The Bank of England predicted a V-shaped “bounce back”, US-China trade relations marginally improved and Rory Stewart dropped out of the London Mayoral race. Plus, of course, we celebrated (albeit in lockdown) the 75th anniversary of VE day.
Future historians of last week may focus instead, though, on a seemingly obscure decision made in Karlsruhe, Baden-Württemberg. Germany’s top court, quietly but with resolve, finally squared up to the European Union’s Brussels-based technocracy.
The constitutional court ruled that, by purchasing more than €2.2 trillion (£1.8 trillion) of government bonds since 2015, the European Central Bank has “manifestly” flouted EU treaty. This marks an astonishing and potentially explosive reassertion of German sovereignty – at a time when European “solidarity” is already frayed. This is no routine EU skirmish or political potshot. For the first time since the European Economic Community was founded in 1957, a member state has legally asserted European bodies have overreached.
Germany is not just any member state. The highest court of Europe’s biggest economy, the eurozone’s paymaster, has just declared the EU’s ultimate authority is “invalid” within German borders.
It’s done so amid unprecedented economic stress, when poorer members are lobbying furiously for financial support to prevent eurozone implosion – support only Germany can provide.
Many central banks have pledged to print money to keep borrowing costs low. The ECB, too, has promised to buy more or less all debt eurozone governments issue. The difference is the eurozone has the world’s largest concentration of systemically important banks, many in nations such as Italy and Spain that lack the fiscal strength to prop them up.
As the lockdown has wiped out growth and turned loans bad, ECB money printing is all that’s prevented bond yields in weaker and stronger states being yanked in opposite directions. That would tear monetary union apart, sparking a global crisis.
That’s why the eurozone meltdown of the early 2010s sent financial markets haywire. And it’s why bond markets started betting again on a break-up of monetary union, pre-Covid, as Germany’s export machine was hit by a global slowdown and eurozone GDP stalled.
The ECB, in response, drove interest rates deeper into negative territory and unleashed more quantitative easing. The dangers were far graver than in 2010 – with sovereign debt-to-GDP ratios some 30 to 60 percentage points higher among the southern “Club Med” countries and eurozone banks hiding far more non-performing bank loans.
Christine Lagarde, President of the European Central Bank, speaking earlier this year
Yet negative rates weakened the banks further and the slump deepened. A bad-tempered February summit of EU leaders collapsed in acrimony. Before any coronavirus lockdown, the EU “frugals” – the Netherlands, Austria, Sweden and Denmark – were already insisting, with German backing, on much stricter budgetary controls.
Now, with unemployment in some members set to double, the eurozone’s underlying design flaw – the fundamental incoherence of a currency union of diverse democracies – is being exposed as never before. Responding to the pandemic is so much tougher within a cross-border structure riven with suspicion, resentment and yawning economic and cultural divides.