Germany's Highest Court Gives Green Light For Future Bailouts, But With Conditions

Germany’s highest court, the Federal Constitutional Court of Germany (Bundesverfassungsgericht), has ruled that the European Stability Mechanism (ESM) is constitutional. Markets have reacted favorably to the ruling, with European stocks rising to their highest levels in 14 months.

With the ruling out of the way Germany can now ratify the treaty establishing the ESM’s 500 billion euro bailout fund. While the ruling comes as a relief to the political class in Europe the court did add some strings to their ruling.

The court has ruled that ratification of the treaty can only take place if the German legislature has authority over increases in future contributions to the ESM. If the German contribution looks to go over 190 billion euros parliamentary approval will be needed. As it is Germany is expected to contribute 27 percent of the funds necessary for the ESM.

While the ruling does mean that the ESM is closer to being established some have put the court’s ruling in a wider context. 

From Jeremy Cook, chief economist at World First:

While the immediate disaster has been averted this merely brings us back in line with the general trend of gradual, painstaking improvement in the Eurozone.

Over at Business Insider Joe Weisenthal seems to think the ruling is something of a storm in a teacup:

The big picture is that the ESM is already kind of obsolete now that Draghi has gotten involved with his unlimited balance sheet. The condition that Germany's parliament must approve any decision beyond 190 billion EUR oesn't (sic) seem like a huge deal.

Read the court’s ruling in full here

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  • R C Dean||

    As it is Germany is expected to contribute 27 percent of the funds necessary for the ESM.

    I can't recall the percentages, but Greece, Italy and Spain are also expected to contribute. Probably more, collectively, than the Germans.

    Not sure how that will work.

  • Jerry on the road||

    Spanish bank buys Spanish debt, Spain contributes to ESM, ESM buys debt from Spanish bank. Repeat.

  • Ice Nine||

    Why was the church choir there?

  • sarcasmic||

    Is there some rule somewhere where judges must dress in ridiculous costumes?

  • Pro Libertate||

    I didn't expect some sort of Spanish Inquisition.

  • ChrisO||

    I'm sure that taxpayers there are thrilled to know that they've become insurers for irresponsible banks. This will not end well.

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