The German Constitutional Court will present its verdict on the ESM and the fiscal compact on 12 September. A reversal of the ESM looks unlikely, but more powers and control to the German parliament would limit the often called for flexibility of the ESM already from the start.
At least one European institution does not seem to see a need to rush.
The German Constitutional Court yesterday announced that it will present
the final verdict of the expedited proceedings on the ESM Treaty and
the fiscal compact only on 12 September. This is later than expected.
Normally, the so-called fast-track procedure leads to final verdicts
after three weeks. It is broadly expected that the verdict on the
expedited proceeding could already encompass a verdict on the “normal”
lawsuits filed against the ESM and the fiscal compact.
The common denominator of the several filed lawsuits is that the ESM
would lead to unlimited risks and liabilities for German taxpayers.
Moreover, the ESM would undermine the national sovereignty on the
national budget. The complainants argue that the ESM would fundamentally
change Europe, while the German government has always answered that
both the ESM and the fiscal compact were only necessary requirements to
ensure the stability of the euro as provided in existing European
Basically, there are three possible scenarios possible: 1) an
unconditional yes to the two Treaties; 2) a conditional yes to the two
Treaties, asking for more control powers and responsibilities for the
German parliament; and 3) a refusal of the two Treaties. Obviously, the
third option would lead to sheer chaos on financial markets as it would
reverse all rescue efforts taken over the last two years. In our view,
however, this outcome is highly unlikely and would not be in line with
past verdicts. The other two options would finally give the green light
for the ESM. Our current take on the most likely outcome is along the
lines of an earlier verdict by the Constitutional Court, which had given
the German parliament a veto right for all Eurozone bailouts. In this
scenario, however, the often called for flexibility of the ESM would
obviously be reduced or limited already at the start.
An announcement of the German Constitutional Court’s verdict on the ESM
in September should still be quick enough not to derail markets, but
will not lower uncertainty in the coming weeks. Maybe even more
important, the upcoming verdict is another reminder that the destiny of
the monetary union is not exclusively in the hands of policymakers. It
might be an irony of fate that on the day of the Court’s announcement
there will be a second event which could also have an impact on the
Eurozone crisis management: the Dutch elections.
All of a sudden it looks as if the month September, rather than June or
July, will bring new milestones in the Eurozone crisis. It might not be
their favourite music style, but with two crucial upcoming events that
are out of their direct influence, Eurozone policymakers might start
humming the tune of a successful hit of the American rock band Green
Day. “Wake me up when September ends.”