Last week Germany’s constitutional court ruled in favor of the European financial adjustment facility. As the FT’s Wolfgang Munchau writes, at first glance many observers saw the decision as a victory for those who want a collective European response to the crisis, but on closer inspection it turns out to place sharp limits on what Germany can legally do.
The court upheld the European financial adjustment facility, the crisis mechanism. This was, undoutedly, good news. But after I read the whole ruling, which ran to 29 tightly written pages, I realised that this judgement was not a victory for the eurozone at all. On the contrary, it categorically rules out any policy option beyond what has been agreed so far…It says the German government must not accept permanent mechanisms – as opposed to the EFSF, which is temporary – with the following criteria: if they involve a permanent liability to other countries; if these liabilities are very large or incalculable; and if foreign governments, through their actions, can trigger the payment of the guarantees.
That pretty much rules out Eurobonds or significant movement toward stronger European financial union without amending the German constitution.
This is probably the right stance in both politics and law; decisions that essentially would change Germany’s fundamental form of government cannot be put through by a Chancellor’s decree. The last time that was tried was in 1933 and Germans have no intention of ever going there again. But the Bundesverfassungsgericht’s ruling makes it just a little bit harder for Europe to manage a financial crisis that could plunge the world back into recession.