…or does it? From The Wall Street Journal:
KARLSRUHE, Germany (Dow Jones)–Germany’s Federal Constitutional Court Wednesday ruled that the euro-zone’s 2010 bailout for Greece and subsequent aid granted through the currency bloc’s rescue fund is legal, eliminating a major hurdle to the sovereign debt crisis response that’s been closely watched by financial markets.
The constitutional court in Karlsruhe also ruled that Germany’s Parliament should have more say in major future euro-zone bailouts, but these would only need approval from the parliament’s budget committee. This requirement is less strict than some proposals circulated by key government lawmakers that call for the plenary’s approval, a move that could stall the pace of future bailout efforts by giving more lawmakers influence to sway the decision process.
The German constitutional court rejected the challenge against the Eurozone ‘bail outs’ but said that the ruling shouldn’t be seen as “blanket” approval for future bail outs. Going forward Angela Merkel and the German government must seek approval from the Parliament’s budget committee for new guarantees it assumes under the European Financial Stability Facility.
The writing on the wall though, is Merkel’s recent spanking in elections. Simply, I highly doubt that Germans will accept the institution of an organization that requires 133% of their GDP to bail out every PIG under the sun. They will elect other leaders, when given the opportunity — and those leaders may not be interested in German participation in anything European. Or more worryingly, they may be interested in bringing Europe under German dominion.
Unsurprisingly, this is a big hit for gold:
Of course the market is being very myopic. Just because Germany has decided that the bailouts are constitutional, doesn’t mean that Germany can or will go on forever carrying them out. As UBS recognised recently, the real problem in Europe is the lack of fiscal and monetary harmony: countries can pile up huge amounts of debt in currencies they do not control. And whether or not Germany is willing or able to finance bailouts won’t change that problem.