Austerity, bailout fatigue take toll

A CONSTITUTIONAL crisis for Germany and a financial shock to the euro have been averted by a court decision that will allow Germany to contribute to Europe’s permanent euro bailout fund.
The German Supreme Court last night ruled that it was legal under the constitution for Germany to participate in the bailout, but imposed conditions, including a limit of €190 billion ($234 billion).
If the government wants to contribute more than this to the €700 billion European Stability Mechanism, the decision must be referred to the German parliament for a vote.
This means that heavily indebted countries such as Greece and Spain can continue to receive the support they need in order to avoid bankruptcy.
The court case had threatened the government of Chancellor Angela Merkel and risked plunging European sharemarkets into turmoil and the world economy into a downturn.
The case was mounted by 37,000 petitioners, including the group More Democracy, academics, ordinary Germans and members of Dr Merkel’s own party. They were angry that their taxes were being used to support olive-belt countries they regarded as financially reckless and claimed Germany was taking on “unlimited and irreversible liability risks”.
Germany was the only eurozone country not to have ratified the treaty establishing the ESM. As it is also the largest, the fund had been unable to open for business.
In line with its share capital in the European Central Bank, Germany must give €22 billion in cash to the fund and provide guarantees totalling €170 billion. But critics warn that much more will be required to support the unsteady euro.
The fund’s war chest is not considered enough to finance a full bailout of both Spain and Italy.
The court decision was in line with expectations, with many observers having predicted that the court would be reluctant to bring down either the government or the euro and would likely steer a middle path that set limits.
Mattias Kumm, of Berlin’s Humboldt University, said, “It means that Germany will now be able to move forward and ratify the ESM, providing an additional clarifying interpretation of the conditions under which Germany can assume responsibility. So in effect, this means that the ESM can enter into force.”
It also means that regular reports on where Germans’ money is going will be made public in the run-up to the German federal election.
Meanwhile, voters in The Netherlands went to the polls overnight in a general election triggered by the refusal of Geert Wilders the leader of the Freedom Party, to support cuts to reduce the Dutch deficit.
Opinion polls put radical eurosceptic parties in third and fourth place in elections that were expected to rob Dr Merkel of a key ally as the Netherlands swings to the left, away from Berlin’s doctrine of fiscal discipline and towards French President Francois Hollande’s support for reduced austerity.
Many commentators are predicting the biggest swing to the left in Holland’s history.

First published on theage.com.au