Wednesday, September 12, 2012

German Court says "yes, but..." to ESM

More relief for the Eurozone. The German Constitutional Court ruled in favour of the ESM. The strings attached to the Court’s ‘yes’ seem softer than in past verdicts.
In its long-awaited ruling, the German Constitutional Court yesterday gave the green light for the ESM and the fiscal compact. The Court said “yes, but…”, adding some conditions to the German approval. As expected, all emphasis was on preventing unlimited financial liability for German tax payers and ensuring that the German parliament remains responsible for the budget. The “but’s” in the Court’s verdict are small but significant.
The Court ruled that German liabilities have to be capped at the current contribution of 190bn euro. This cap should be mandatory under international law. Any future increase of the ESM’s capacity would require approval by the German parliament. Moreover, the Court ruled that the clauses on immunity and professional secrecy for Board members of the ESM should not apply for the information flow to the German parliament. This is an indirect accountability clause. As a consequence, German president Gauck should now be able to sign the Treaty once the cap on the German contribution has been laid down in international law.
At least at first glance, the Court’s ruling surprises somewhat by the absence of stricter conditions. The Court did not ask for definite limits and did not identify violations of the democratic principle.
Within less than a week, the Eurozone has finally received its long sought-after impressive bazooka: conditional but unlimited ECB bond purchases and the ESM which provides a new fresh lending capacity of 500bn euro. Of course, it is a bazooka with potential risks and side-effects. As a result, Eurozone governments have now received more time to do their homework, implement reforms and austerity measures. Today’s ruling has not solved the crisis, neither has last week’s ECB decision. However, after monetary and legal authorities have done their part, the destiny of the Eurozone is now exclusively in the hands of governments.

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