By Rebecca Burn-Callander Wednesday, 12 September 2012

Germany 'is not violated' by eurozone rescue fund

Germany's Constitutional Court okayed the nation's participation in the European Stability Mechanism this morning, subject to a few quid pro quos.

Fears that the European Stability Mechanism contravenes the German constitution were allayed today. Judges at the court in Karlsruhe have given their blessing to the fund, although stipulated that the amount of German funds committed to the eurozone bailout fund should not exceed a maximum of €190bn.
 
‘The Second Senate of the Federal Constitutional Court has rejected the injunctions with the stipulation that a ratification of the ESM treaty is only admissible if [certain conditions] can be guaranteed under international law,’ declared Andreas Vosskuhle, the chief justice, who wears a natty red outfit, making him look like a latterday Medici.
 
The move silences critics of the ESM, who argued that it sentenced Germany to economic slavery, churning out potentially unlimited cash to the debt-ridden eurozone states. Nearly 37,000 people signed a petition to the court asking it to block the fund.

However, with this cap in place, German President Joachim Gauck gets the nod to sign the ESM into law, allowing it to take over from the temporary fund that has already bailed out Greece, Ireland and Portugal. The eurozone can breathe a (temporary) collective sigh of relief now. A negative verdict would have sent the euro into freefall, wrecking the bloc’s chances of saving the single currency.
 
The eurozone has got off pretty lightly today, all things considered. Even the €190bn cap isn’t set in stone. The judges have said that the figure could be renegotiated, subject to the will of the Bundesbank. Following the verdict, the euro bounced to hit a four-month high against the dollar, rising as far as $1.29065, up from $1.2845 before the ruling.
 
Could this signal real progress on the eurozone debt crisis? Let’s see how the ESM works out first…

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