13 September, 2012
A good week
The rumours in Holland were that the Far Right party of Geert Wilders, which had turned its fire from immigration to Europe, and the Far Left anti-bailout party, would form a serious bloc. In the end the voters went for centre-right and centre-left. Polls showed that there was popular discontent with the bailouts but rocking the boat was too much for the Dutch.
Of the Constitutional Court decision, one of the German papers said it was a bad day for Eurosceptics. This is to misunderstand. Eurosceptics do not want financial disaster in Europe - it will benefit no-one. It comes as neither a surprise nor a setback that the ESM is regarded as legal rather than otherwise. I only point out that it is not necessarily a good thing.
The Court's full judgment contains a few caveats: Germany's liablity is capped at 27% of €700 billion which means the fund cannot be increased without the approval of parliament (and if they have blown all that, MPs are going to ask where it has gone before stocking the fund up with more).
The ESM cannot get a banking licence and borrow more from the ECB. This may be important, and is something Italy's Mario Monti described as crucial. It does not have 'unlimited firepower'.
And of course the idea of joint liability for Europe's debts, by way of eurobonds or anything else, is dead in the water.
So if Spain applies for help. and this tips Italy into proffering the begging bowl, €700 billion, of which €200 billion has already been blown, may not be enough: Germany can't lend Italy more money to pay its share of the bailout of Spain and vice versa.
The markets will look closely at this, and look at the terms which will be applied to any bailouts. They will wonder if these limits are worth testing.