Will a new German constitution save the euro?

Will a new German constitution save the euro?

Katinka Barysch
29 August 2012

If the Social Democrats win next year’s general election
in Germany, they will ask voters to adopt a new constitution in a referendum.
The new document, so they plan, would remove the legal fetters that currently
prevent Chancellor Angela Merkel agreeing to eurobonds or joint deposit
guarantees. Not only the Social Democratic Party (SPD), also politicians from
Merkel’s ruling coalition are now speaking out in favour of a referendum. Some
analysts are rejoicing that Berlin is finally preparing the ground for the
fiscal union that will save the euro. But this is Germany, where policymaking
is complex and slow. The debate about a new constitution might sap political
energies without contributing much to the stability of the single currency.

German politicians mean different things when they talk
about a euro-related referendum. Sigmar Gabriel and his fellow leaders of the SPD
say they want voters’ consent to a eurozone fiscal union that involves not only
debt mutualisation but also joint budget-planning, harmonised tax rates and
tough financial regulation. Some pro-European MPs in Merkel’s own Christian
Democratic Union (CDU) agree on the need for a new constitution. But many
others insist that the current document leaves enough leeway for euro rescue
measures. Some CDU politicians use talk about a referendum mainly as a warning
shot to the constitutional court: if you judges continue constraining Merkel’s
euro policies, a new constitution will restore power to elected politicians.
Finance Minister Wolfgang Schäuble
predicts that a constitutional referendum will happen “quicker than I would
have expected a couple of months ago”. But he does not say what it would

Horst Seehofer, leader of the traditionally euro-wary Christian
Social Union (CSU), the CDU’s smaller Bavarian sister party, wants a referendum
each time the EU assumes new powers, bails out a struggling member or admits
new countries. And he probably hopes voters will say no to these. Foreign
Minister Guido Westerwelle from the Free Democratic Party (FDP, another
coalition member), contemplates not a German but a Europe-wide referendum on
euro rescue measures. All parties are spooked by the recent successes of the
Pirate party which campaigns for more country-wide

Even if Germany’s politicians could agree on a referendum
strategy, this would not be a quick fix to save the euro.

Germans are having this debate right now because the
constitutional court has indicated that EU integration could not go much
further on the basis of the current constitution. Stricter budgetary oversight
from Brussels, as envisaged by the fiscal compact, could be problematic.
Eurobonds or any other kind of unlimited liability involved in a fiscal or
banking union would be incompatible with the constitution. These would
undermine Germany’s statehood and democracy by constraining parliament. If politicians
cannot promise different fiscal policies, voters are deprived of a real choice
and democracy suffers.

These constraints cannot be removed easily because the
German constitution contains an ‘eternity clause’ (Article 79) that sets in
stone certain principles, notably democracy, federalism and the market economy.
No parliamentary majority and no referendum can alter these principles. Hence,
the only way for Germany to accede to a fiscal union is to convene a
constitutional assembly, work out a new constitution and put it to a

Some lawyers say this could be done quickly: only the
eternity clause and the one detailing how Germany transfers powers to
international organisations (Article 23) need to be tweaked. But more likely
the constitutional assembly would be inundated with calls for more extensive
social rights, a reform of federalism and a new voting system, to name but a
few. “This would be an extremely long process”, predicts a constitutional

Nor is it assured that Germans would vote yes in the
ensuing referendum. Eurosceptics will argue that the new constitution will lead
Germany into the dreaded transfer union, characterised by permanent money flows
from Germany to the eurozone’s South. And even if a new constitution was adopted,
who says there would be a political majority for eurobonds? Most Germans are
against debt mutualisation even if it comes with tough budgetary oversight,
according to a recent Emnid poll. Even among SPD voters, less than 40 per cent
are in favour. “It’s not that if we had a new constitutional clause we would
just wave through debt mutualisation”, says one CDU advisor.

And there is a last hurdle: Germany might adopt a plan
for fiscal union only to be blocked by Austria, Finland or the Netherlands.
After all, this is not really a debate about the German constitution but the
future shape of Europe.

Nevertheless, the constitutional debate will continue
because it suits both the opposition and the government. The SPD seeks to
sharpen its political profile ahead of the 2013 election. It has so far loyally
supported Merkel’s euro policies in parliament. Now many voters complain that
they no longer know what the SDP stands for. The SDP is trying to change that,
not by blocking Merkel’s policies but by going beyond them.

The CDU also gains from the constitutional debate. The
opposition accuses Merkel of lacking a blueprint for the euro, of reacting to
market panics, and of recklessly putting taxpayers’ money at risk without
delivering more European integration. By talking about a new pro-European
constitution, the government looks like it has a plan while it can put off hard
decisions until after the 2013 election.

Now all eyes are on the constitutional court again. On
September 12th the judges will issue a preliminary verdict on the European
Stability Mechanism and the fiscal compact. They are unlikely to strike them
down. But they will define conditions for making the ESM and the compact
compatible with the constitution.

Some constitutional experts expect that the court will
use the occasion to pronounce on what a process of constitutional renewal might
look like. Others think that the court will shy away from encouraging such a
process and instead widen the government’s room for manoeuvre within the
current basic law.

Whatever the court does, the debate about a new,
pro-European constitution will hot up this autumn. But do not be fooled:
Germany is still a very long way from agreeing to eurobonds.

 Katinka Barysch is deputy director of the Centre for European Reform.