The danger of cheap money

It was to be expected that Germany's constitutional court would neither totally dismiss the ECB's anti-crisis measures nor give the green light without any reservations. From the beginning, the judges have been weighing a raft of legal, political and economic arguments. Judicial purists have always said that ECB chief Mario Draghi's promise to buy unlimited amounts of government bonds from debt-stricken countries if need be violated the ECB's mandate of not funding governments. Others countered by asking: What's the point of interpreting the ECB's mandate so strictly that it harms the common euro currency?

The latter argument has asserted itself for years, both judicially and politically. At least superficially, the progression of the sovereign debt crisis has lent credibility to the proponents of more direct ECB action. When Draghi pledged to do "whatever it takes" to protect the euro in 2012, it placated the markets practically overnight. The mere suggestion of an unlimited bond-buying scheme was enough. To this day, the ECB has never had to make good on its promise. Speculating against the euro became pointless. Bond yields of heavily indebted countries sank, keeping them solvent.

False sense of security

Ever since, the central bank hasn't been buying bonds in an unlimited fashion, though it has been buying them on a large scale. With that, it's prevented a number of indebted countries from going bankrupt and the currency union from collapsing. But that spending spree has created two new problems: In addition to a risk of liability for taxpayers, there is also a growing sense of complacency. Draghi himself has always said that his low interest rate policies were only meant to give indebted states room to breathe while they pushed through reforms to make themselves crisis-proof. The central bank was never meant to absolve a government from its reform duties. The ECB's anti-crisis measures were never meant to be permanent.

Governments in crisis countries were always eager to ignore that last part. But they weren't the only ones. The German finance minister is saving loads of money, albeit at the expense of the citizens. Savings funds, pension funds and life insurance companies aren't earning any interest, and citizens are being insidiously expropriated. Consequently, the governments of both weak and economically strong EU countries have entered an unholy alliance, lending their political support to actions from the ECB that can't go on forever.

One thing is clear: Draghi's pledge in 2012 seems to have helped. And that's all the judges in Karlsruhe had deliberated on. They didn't hand down any rulings about the ECB's ongoing bond purchases, which are arguably the most important arrow in the ECB's anti-crisis quiver. But its policies of cheap money have created false incentives and lulled countries into a distorted sense of security. At some point, the discipline of the markets will have to be reapplied.

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