Germany's Federal Constitutional Court (or the Bundesverfassungsgericht, if you are so inclined) will not rule on the constitutionality of the European Stability Mechanism and the fiscal pact until September. The announcement caused European stocks to fall and has increased the level of uncertainty in Europe among some European politicians. Valentin Marinov, Director of FX Strategy at CitiFX said:
This adds to the uncertainty about the ability of the euro zone officials to respond adequately to any potential further deterioration of the debt crisis.
While the court is likely to rule in favor of the constitutionality of the bailout mechanism and closer fiscal union, the eight-week delay may be too long to wait before the eurzone deteriorates further. Paul Krugman was saying that it was hard to see how Greece could remain part of the eurozone back in June. Michael Saunders, chief economist from Citigroup, warned that Greece only had seven months left in the euro back in March, which is close to when the Federal Constitutional Court is scheduled to make its ruling.
A ruling in favor of the measures will almost certainly come with attachments. The most likely of these will be an increase in the amount of influence Germany will have on the bailout conditions. In Germany patience with Greece and Spain is wearing thin and German politicians will be under pressure to make the future bailouts conditional on further austerity measures that would be very unpopular. In fact, it was members of German Chancellor Angela Merkel's own party who were among those who made complaints to the Federal Constitutional Court against the measures. It will be difficult for most Mediterranean countries to comply with the bailout conditions that Merkel will almost certainly have to implement due to pressure from her own party and an upcoming reelection campaign to worry about.
Comments