German Constitutional Court Approves ESM Rescue Fund With Conditions

Germany’s Constitutional Court on Wednesday approved the establishment of the ESM (European Stability Mechanism)  rescue fund for the 17 countries in the euro area.

The Constitutional Court added conditions to the ESM, stating that there must be a cap set for Germany’s liabilities at €190 billion euros for it to fully comply with Germany’s Basic Law, or constitution before ESM ratification.

The cap can be increased if the German parliament supports extra funding.

The ESM was expected to make its debut in July with  a €500 ($639) billion firewall to help contain the euro area debt crisis from spreading. But German constitutional ratification was first required to unlock the vaults of Germany’s 27% capital share of the ESM.

Most Germans oppose the ESM and its unlimited bond buying program to buy debt and lower borrowing costs in countries such as Spain and Italy.

ECB President Mario Draghi explained that any future bond buying action requires the involvement of the ESM.

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