How EU austerity is falling foul of the law
There is a simmering confrontation between some EU members’ highest courts and European authorities over the limits of austerity, interstate solidarity and human rights.
By Gonzalo Toca
German magistrates, who questioned and later approved the rescue of Greece in 2011, have this month started to review the constitutionality of the bond-buying programme of the European Central Bank (ECB) at the request of over 35,000 citizens. They allege that it is an instrument to provide struggling countries with easy money from German pockets.
According to many experts, this policy helped Spain and Italy avert disastrous defaults by preventing bonds’ interest rates from escalating to unaffordable levels, which was what was happening until the ECB president Mario Draghi threatened to do “whatever it takes” to protect the euro in July and subsequently launched the bond-buying programme in September.
While some Germans feel that EU bodies are betraying their own principles by failing to implement badly needed austerity in the eurozone, Spaniards, Portuguese, Romanians and Latvians have asked their highest courts to repeal part of the budget cuts and reforms imposed by Brussels with German support.
In April, the Portuguese Constitutional Court struck down part of €5.3 billion in public-sector pay, pensions and benefits cuts which the country’s prime minister, Pedro Passos Coelho, had previously agreed with the EU Commission, the ECB and the International Monetary Fund in exchange for a €78-billion bailout. The judges overruled the elimination of one of two extra “bonus” months paid to pensioners because, they said, it flouted the equal treatment of private workers and pensioners warranted by the constitution.
Romanian and Latvian tribunals also shielded their retirees in 2010 from the IMF and EU austerity measures by deeming unconstitutional a plan to slash pensions by 15 percent in the case of Romania and by up to 70 percent in the case of Latvia. This month, Brussels has pressed Spain to restructure its pensions’ system in 2013 by both raising retirement age and trimming benefits.
Also this year, Spain’s Constitutional Court will determine the legality of a civil servants’ bonus cut just months after the country’s Supreme Court ruled against the first mass layoff it handled under the new labour regulation. Labour market reform and spending reductions were critical for Spain to accede to an EU-funded credit line of €100 billion that may have prevented the financial system from collapsing.
The merits and constitutionality of the Greek rescue in 2010 have also prompted second thoughts. Giorgos Kasimatis, a leading constitutional scholar from Greece, has consistently rejected its legality, while the International Monetary Fund has admitted this month grave mistakes in its management, such as overblown growth assumptions and a belated debt restructuring in the country’s bailout.
The highest courts opposed to deep cuts are winning the day as the European bodies, the IMF and the German government show less resistance to pro-growth policies. Last week, the German Finance Minister Wolfgang Schäuble tried to sway his country’s Constitutional Tribunal by underscoring that the ECB bond-buying programme had never financed cash-strapped countries. In April, Christine Lagarde asked the British government to soften its cuts in the face of weak economic figures after years of backing its austerity.
Even European Commission president José Manuel Barroso has acknowledged that budget trimming “has reached its limits” because “a policy, to be successful, not only has to be properly designed, it has to have the minimum of political and social support.”
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