After several rounds of debates, Germany’s Federal Constitution Court ruled that their participation in the Greek bailout was completely legal. They also declared that any future aid provided through the euro zone’s rescue fund would be constitutional, as long as it gets the thumbs-up from the parliament’s budget committee.
Phew! That’s quite a relief for the euro zone, particularly for Greece and the other member nations dealing with massive debt problems. You see, these countries were on tenterhooks when German conservative legislator Peter Gauweiler and a group of professors filed a suit challenging the legality of the bailouts. Imagine how you’d feel if you borrowed money from a dear friend and he got sued for it!
For German Chancellor Angela Merkel, big brother Germany was just doing its rightful duty of helping a troubled fellow out. Recall that Germany shouldered the biggest portion of the 110 billion EUR Greek bailout package in 2010 and made the largest contribution to the European Financial Stability Facility. Since Germany was faring way better than its euro zone brothers, Merkel felt that they had to step up to the plate and make sure that the debt woes of the smaller nations wouldn’t endanger the stability of the entire region.
Of course Merkel’s willingness to fund euro zone bailouts ruffled the feathers of several lawmakers and German taxpayers who disapproved of paying for their neighbors’ debt. I’m pretty sure they aren’t too pleased with the German court’s recent ruling on the bailouts, but they could take comfort in knowing that the German parliament would have more control on how their tax money is spent.
As I mentioned earlier, future bailouts would have to get the approval of the parliament’s budget committee before the funds are actually doled out. For some, this would prolong decision-making and further complicate the bailout process. Quick and decisive action is required to keep the debt crisis contained, but it could take the budget committee members a long time to fuss over and agree on the details of succeeding rescue plans.
Thank goodness future bailouts don’t have to be approved by the ENTIRE parliament! That would just take forever!
Since the German court’s ruling on future bailouts was less strict than expected, the euro reacted positively to the news and risk appetite improved in the markets. At least the debt-ridden nations that got bailed out no longer have to worry about returning the rescue funds. On top of that, the legality of future bailouts was basically like handing over a blank check to the heavily indebted euro zone members.
However, the euro quickly erased its gains as traders realized that there could be room for further complications. For one thing, the German parliamentary budget committee could always refuse to sign the check when they’re being asked for too much or if they don’t have the funds to back it up. Aside from that, other euro zone countries could form budget committees of their own, which would also have a say in their future bailout contributions. Now that would make the process even more complicated and time-consuming!
Do you think the German court’s ruling would make bailouts more difficult for the euro zone? Let us know what you think by voting through the poll below or dropping a line through our Twitter account or Facebook page.