German Court Approves Involvement in EU Bailout

The German high court — the Constitutional Court — said that Germany could participate in some of the most critical parts of a bailout of the region’s weaker economies. The ruling was expected, but still has to be a relief to the other organizations that are involved in the bailout process, particularly the International Monetary Fund, European Central Bank and European Union. As part its opinion, the court said parliament must judge whether Germany will take significant financial risk if it joins other countries and organizations as they try to keep the European Union together.

Germany’s current liability to the bailout is a bit over $240 billion. The court said that the national legislature must vote on any addition to that.

Germany’s ability to participate does not mean it will expand its commitments. The population of the country remains against aid to countries that it believes have gotten themselves into their own trouble, and should pay the price to get themselves out, even if it means default on sovereign obligations. Many politicians have broken ranks with Angela Merkel, who has given limited support to bailout conditions. The politics of Germany may pressure her to change that support.

And Germany continues to insist on severe austerity budgets, which it says have to be put in place before nations get aid. Even the ECB, which recently said it would buy the paper of troubled nations to bring down their borrowing costs, agrees that for countries to get aid they must ask for it and show something beyond an inclination to get their financial houses in order.

The court’s approval allows Germany to lead the way to bail out parts of Europe. But it does not mean Germany will do so.

Douglas A. McIntyre