Market watchers everywhere are breathing sighs of relief today: the German Constitutional Court dismissed a popular challenge to the constitutionality of the European Stability Mechanism (ESM), the proposed €500 billion euro bailout fund. As The New York Times reports, Chancellor Merkel is breathing a sigh of relief as well:
“Once again, Germany today sends a strong signal out to Europe and the world beyond,” Ms. Merkel said in an address to Parliament that was pushed back to allow her to react to the court’s ruling. “Germany is decisively true to its responsibility in Europe as the largest economy and a reliable partner.”
The decision also clears an important hurdle for ECB President Draghi’s unlimited bond-buying plan, which depends on troubled Euro countries cooperating with the strict rules of the ESM.With the support of the German Courts and Chancellor, the road now seems clear for the ECB, armed with the ESM, to take the mantle of the most powerful sovereign in Europe.This bodes well for the short-term survival of the euro. But in the long term, Europe will need to see more leadership from its conventional politicians if the union is to survive. We haven’t seen much evidence of that so far.