Courtesy of Mish.
Ambrose Evans-Pritchard has an interesting piece in The Telegraph regarding the German constitutional court’s upholding of the ESM with conditions.
Pritchard often takes a contrarian view, and with near-unanimous opinions that the court caved in, he has a different view.
It’s the kind of post that makes you stop and think, which is why I keep reading Ambrose, even though we frequently clash over monetary policy.
Pritchard claims German Constitutional Court tightens the noose yet further.
Just as it gave the go-ahead for Maastricht, Lisbon, the Greek rescue, and the EFSF bailout fund with a “Yes, but” with the ‘but’ mattering most in the end — Karlsruhe has now endorsed the European Stability Mechanism (ESM) with strings attached as well.
It has done so only under conditions that will greatly complicate EMU rescue politics in the future.
Here are some instant thoughts. I will be writing at greater length about the court later today for the newspaper.
Germany’s ESM share is capped at €190bn, so what happens if Spain and Italy are forced to step out of the rescue machinery because they themselves are in too much trouble to fund the mechanism?
The Court made it clear that Germany will not automatically pick up the slack.
“The Federal Republic of Germany must clearly express that it cannot be bound by the Treaty establishing the European Stability Mechanism in its entirety if the reservation made by it should prove to be ineffective.”
This matters. It may well be tested.
The Court also killed off any idea of a banking licence for the ESM, viewed as crucial to give it adequate firepower….