03/01/2010 01:43 PM

Monitoring Euro Stability

'Offenders and Watchdogs Are Identical'

Former German Constitutional Court Justice Paul Kirchhof discusses the design flaws of the European Monetary Union, the Greek debt crisis and the prospects for renewed legal challenges in Germany against the euro in light of recent events.

SPIEGEL: Professor Kirchhof, many German citizens still keep deutsche marks at home because they don't trust the euro. Do you?

Kirchhof: I have a one deutsche mark coin in the drawer of my desk -- not because I have any doubts about the euro, but as a memento of a successful currency. Besides, it reminds me of the euro decisions at the Federal Constitutional Court, in which I participated.

SPIEGEL: In 1998 you, as a member of the Constitutional Court, dismissed a suit against the euro by four professors, thereby setting aside the last hurdle prior to introduction of the new currency. Have you ever regretted that decision?

Kirchhof: No. The euro has been proven to be a blessing, particularly during the financial crisis. Imagine after the Lehman bankruptcy if we had had individual currencies in each country, as we did in the past. What would the consequences have been? Waves of speculation, severe distortions of exchange rates and an appreciation of the deutsche mark that would have harmed the German export economy.

SPIEGEL: Meanwhile, however, the euro is experiencing a serious crisis, and Greece is on the verge of bankruptcy. The four critics of the euro in Germany who unsuccessfully fought its introduction through the Federal Constitutional Court in 1998 have threatened to file a new complaint with the German high court if Europe decides to approve billions in aid for Athens. Would they stand a chance of succeeding this time?

Kirchhof: As a former Constitutional Court judge, I would rather not state my opinion about this. I can say this, though: It was the intention of both the Constitutional Court and the federal government to make the euro as secure as possible. That was why the Stability Pact was concluded and the so-called convergence criteria were approved, which were intended to impose verifiable limits on government debt. The question was: Can the introduction of a monetary union succeed before we have an economic union among the participating countries?

SPIEGEL: If we consider the example of Greece, the answer is no.

Kirchhof: The euro also offers opportunities for everyone today. Besides, the justices on the Constitutional Court are not the ones who should be ruling on this issue. This is a political matter. If our elected representatives say that we are going to take this risk because it is an opportunity for Europe, then we have a guideline that commits us -- particularly as government promptly agreed to rules and conditions to keep the euro as stable as possible.

SPIEGEL: Except that they were never obeyed. The rules on government borrowing have been violated many times since 1997, and more than two-thirds of all euro countries are currently exceeding the absolute upper debt limit of 60 percent of their gross domestic product. Doesn't this have legal consequences?

Kirchhof: The parties to the treaty and the constitutional courts of various member states have repeatedly and emphatically pointed out that these standards are binding.

SPIEGEL: Emphatically, but ineffectually.

Kirchhof: Looking at the past doesn't get us anywhere today. But a design flaw of the treaties should be corrected in the future. Until now, criteria from the Stability and Growth Pact has been monitored by the European finance ministers. In other words, the offenders and the watchdogs are identical. This double mandate hasn't been proven to be effective.

SPIEGEL: To make matters worse, Greece massively forged its budget figures, even when it joined the monetary union. What is your view of this?

Kirchhof: If this is true, then we have a significant legal statement of facts. Under these conditions, at least one country should not have been allowed to become a member of the monetary union. It was allowed to happen, either because no one was paying close enough attention or facts were applied that were untrue. This is an inherent structural defect that casts a shadow on the membership of such a country, which still exists today.

SPIEGEL: Were the treaties violated as a result?

Kirchhof: If the suspicion proves to be correct: yes, clearly.

SPIEGEL: The European governments have made it clear that they would approve financial assistance for Greece if the country's solvency were jeopardized. The Maastricht Treaty precludes such assistance. Would this be a reason to file a suit against the euro before the Constitutional Court?

Kirchhof: I do not assume that European governments will agree to contravene established law.

SPIEGEL: And if they do, will the Constitutional Court be able to step in?

Kirchhof: Assistance doesn't always have to be financial. It can also consist of mutual reinforcement in terms of budgetary discipline. This is where the parliaments come in. They are the supreme custodians of the European treaties and can demand accountability from the governments and the European Council (editor's note: the EU body comprised of member state leaders and ministers). Besides ... if parliaments or their members feel that their rights have been violated, they can appeal to the Constitutional Court.

SPIEGEL: Can citizens file suits to prevent their tax money from going to Greece?

Kirchhof: There is a clever rule in German tax law, namely that taxpayers have no authority to decide how their tax money is used. This is a matter for the parliament, which is elected for precisely this reason. If freely elected representatives are to make their decisions based on democratic principles, even the most devoted pacifist has to accept that some of his tax money will become part of the defense minister's budget.

