German Judges Control the Future of the Euro

By FX Empire Analyst - Barry Norman
Font Size
Get Forex buy/sell signals directly to your email and by SMS.
To learn more click here

Judges of Germany's Governmental Court expressed worry over the course of day-long hearing earlier this week over finding the right balance between a quick ruling on the European Stability Mechanism's legality, and taking more time to get their decision right.

Exactly when a decision will be offered was left open by the panel. The court adjourned following a nearly 11-hour hearing without offering particulars on its plans.

Judges with their questions of witnesses suggested a two-part decision was perhaps most probably, first on the demands to produce a temporary injunction against ESM in about 3 weeks, after which in early 2013 upon the broader constitutional question.

However the court also suggested uncertainty over the distance a choice over the temporary injunction should go. They pressed witnesses over how much time the legal court must reach a ruling, even raising the possibility of a "middle solution" of the single, full decision in two to 3 months.

With government witnesses warning of serious consequences for EMU of a long delay, judges appeared to acknowledge that granting even a temporary injunction could possibly be interpreted as a sign that they were leaning against approving the ESM and monetary Compact, which was passed by having two-thirds majority by Germany's parliament last month.

An injunction "will be interpreted by the foreign press as 'euro-rescue is halted'" Court President Andreas Vosskuhle said in the course of the hearing straight into the injunctions sought by opponents of European rescue fund.

But Vosskuhle also recognized opponents' arguments that allowing the ESM to enter into force now could make the treaty unstoppable, rendering any future ruling on its constitutionality ineffective. The timing of the decision clearly is "hard," he said.

German Bundesbank President Jens Weidmann said in his testimony any assessment of the consequences of a delay is "highly speculative" and noted the temporary EFSF had enough funds available to handle even the envisaged programs for Spain and Cyprus.

But he also acknowledged an ESM delay could carry consequences if the situation in Europe had to deteriorate further in the coming weeks or months.

"In this particular scenario, doubts about the adequacy of the existing available finances would cause greater uncertainty," Weidmann said. This could also increase pressure upon the ECB, and as such increase the risks for its balance sheet, Weidmann said.

German Finance Minister Wolfgang Schaeuble was more aggressive, telling the court it was eventually a "issue of weeks." In comments to reporters after, he emphasized that ESM must take effect so that you can give the broader Eurozone reforms being enacted time for them to take hold

Schaeuble earlier warned the results of delay would extend "far beyond Germany," including financial ramifications as well as a "clear strengthening" of the existing Eurozone crisis, which could once again lead some European countries to have serious refinancing problems.

Want to read more articles like this one?

Get the latest fundamental analysis, technical analyses and the most up-to-date news catered to your interests, everyday.

* Please enter a valid email

Activation link was sent

An activation link has been sent to your E-mail.
You will start getting emails only after activating your account.

Find a Broker
Continue to FX Empire Network