Germany’s highest court, the
Federal
Constitutional Court of Germany (Bundesverfassungsgericht), has
ruled that the European Stability Mechanism (ESM) is
constitutional. Markets have reacted favorably to the ruling, with
European stocks rising to their highest levels in
14 months.

With the ruling out of the way Germany can now ratify the treaty
establishing the ESM’s 500 billion euro bailout fund. While the
ruling comes as a relief to the political class in Europe the court
did add some strings to their ruling.

The court has ruled that ratification of the treaty can only
take place if the German legislature has authority over increases
in future contributions to the ESM. If the German contribution
looks to go over 190 billion euros parliamentary approval
will be needed. As it is Germany is expected to contribute 27
percent of the funds necessary for the ESM.

While the ruling does mean that the ESM is closer to being
established some have put the court’s ruling in a wider
context. 

From Jeremy
Cook, chief economist at World First:

While the immediate disaster has been averted this merely brings
us back in line with the general trend of gradual, painstaking
improvement in the Eurozone.

Over at Business Insider
Joe Weisenthal seems to think the ruling is something of a
storm in a teacup:

The big picture is that the ESM is already kind of obsolete now
that Draghi has gotten involved with his unlimited balance sheet.
The condition that Germany’s parliament must approve any decision
beyond 190 billion EUR oesn’t (sic) seem like a huge deal.

Read the court’s ruling in full here.