Germany: Parliament approves Spanish rescue fund but uncertainty about the ESM persists
July 25, 2012
Despite growing public opposition to Eurozone bailouts, on 19 July, the German parliament approved by an ample majority the EUR 100 billion financial assistance program to recapitalise the Spanish banking sector. However, while Parliament paved the way for the ratification of the ESM, several opposition lawmakers challenged the decision and asked the Federal Constitutional Court to pass an injunction, thus effectively preventing the law from coming into force pending its final decision in the case. The Court announced that it will take until 12 September to determine whether Germany's participation in the EUR 500 billion permanent rescue fund and the European fiscal pact is unconstitutional. At the core of the court's investigation lies the question of whether Germany's participation violates Parliament's budget powers, which are granted in the Constitution. The delay poses another obstacle to resolution of the debt crisis. While analysts do not expect the court to block German participation in the ESM, they do anticipate the court will stress that the lower house of Parliament must be involved in major decisions regarding the ESM. On July 23, amid rising uncertainty regarding the unfolding Eurozone debt crisis, credit rating agency Moody's placed Germany's Aaa-rated rating under review for possible downgrade. Moody's lowered Germany's credit outlook from stable to negative, citing the increasing likelihood of Greece's exit from the Euro area, a scenario that would be distressful not only for Spain and Italy, but also for core European countries.
Author: Ricardo Aceves, Senior Economist