European Court’s Pringle judgment: good law, bad economics

Courts don’t often try to decide the direction of economic policy. However, in effect, this is what the European Court has recently done. In its Pringle judgment the court made a number of important decisions on the legality of bail-out policies being pursued by the European Union. It ruled that the establishment of the European Stability Mechanism – the fund through which financial assistance will in future be channelled to eurozone states facing the possibility of bankruptcy – was not contrary to EU law. By implication, the ruling also supports the recent attempts by the European Central Bank to shore up the euro by buying the government bonds of debtor states on secondary markets (that is, buying them from commercial banks that have first purchased them from governments).