You'll need a much longer pole
The German Constitutional Court's ESM Ruling
The decision taken by Germany’s Constitutional Court on the ESM euro bail-out fund has quite a number of implications for the euro. These implications range from the rescue funds to the banking union and the Target payments system.
Firstly, the court granted a general consent for the rescue operations and declined the appeals against the ESM. Thus, the Bundestag is empowered to provide funds to the ESM, and the limits for such funds are everything but tight. Unconstitutionality can only be ascertained if the Bundestag has lost its control over the budget entirely. However, the Federal Ministry of Finance will now have to earmark expected ESM payments in advance in the budget and cannot book these payments ex post as an amendment or an emergency budget measure.
Secondly, the ruling has implications for the planned banking union. The Court excludes any kind of payment automatism with collective funds. The Bundestag must decide upon each payment on a case-by-case basis. This represents a prohibition of the automatic support for banks with ESM funds that the EU Commission and the ECB have been aiming for. It also excludes Eurobonds.
Thirdly, according to the Court, in order for the Bundestag to retain its veto power in the ESM, it must block any expansion of the ESM to new members unless the rules are changed to preserve this veto power. In this respect, the Court has driven an important stake into the ground.
Fourthly, the Court also excludes the possibility of joint and several liability for payments into the ESM. As a result, Germany will not be obliged to inject more equity into the ESM if other guarantors do not fulfil their obligations. This, however, had been clarified and demanded by the court one-and-a-half years ago in a preliminary ruling that had required the German government to ask for a binding declaration of all other EU governments.
Fifthly, the Court accepts the Target payment system between European central banks in its current form in its ruling, arguing that any complaints should have been lodged one year after the set-up of the Target2 system in 2007 at the very latest, and that the plaintiffs did not provide sufficient proof of the liability risks. This view is understandable given that the Target balances were nothing but a side issue in the court case, but it disregards the fact that the ECB has made half of the Eurosystem’s stock of central bank money, or around 600 billion euros, available as extra funds to banks in the six crisis-afflicted countries in return for poor-quality collateral, indirectly turning the Bundesbank into the biggest single creditor to these banks. Now the banks in the crisis-afflicted countries have to be bailed out with public money to safeguard the funds that they have already been loaned. This all happened after the deadline for filing a complaint had already expired.
The Court’s statement did not affect the ruling on the bailout promise that the European Central Bank made within the framework of the OMT, since this part of the process will be dealt with separately. The Court conjectured a month ago that the European Central Bank overstepped its mandate and announced that it would call upon the European Court of Justice to hear its opinion regarding how the OMT could be modified so as to curb this "usurpation of power".