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Bonds  |  September 13, 2012 16:58:14

Green for fund ESM, orange for the ECB

After Wednesday's verdict of the German Constitutional Court could have a large part of German politicians deeply relax. New rescue mechanism (ESM), which has broad support from the government and the opposition, yet got the green light. Eurozone countries begin to repay the capital (80 billion euros) and the fund would, in the words of the German Ministry of Finance to begin work in a few weeks. Towards normálnějšímu functioning of monetary union but still many pitfalls lurking. (Source: Era PSB)


Just a ruling by the Constitutional Court in Germany holds some small "but". It was still a preliminary ruling, the final verdict can wait until the end of the year. Judges in Karlsruhe same time warned that they can deal with the announcement of the ECB's interventions on peripheral bond markets. German constitutional court against any uncontrollable hair growth liabilities of Germany, which is not under the direct control of a democratically elected parliament.

Reservations to the ECB

If the ECB will be buying in the "unlimited" number of poor peripheral debt, thereby increasing your potential losses, which would be in the case of proportional allocation ECB budgeted to Germany. On the other hand, the ECB does not give any guarantees forward interventions and connects them with the repair operation purely monetary mechanism.Even so, it may be the verdict of the Constitutional Court in the case ECB similarly exciting as Wednesday's decision.

Despite the German legal wrangling will have euro area in October at the table again, the problem of Spain. It has a large volume of refinance debt and yet refuses to officially apply for emergency funds (and therefore the ECB) intervention in the domestic bond market.

In addition, it will come back like a boomerang problem of Greece, which is the nature of somewhere other than Spanish-Italian problems, which may be sufficient liquidity patch ESM and ECB. Greece more loans in themselves are not enough, and sooner or later it will need further significant restructuring of its debt.

Last but not least, the European politicians will continue to worry about the Union Bank project. The project is in its infancy, which only shows yesterday's embarrassing reaction to the ECB's first proposals of the European Commission. Even though the eurozone rudder rotates the right direction on the way forward may be a lot of unpleasant obstacles.

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Zelená pro fond ESM, oranžová pro ECB

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