European emergency fund approved by German Court, but subject to conditions

There is no longer any obstacle for Germany to ratify the European emergency fund ESM. That is the main conclusion following the ruling of the German Constitutional Court in Karlsruhe. However, the Court does impose conditions here.

One of those conditions is that Germany is not allowed to increase its contribution, currently a guarantee of 190 billion, without the agreement of the Bundestag.

Despite the fact that this ruling was expected, the stock markets reacted positively to the ruling. Yields on the ten-year government bonds of Italy and Spain are falling. The euro reacted positively by rebounding to a four-month high.

CONSTITUTIONAL COURT
The Constitutional Court, which has the task of guaranteeing the rights of German citizens enshrined in the constitution, has recently considered the question of whether German support for the European emergency fund ESM is constitutional. If the Constitutional Court had rejected Germany's participation, ratification of the ESM would not have been possible.

THE WAY OPEN FOR ESM
The ESM (European Stability Mechanism) is a permanent emergency fund for the euro area and is the successor to the EFSF (European Financial Stability Facility), which was temporary. This fund can be used if one of the euro area countries gets into trouble. The seventeen euro countries have collectively made a cash contribution of 80 billion euros and guarantee 500 billion euros (with the temporary EFSF added 700 billion). This is based on a previously agreed distribution key. The Netherlands contributes 5.7 percent (4.57 billion) and guarantees a total of 40 billion euros. This places the Netherlands in fifth place in terms of contribution. Only Spain, Italy, France and Germany pay more.

The President of the Eurogroup said in a statement that he expects the ESM to enter into force soon. This is still doubted by others. This doubt arises from the fact that it can be deduced from the Court's ruling that an amendment or addition may still be necessary to the ESM treaty.

You can here read the entire judgment of the Constitutional Court.

Source: nrc.nl