German Court's Decision Opens Door to Euro Rescue



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.

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Iran-Saudi Arabia Rivalry May Be Set To Ease, Or Get Much Worse

The Saudis may be awaiting the outcome of Iran's nuclear talks with the West, to see whether Tehran will moderate its regional policies, or lash out like never before.

Military parade in Tehran, Iran, on Oct. 3


LONDON — The Iranian Foreign Ministry spokesman Saeed Khatibzadeh said earlier this month that Iranian and Saudi negotiators had so far had four rounds of "continuous" talks, though both sides had agreed to keep them private. The talks are to ease fraught relations between Iran's radical Shia regime and the Saudi kingdom, a key Western ally in the Middle East.

Iran's Foreign Minister Hossein Amirabdollahian has said that the talks were going in the right direction, while an Iranian trade official was recently hopeful these might even allow trade opportunities for Iranian businessmen in Saudi Arabia. As the broadcaster France 24 observed separately, it will take more than positive signals to heal a five-year-rift and decades of mutual suspicions.

Agence France-Presse news agency, meanwhile, has cited an unnamed French diplomat as saying that Saudi Arabia wants to end its costly discord with Tehran. The sides may already have agreed to reopen consular offices. For Saudi Arabia, the costs include its war on Iran-backed Houthis rebels fighting an UN-recognized government in next-door Yemen.

The role of the nuclear pact

Bilateral relations were severed in January 2016, after regime militiamen stormed the Saudi embassy in Tehran. Amirabdollahian was then the deputy foreign minister for Arab affairs. In 2019, he told the website Iranian Diplomacy that Saudi Arabia had taken measures vis-a-vis Iran's nuclear pact with the world powers.

It's unlikely Ali Khamenei will tolerate the Saudi kingdom's rising power in the region.

He said "the Saudis' insane conduct toward [the pact] led them to conclude that they must prevent [its implementation] in a peaceful environment ... I think the Saudis are quite deluded, and their delusion consists in thinking that Trump is an opportunity for them to place themselves on the path of conflict with the Islamic Republic while relying on Trump." He meant the administration led by the U.S. President Donald J.Trump, which was hostile to Iran's regime. This, he said, "is not how we view Saudi Arabia. I think Yemen should have been a big lesson for the Saudis."

The minister was effectively admitting the Houthis were the Islamic Republic's tool for getting back at Saudi Arabia.

Yet in the past two years, both sides have taken steps to improve relations, without firm results as yet. Nor is the situation likely to change this time.

Photo of Iranian Supreme Leader Ali Khamenei in 2020

Iranian Supreme Leader Ali Khamenei in 2020

Riyadh's warming relations with Israel

Iran's former ambassador in Lebanon, Ahmad Dastmalchian, told the ILNA news agency in Tehran that Saudi Arabia is doing Israel's bidding in the region, and has "entrusted its national security, and life and death to Tel Aviv." Riyadh, he said, had been financing a good many "security and political projects in the region," or acting as a "logistical supplier."

The United States, said Dastmalchian, has "in turn tried to provide intelligence and security backing, while Israel has simply followed its own interests in all this."

Furthermore, it seems unlikely Iran's Supreme Leader Ali Khamenei will tolerate, even in this weak period of his leadership, the kingdom's rising power in the region and beyond, and especially its financial clout. He is usually disparaging when he speaks of Riyadh's princely rulers. In 2017, he compared them to "dairy cows," saying, "the idiots think that by giving money and aid, they can attract the goodwill of Islam's enemies."

Iranian regime officials are hopeful of moving toward better diplomatic ties and a reopening of embassies. Yet the balance of power between the sides began to change in Riyadh's favor years ago. For the kingdom's power has shifted from relying mostly on arms, to economic and political clout. The countries might have had peaceful relations before in considerably quieter, and more equitable, conditions than today's acute clash of interests.

For if nuclear talks break down, Iran's regime may become more aggressive.

Beyond this, the Abraham Accord or reconciliation of Arab states and Israel has been possible thanks to the green light that the Saudis gave their regional partners, and it is a considerable political and ideological defeat for the Islamic Republic.

Assuming all Houthis follow Tehran's instructions — and they may not — improved ties may curb attacks on Saudi interests and aid its economy. Tehran will also benefit from no longer having to support them. Unlike Iran's regime, the Saudis are not pressed for cash or resources and could even offer the Houthis a better deal. Presently, they may consider it more convenient to keep the softer approach toward Tehran.

For if nuclear talks with the West break down, Iran's regime may become more aggressive, and as experience has shown, tensions often prompt a renewal of missile or drone attacks on the Saudis, on tankers and on foreign shipping. Riyadh must have a way of keeping the Tehran regime quiet, in a distinctly unquiet time.

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