How about giving Soros some credit for the idea?

Lots of Companies issue debt in the form of corporate bonds, but that doesn't make them sovereign. So I suggest that the ability to raise debt is an inadequate definition of sovereignty, even if it is one aspect of Sovereignty, along with the power to raise taxes.

But the interesting aspect to the Karlsruhe judgement is that it denies that the EU can be considered a sovereign state, and thus its laws are not ultimately justiciable by the CJEU, but rather by national supreme courts.  See my diary on the subject here.

Index of Frank's Diaries

It is indeed a modest proposal but you are right to credit Mutti, as this is a major shift in German policy which perhaps only she could get away with.

But I have some questions:

1. Would the BundesBank be breaking any EU law/regulations if it refused to participate in repurchase programmes that had been agreed in accordance with the ECB's statutes? In other words, could the EU bring infringement proceedings against Germany? I appreciate any such actions could have political repercussions in Germany, potentially increasing support for the AfD, but that is hardly the ECB's problem. They had no difficulty over-ruling Greek and Irish proposed actions on debt restructuring and not bailing out junior bondholders in Irish banks, so why not over-rule German non-compliance as well. Or is Germany simply to big to be told what to do?

2. Is the Merkel/Macron proposal for the EU to borrow and spend €500 Billion a direct response to the Karlsruhe ruling? I.e. they are at last beginning to recognise the limits of monetary policy (in both economic stimulus and legal terms) and choosing to provide a fiscal stimulus instead? It would be a nice riposte to judicial over-reach if it was: If you want to block the ECB from trying to prevent the EZ going into even deeper depression, we will just use more direct means...

3. I had always thought the EU was legally barred from borrowing to fund its budget: was I wrong to think that, and if not, how has that legal obstacle been overcome?

Index of Frank's Diaries

Going through the multi-annual financial framework (the regular EU budget) that is to be expanded for the reconstruction fund, there would be no pooled liability unlike with corona bonds. Each country would only be liable for their share of the EU budget / contribution. That's the difference that opened the door. For months of intense EU haggling. Total volume? Grants or loans? Oversight? Size of the regular structural funds for the Eastern Europeans vs their democracy problems? It's the summer of love.

_{Schengen is toast!}

'Frugal' EU nations push back vs French-German recovery plan

The Netherlands has always taken a tough stance on economic aid for struggling southern European nations and the coronavirus pandemic does not appear to have changed that.

Without going into detail, Rutte said the proposal by the nations dubbed by some the Frugal Four would likely include tough conditions for loans.

"If you want help, you have to make far-reaching reforms so that you can look after yourself next time," Rutte told reporters. "Otherwise I can't explain it to the Netherlands that we want to help."

I take the liberty with all due respect to show a sections from German Government Press Release that appears to contradict Mr #Conte statement (which exists in the Italian version of the tweet but somehow missing in this English version) that RecoveryFund is "Non-Repayable Bond". pic.twitter.com/nGodJoP1Px

— Prof Michele Geraci (@michele_geraci) May 19, 2020

Mark Rutte: The Netherlands and Italy have an excellent relationship

'Sapere aude'

French-German initiative for the European recovery from the coronavirus crisis

Manuel Bompard, MEP for La France Insoumise has found this:

La Commission Européenne repartira les fonds sur la base de critères pas encore connus. Mais les aides seront conditionnés à «un engagement clair des états à suivre des politiques économiques saines et un ambitieux programme de réforme.». C'est le retour des plans d'austérité. pic.twitter.com/pYCDVpAR0M

— Manuel Bompard (@mbompard) May 18, 2020

"a clear commitment of Member States to follow sound economic policies and an ambitious reform agenda"

Sounds a lot like neolib austerity and "reform". Par for the course.

After reading the above discussion of the 500 Euro bond proposal above I don't feel so bad about the confusion I experienced when I first read of this in the NYT.


"It is not necessary to have hope in order to persevere."

Merkel's conservative allies are on board.

German conservatives' eurobond awakening

So why did Germany's conservative bloc go from being the scourge of southern Europe to its enthusiastic savior? In a word, business.

Unlike the euro crisis, which triggered dramatic turbulence in financial markets but left German industry unscathed, the corona pandemic threatens Germany's own economic stability. The nations in the eye of the euro crisis storm, such as Portugal and Greece, were not key German trading partners. The countries in focus now -- especially Italy -- are a different story.

Italy is Germany's fifth-largest trading partner with a total trade volume of more than €125 billion last year. Major German car companies and machinery makers rely heavily on suppliers in Italy's northern industrial corridor. Permanent damage to those supply chains could also do irreparable harm to German industry.

That's why German industry, traditionally close to the CDU, has been one of the loudest voices urging Berlin to push ahead with the recovery fund.

Opinion: This isn't Europe's `Hamilton' moment -     Sony Kapoor

Put in the context of the time, the recovery fund looks even worse. The initiative can be seen as the German establishment's attempt to make up for the sins of its Constitutional Court, which threw a Molotov cocktail into the EU's legal and economic order in early May by challenging the actions of the European Central Bank and the Court of Justice of the European Union.

However the German court's decision finally plays out, its immediate impact is to put a de facto political constraint on the size and asymmetry of the ECB's quantitative easing programs, thereby limiting the ability of the most effective institution in the eurozone to respond to a crisis with appropriate size and timeliness. Italy and Spain would have been better off with an unconstrained ECB and no recovery fund.

From David Graeber, author of 'Debt: The First 5000 Years' and 'Bullshit Jobs', in Politico.eu, of all places:

Lessons from coronavirus: Not all jobs are `bullshit'

Crises tend to reveal unacknowledged truths. In 2008, we learned that the majority of the financial wizards we had been taught to treat with awe for the previous two decades were, in fact, little more than scam artists -- and rather clumsy ones, at that.

The coronavirus, and resulting lockdowns, is teaching us an even more startling lesson: that a very large portion of what we call "the economy" is little more than just another scam.

It's hard to know what else to conclude when literally millions of highly paid office workers have been forced to stay away from the office, to reduce their work to 10 or 15 minutes a day, or often nothing at all, without having the slightest impact on those essential functions that keep the public fed, clothed, distracted and alive.

I am among those who do not view the EU as a sovereign.  While it is true that the ability to issue debt is an important element of sovereignty in MMT, it is not the only element.  The flip side is the power to tax, and these two sides together mean the government controls the flow of currency within its boundaries, making the government and the currency sovereign.  The EU does not control the flow courtesy German neoliberal dogma that completely misinterprets what happened after the World Wars (Yes the currency collapsed and so did the economy, but not only is correlation not causation, effect is not cause either.  Germany insists on calling a symptom the disease, and everyone else suffers for it.) and ignores Bismarck's financial moves while Chancellor (Does anyone actually believe his economic and social welfare programs were hard-money funded?).

Nor is currency all there is to sovereignty.  I'm reminded of an exchange between Henry and Philip in The Lion in Winter in which Henry claims a certain province is his, Philip fires back how, given the treaty between England and France, Henry can make such a claim, and Henry responds, "It's got my troops all over it; that makes it mine."  We may not want to admit it, but projection of force is a significant element of sovereignty, and the EU has gar nichts.  If you doubt this, just watch what the world becomes over the next decade.