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.
There will be no new deal for Ireland until we have closure on these matters.
The negotiations with Spain and Italy will be tough. The Spanish Finance minister Luis de Guindos has told the creditor bloc that the battle for the survival of the euro will take place in Spain. Some people see this as a threat to walk away from the Euro if pushed too far.
If deals are not stuck over the coming months, the outlook for Ireland just becomes that bit harder.
Our Government appears to rely on a positive outcome, and we suspect that they have no alternative plan if the negotiations prove to be futile.
In the long term, this debt problem will, hopefully be solved resulting in debt stabilizing at a high level. This of course means for the participating bailout nation’s years of austerity.
It of course remains debatable even if the plan comes to fruition, it will correct these very complex problems. However, then again, that is another story.