. In Italy it is fear of the “black man” that makes them eat their greens. In the European Union, it seems, the creatures of dread are the red-cloaked members of the Bundesverfassungsgericht, the German constitutional court. Only fear of the judges in Karlsruhe can explain how Angela Merkel, Germany’s chancellor, has persuaded her fellow European leaders to swallow her unpleasant remedy for the euro’s ills: a new EU treaty to create a permanent system to save countries that cannot pay their debts.

Until a few weeks ago most other countries were resisting German calls for a treaty revision, not just to create a crisis-resolution mechanism but, more contentiously, to withdraw the voting rights of those in persistent breach of fiscal rules. The long nightmare of pushing through the Lisbon treaty, which came into force only last December, was so grim that most leaders vowed not to do it again for a long time, if ever. At best they saw amending the treaty as a dangerous distraction, at worst as a plot to disenfranchise smaller members. Better, they argued, to toughen up the rules quickly within the existing treaties to allow more intrusive monitoring of fiscal policies and impose harsher penalties on transgressors. Treaty change should be postponed.

Yet in the small hours of October 29th an EU summit agreed to make a “limited” treaty amendment. Why the change of heart? Because, Mrs Merkel told her colleagues, she had to placate the judges in Karlsruhe. The court is considering the legality of the €750 billion ($950 billion) IMF-backed temporary rescue fund for the euro zone, created in May at the height of the sovereign-debt crisis. Critics say this breached the “no bail-out” clause of the existing treaties. Germany says it was a temporary, “last-resort” measure to save the euro zone, and as such was justified under a clause permitting financial help to a country struck by natural disasters “or exceptional occurrences beyond its control.”

This argument may stretch the treaties too far for the liking of Karlsruhe, which is zealous in protecting national sovereignty and limiting the EU’s powers. Anyway, the exceptional has become the enduring. The financial crisis rages on and the temporary safety-net must be made permanent.

The German government worries that Karlsruhe may yet declare the temporary fund illegal, leaving the euro unprotected. But if the court sees a permanent replacement being created, it may stay its hand. In any case, Mrs Merkel says she will not extend the safety-net beyond 2013 without big changes, such as ensuring that bondholders—not just taxpayers—bear some of the cost of future rescues. Without a lawyer-proof amendment, the euro could become “a plaything in the hands of the market”. If Karlsruhe doesn’t get you, the speculators will.

Are such threats a trick? The Karlsruhe court has huffed about the democratic deficit of European bodies and puffed about vital sovereign powers that may not be delegated to Brussels, but it has never stopped European integration. Indeed, the preamble of Germany’s Basic Law talks of promoting “world peace as an equal partner in a united Europe”. The court in 1993 endorsed the Maastricht treaty on the grounds that a single currency did not turn the EU into a federal state. Similarly, it approved the Lisbon treaty. And it refused to grant an injunction to halt the financial safety-net, saying this could endanger the euro. The quiet view of most EU lawyers is that the rescue fund does not violate the treaties, because it is designed to prevent a bail-out. Even a permanent system would be used only in exceptional circumstances. But at least one former Karlsruhe judge, Dieter Grimm, thinks the treaty needs to be tweaked because the Maastricht judgment makes explicit reference to the no bail-out clause.

The EU must satisfy not one but two sets of judges. It seeks a treaty amendment that is sufficiently robust to satisfy Karlsruhe. But it also cannot risk crossing the Irish constitutional court’s threshold, set in the 1987 Crotty judgment, for submitting treaty changes to a referendum. The hope is to change the treaty under a simplified procedure requiring only approval by European leaders, without an inter-governmental conference, let alone a fully fledged convention. Moreover, it should not touch the no bail-out clause. Yet for most the question is less one of law and more one of politics. As Romania’s president, Traian Basescu, put it, EU leaders should help Mrs Merkel because they might in turn need her help (and German money) in future.

Releasing the troubles

Even so, starting the business of treaty change is a lot easier than stopping it. The European Parliament may want more powers. British Eurosceptics are still hoping to repatriate some things to Westminster. Any one of 27 national parliaments could block a new treaty, as could voters if any country calls a referendum. Fear of Irish voters is one reason why Mrs Merkel agreed to set aside the suspension of voting rights (that would hardly be a small change). She made other concessions to get her way: at France’s request politicians will enjoy greater control over any sanctions, and Britain received German backing for a tight EU budget.

Worse, the treaty could precipitate a new financial crisis. The president of the European Central Bank, Jean-Claude Trichet, was slapped down for warning EU leaders that even talking of imposing losses on bondholders is dangerous. This week’s fresh sell-off of bonds from troubled countries such as Ireland, Portugal and Greece came almost on cue. The spread demanded by investors to hold Irish bonds rose to a new euro-era record, and spreads on Greek and Portuguese bonds also shot up.

Re-opening the EU treaties may be an understandable bid to appease the red bogeymen of Karlsruhe. But it could yet release the even scarier ghouls, goblins and ogres of the bond markets.