FOCUS, BERLINER MORGENPOST (Germany), LES ECHOS (France)
BERLIN - The German Constitutional Court has upheld the legality of the European Stability Mechanism (ESM), which had been set up to help bail out countries in the euro zone on the verge of financial collapse.
With the decision Wednesday, a great source of anxiety was lifted for both top European politicians and many investors: had the ESM been nullified by Europe's largest economy, it could have risked throwing out the euro as we know it.
Instead, the Court decided that the entire ESM was legal, but that parliamentary control over it must be made stronger.
Paris-based business daily Les Echos explains that the German Constitutional Court, set up after World War II with an eye to avoiding the problems of the weak Weimar Republic government that preceded Hitler’s National Socialists, has extraordinary power in present-day Germany. It can legally remove the President, reject international treaties, and overrule German laws. Any citizen of Germany can ask the Court to rule on standing measures, which is exactly what 70,000 of them did, asking the Court’s opinion on the ESM.
Worry had been palpable before the decision. German Chancellor Angela Merkel said, “If the euro fails, Europe fails,” and was forced to explain her country's legal system to French President François Hollande and Chinese premier Wen Jiabao. IMF [International Monetary Fund] director Christine Lagarde supposedly quipped about the weight of the Constitutional Court: “If I hear that word [Bundesverfassungsgericht] once more, I’m leaving the room!”
The Court’s decision had an immediately favorable effect on interest rates for loans to the governments of euro-zone countries in crisis. Rates on 10-year Italian government bonds fell to 5.053 % and on Spanish bonds to 5.628 %. The euro rose back to its level of May 2012.
The Court’s decision was welcomed by most German politicians and also by the public. According to a recent poll by a German television news channel, 53 % of Germans want to save the euro even if it means continuing to provide financial help to countries in crisis.
Andreas Rees, chief economist in Germany for the Uni Credit bank, says, “This is a good day for the euro zone,” Focus reports.
But conservative CDU member Wolfgang Bosbach was more skeptical: “It’s a good sign that parliamentary rights have been strengthened. On the other hand, the liability limit of German 190 billion euros is reassuring only at first glance.” If the European Central Bank decided to buy government securities in unlimited amounts, the German share of the responsibility would also grow, he added.
Jean-Claude Juncker, Prime Minister of Luxembourg and head of the Euro Group that holds political control over the single currency, says that the ESM could now be put into effect as early as October 8th, reported the Berliner Morgenpost.