In a much-awaited but basically unsurprising decision, Germany’s judges have assented to the constitutionality of the European Stability Mechanism, the permanent European bailout fund to replace the EFSF, though they ruled the fund will require legislative approval if Germany’s commitment is expanded. The BBC reports:
Leader Angela Merkel called it “a good day”, while markets rallied in relief. . . .
Critics had argued that the ESM commits Germany to potentially unlimited funding of debt-ridden eurozone states.
Some 37,000 people had signed a petition to the court asking it to block the ESM, and make it subject to a referendum.
Since Germany is due to contribute 27% of the fund, it cannot proceed without German ratification.
However, he said ratification of the treaty could only be allowed under certain conditions.
He continued: “No rule of the treaty must be interpreted in a way which would result in higher payment obligations by Germany, without the consent of the German representative.”
Correspondents said that meant that any future increase in the size of the 500bn-euro (£400bn) fund, or of Germany’s contribution, could only be permitted with the express agreement of Germany’s parliament. When added to the money already committed to the existing temporary fund, Germany is liable for about 190bn euros. . . .
Spanish, Italian and German share indexes all rose after the ruling, while the euro continued its recent gains to post a hit a new four-month high against the dollar, at $1.29. The borrowing costs on Spanish and Italian 10-year bonds fell.
BBC economics editor Stephanie Flanders comments: “The institutions that seem to be most keen to put control over the future of the euro into the hands of the voters are the ones that are least accountable to them.” Indeed, it seems to be a supreme irony that the entity with the most serious concerns (though ultimately discarded anyway) about the German people’s being shackled to Europe Europe was not their body of elected representatives.