Firstly, Merkel is on record as saying a new EU Treaty is required to address the issues raised by this crisis.  International Treaties, once ratified, by definition, override national constitutions, courts and Parliaments.  German Sovereignty has already been significantly eroded/pooled by the development of the EU.  

The question is, therefore, whether Eurobonds exceed the powers currently transferred to EU institutions under current treaties. That question is ultimately a matter for the European Court, should some EU institution break the current political consensus and issue them.  It is not for the German Constitutional Court to tell the EU what it can or cannot do under existing devolved sovereign powers.

If, as conventional wisdom seems to suggest, Eurobonds are beyond the scope of existing Treaties, then we are down to pragmatic temporary solutions, (as approved by the National constitutional Courts) or a new EU Treaty.  So far, only Merkel seems to be serious about proposing a new EU Treaty, so we cannot blame her for not recognising the limitations of existing Euro institutions.

It all depends on the content of any new Treaty, of course, but right now the political climate for a new Treaty couldn't be worse in many countries, particularly in countries like Ireland where a popular referendum is required.  Unless any such new Treaty explicitly prohibited ordinary people from becoming liable for the losses of TBTF banks, I couldn't see any such Treaty having a chance of being passed.

Basically we need a new Treaty to explicitly provide for the re-structuring of insolvent banks and sovereigns within the Eurozone according to some agreed rules.  Cue Austrian Apoplexy.  We need an ECB with a wider remit (full employment) and broader powers to act as market maker of last resort. Cue exit of all Stark raving mad central bankers.

But the debate on what any new Treaty should contain hasn't even begun because CW doesn't have a clue as to how this crisis can be resolved and new crises prevented. We can blame the entire conservative establishment for that, but at least Merkel has had the foresight to point out that existing EU institutions and legal powers are inadequate.

Indeed I wouldn't be surprised if a new German leader from the Centre-Left will ultimately take the lead on all this.  But first we need a Greek default, and probably a partial Italian one as well before the CW is fully exposed for the bankrupt ideology that it is.

Index of Frank's Diaries