SPIEGEL: Because the Greek crisis is considered from a legal standpoint, there are pressing political issues to be addressed. How should Europe behave?

Kirchhof: It would be fundamentally wrong to say: We are taking on your debt, so you can just carry on. Greece is not just a member of the European Monetary Union, but also of the European Union. The EU is an economic and legal community of members that have pledged mutual assistance to each other. But this should not be used as a way to promote further economic folly, but rather as an effective tool for self-help.

'No Country Should Be Able to Spend More than It Takes In'

SPIEGEL: Is Greece still even capable of helping itself at this point?

Kirchhof: Of course. Greece is a democracy. The country has the same problems as all democracies in Europe. Citizens everywhere have concentrated their hopes for a share of government funds into demands that exceed the economic capabilities of the commonwealth. And in Germany, as elsewhere, the politicians keep promising them even more: more social welfare, more subsidies, higher tax cuts. This system is a threat to cohesion in individual countries, and it endangers European unity.

SPIEGEL: What is your alternative?

Kirchhof: The goal is to promptly convince all participating countries to practice absolute budgetary discipline. No country should be able to spend more money in the long term than it takes in. We have to enforce this principle. And we have to anchor the thinking behind it in all countries. This is the real heart of the currency problem, and no European nation is more familiar with it than Germany.

SPIEGEL: What do you mean by that?

Kirchhof: Look back at 1949. At the time, Germany was in a crisis that was a great deal more serious that Greece's problems today. The country had fallen apart, assets were devalued and there was the threat of a third world war. In that moment, the new German constitution established a guiding principle: freedom. Everyone had to roll up their sleeves and start by helping themselves. This mental attitude was the root of the economic miracle and, as a result, Germany managed to turn itself into a respected and reliable member of the international community within a few years. The concept of freedom has proven to be successful as a means of overcoming crises in Germany. It would also be a model for the European Monetary Union.

SPIEGEL: You mention freedom, and yet your proposals would drive Greece into national bankruptcy.

Kirchhof: It would be completely wrong to invoke the extreme scenario now. Insolvency is avoidable. What prevents Greece from making all government services subject to funding? The government could cut the salaries of civil servants and subsidies for companies. This is not easy, but it presents an enormous opportunity ...

SPIEGEL: ... especially for new strikes and mass protests. Don't you think that the Greek government probably sees risks instead of opportunities?

Kirchhof: That could be, but it would be misguided to lose all faith in people's ability to reason. During the crisis, everyone thought that the solution was to dig deep into the government's coffers, because the government has unlimited resources. That was a mistake. The financial crisis is also a crisis of thought. If we return to the basic axioms of the monetary union, the euro could even become the world's anchor currency in the medium and long term.

SPIEGEL: Doesn't the failure of most monetary unions in the past make you wonder?

Kirchhof: That was a key question during the Constitutional Court's Maastricht trial: Can something succeed in Europe that has never succeeded before? Our response, as constitutional judges, was this: The experience that a positive historic example does not exist does not mean that it cannot exist. It would be a catastrophe if we could never try anything new.

SPIEGEL: Many politicians find fault with the Constitutional Court for intervening too heavily in European politics. They complain that the court disproportionately restricted the German government's capacity to act with its ruling on the Lisbon Treaty. Is there anything to this?

Kirchhof: No. The Constitutional Court is, in a sense, the repair shop for our democracy. It demands the limits of political action stated under the constitution. For this reason, it will always become involved in politics. This is part of the nature of the constitutional state. And when it comes to the question of the transfer of competencies to Brussels, it is clear that if the Bundestag (Germany's federal parliament) adopts a majority resolution to transfer competencies to the EU, it can do so. However, if this boils down to amending the constitution, the parliament needs a two-thirds majority to do so. And some core elements of the constitution cannot be amended at all.

SPIEGEL: Germany and France want to establish a European economic government, partly to provide the euro with a stronger political foundation. Is that helpful?

Kirchhof: I am skeptical on that subject. It would involve combining the economic administrations of individual countries. I am more inclined to think that we have to assign responsibility to where it is controlled by parliaments -- namely to the member states.

SPIEGEL: Does that mean that an economic government is unconstitutional, in your view, because the German sovereign state is assigning too many competencies to the EU?

Kirchhof: The ruling on the Lisbon Treaty implies that the Bundestag must retain central competencies. The Bundestag is the only democratically and directly legitimized representation of the German people. We cannot assign its rights to Europe, as long as there is no European people with European constitutional bodies. Besides, other European countries have no intention of allowing themselves to be sucked up by Europe.

SPIEGEL: Professor Kirchhof, we thank you for this interview.

Interview conducted by Wolfgang Reuter and Michael Sauga. Translated from the German by Christopher Sultan.


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