Germany is the major economic force in the Eurozone and the wider European Union which means that it pays more into EU institutions than smaller economies. For instance, of the 17 nations that make up the Eurozone and have approved the European Stability Mechanism (ESM) fund, Germany is responsible for provision of 27% of the funding. On a domestic level, this is obvious not universally popular.
Germany’s highest court has been asked to decide if the nation’s support to ESM and its support of closer European Fiscal union breached the nation’s constitution. If that had been the case, German support would have to have been withdrawn and Europe would have been plunged into a fresh and grave crisis. In the event, the court determined that these matters were not in conflict with the constitution, leading to a rise in the Euro and stock markets.
The court did determine that German contributions had to be capped and that any further financial support would need the specific approval of Germany’s parliament to overturn the cap. With this impediment out of the way and following the broad approval of the ECB’s plan to buy sovereign bonds of nations in receipt of an EU/IMF bailout should borrowing costs become prohibitive, it is to be hoped that further German support won’t be needed.
The news that the German hurdle had been cleared pushed the Euro to a four-month high against the US Dollar with a Euro buying $1.29. The interest rates on Italian and Spanish ten-year bonds also fell back on the news, easing the borrowing costs for both nations. The Euro crisis has all been to do with confidence and it is interesting to note that Spain and Italy have benefitted from the embryonic ECB measure which, as things stand currently, they could not derive direct support from – it being only open to nations that have been granted an EU/IMF bailout.