The Implications of the German Court ruling on the ESM
The German courts rule that the European Stability Mechanism (ESM) and the EU’s fiscal compacts are compatible with the German Law.
This is a great day for Germany and a good day for Europe,” said Chancellor Angela Merkel.
The European Parliament leapt to its feet in thunderous applause at the announcement of the news.
However, in reality, the ruling is a yes “but” judgement.
The court capped Germany’s ESM share at €190bn and ordered the government to “express clearly that it cannot be bound by the Treaty” if the limit is breached. This prevents the ESM increasing Germany’s share if Spain and Italy seek additional funding.
This capping of the fund could in the future prove a real obstacle to political and economic problems.
The Karlsruhe court said both houses of the German parliament, including the Bundesrat must be consulted on all EU bailouts. The Bundestag “must individually approve” each large rescue package and is prohibited from establishing permanent mechanisms based on international treaties to bypass this ruling. This means no ESM package for Spain, and Italy can go ahead without a vote in the Bundestag.
An acquisition of government bonds on the secondary market by the ECB aiming at financing the Members’ budget independently of the capital markets is prohibited, as it would circumvent the prohibition of monetary financing,” the ruling said. Where this leaves the Draghi bond plan is anybodies guess.
Overall, there is an element of “stalemate” to the ruling and so the circus continues and the dog collars remain firmly fixed.
For now, the statues quo remains but expect the fun and games to start after Christmas.
Posted on September 14, 2012, in Uncategorized and tagged Angela Merkel, Bundestag, European Central Bank, European Stability Mechanism, European Union, Germany, Italy, Spain. Bookmark the permalink. Leave a comment.