Financial markets would undoubtedly react swiftly, reviving the fears of last summer. With no policy institution able to take charge, countries like Italy and Spain would return to the brink of panic-induced insolvency. A deep European depression would result, almost certainly dragging down the German economy and reversing the European integration process.
The German Constitutional Court is, in fact, unlikely to prohibit the OMT program. However, it could be tempted to impose some limits on the ECB and thus set Europe on a path into deeper crisis. And, even if the court refrains from setting limits, the underlying problem — growing German aversion to all things European — will not go away.
There is only one sensible way forward: Germany’s European partners, especially France, must persuade it to reengage with Europe and assume responsibility for European integration. German leaders’ opposition to every proposal for institutional reform may be excusable now, in the run-up to the general election in September. However, once the new government takes office, Germany’s continued refusal to adopt an active approach to solving Europe’s problems would be entirely indefensible.
Marcel Fratzscher, a former head of International Policy Analysis at the European Central Bank, is president of the German Institute for Economic Research and professor of macroeconomics and finance at Humboldt University of Berlin.
Copyright: Project Syndicate