Finally a gargantuan obstacle has been overshadowed for the survival of the Eurozone by the German Constitutional Court as it delivered a momentous decision with far reaching implications for the euro’s future by ratifying the bailout fund and budget pact. Germany was the only country in the 17-nation euro zone that had to ratify the European Stability Mechanism (ESM), which was meant to erect a 700 billion-euro firewall against the spread of the three-year-old sovereign debt crisis.1
Rejecting injunction requests from 37,000 plaintiffs seeking to block the ESM and a separate pact on new budget rules, the court set two main conditions for the treaties to go ahead.2
It said German liability in the rescue fund must be limited to 190 billion euros, the share set out in the current ESM treaty, and that any increase in that amount would require prior approval by the Bundestag lower house of parliament.3
Now as the firewall has been erected and ratified, will ESM be the facility which would bailout and bring back the financial stability of the beleaguered zone? Many analysts believe that the 700 billion-euro firewall won’t be enough for the European sustainability. It might delay the essential fiscal consolidation restructuring but it cannot eradicate the viability of it. Though the corpus of the mechanism might help the debt stricken countries like Spain and Italy to make a comeback in terms of financial stability but the sustainability of the present contagion i.e. Percentage of Debt to GDP ratio (which is alarmingly high) is still a major concern.
Creation of sustainable banking structure across the union, capping extravagant expenditure and rather utilizing the easily availability of monetary resources in asset creation, generating more employable options and benchmarking the wage rates to the Asian peers can raise hope to curb this financial malady. Strong conviction across the union leaders and trade opportunity creation by the developed partners for the developing ones can substantiate the 700 billion-euro injection.
Though ESM would surely resurrect the mood of revival in the Eurozone but the political collaboration among the countries is also of an utmost importance for the economic survival of the monetary union. Only if the political willingness moves in tandem with the economic affirmation this European Stability Mechanism ratification would be justified.
And as it is quoted by Andy Warhol, an American artist “The idea of waiting for something makes it more exciting” and so it would be really interesting to see how this ‘stimulus package’ is used? And will this mechanism mark the political and economic resurrection of European Union once again?
2 & 3 - in.reuters.com/article