German-Led Bailout Mechanism Should Become Eurozone Treasury, Says ECB Board Member

The German-led European Stability Mechanism (esm) could form the basis of a new EU budgetary authority, German board member of the European Central Bank (ecb) Joerg Asmussen said July 17.

Reporting on Asmussen’s unscripted remarks at a briefing at the European Policy Center in Brussels, EUobserver.com states that Asmussen said the esm could be a “starting point” for a common budgetary authority.

“The esm is a fiscal authority by definition because it deals with taxpayers’ money,” he said, adding that the esm would have to be scrutinized by the European Parliament, or eurozone meps.

In his main speech, Asmussen outline his vision for the long-term future of the eurozone. “The core of the current debate about the future of economic union has a name: the further sharing of sovereignty,” he said.

“It means endowing the euro area with the power to effectively prevent and correct unsustainable policies in every euro area member state,” he continued. “Concretely, this would imply that a euro area authority would have competence to limit countries’ ability to issue debt and have intervention rights into national budgets, and to compel member states to correct their policies, be that in the fiscal, structural and financial fields.”

His suggestion that the esm be responsible for intervening in eurozone nations’ taxation and spending policies is important, as it was recently agreed that the esm would be under German control. The German head of Europe’s temporary European Financial Stability Facility (efsf) bailout fund, Klaus Regling, will continue his role with the permanent bailout fund, the esm, the Eurogroup announced July 10.

Last year, Stratfor wrote: “Unlike previous EU institutions (which the Germans strongly influence), the efsf takes its orders from the Germans. The mechanism is not enshrined in EU treaties; it is instead a private bank, the director of which is German.”

Unlike the efsf, the esm is enshrined in EU treaties—or will be if the treaty is ratified. And it isn’t a private bank—it is an intergovernmental institution, governed by eurozone finance ministers.

Even so, many are concerned about the esm being undemocratic. The Dutch court of auditors wrote that it “considers the deficient democratic control problematic and even more so given the permanent character of the esm and its potential financial volume.”

“The esm will be a non-democratic black box. It’s completely irresponsible to set it up, and we will fight against it as much as we can,” said the head of the German association of family business, Brun-Hagen Hennerkes.

Regling’s appointment indicates that Germany’s role will continue in the esm. It indicates that in practice, the esm will operate in a similar way to the efsf. Assmussen may have emphasized democratic legitimacy and parliamentary oversight, but the details and fine print of any future agreement will show if this is really the case.

At the end of the day, Germany puts up the greatest proportion of the esm’s money, which gives it the greatest power.

The timing of Assmussen’s suggestion is interesting; is it a coincidence that he suggested that the esm become the eurozone’s treasury a week after a German was put in charge of it?

The esm has not come into force yet and will have to face the scrutiny of the German Constitutional Court before it does. The court may even strike it down. What is more likely is that it will approve it but insist on more German oversight to make up for its lack of democratic accountability.

Whatever happens, watch for Germany to quietly assert its influence over eurozone finances, either through the esm or an alternative.