Tag Archives: European Stability Mechanism

Why is the German Courts Ruling Important?

The eurozone countries, in their attempts to contain the debt crisis had ratified an agreement to create a permanent bail-out fund, the European Stability Mechanism (ESM), the permanent fund was to be €500 billion ($638.8 billion). However, some German lawmakers said that German involvement in the fund was in breech of their constitution. Today, Germany’s highest court ruled that the fund does not violate the German constitution, thus removing a considerable road block towards solving part of the debt crisis.

The court hearing has caused much uncertainty in European and global markets. Had the German lawmakers ruled to block the bailout fund, it would have sent panic through the global economy, and would have ended the bail-out fund as a rescue vehicle;  Germany is the biggest contributor to the fund, as they are the largest economy in Europe.

However, the German court have placed a limit on Germany’s contribution to the European Stability Mechanism; Germany’s financial liability in the bail-out fund cannot be increased without agreement from the German parliament.  Germany will not sign a blank cheque to Brussels!