Germany Rejects Blank Check for Euro’s Fiscal Laggards

by David Henry

Bloomberg
September 12, 2012

So there we have it. Germany's constitutional court has ruled that the president can ratify the treaty on euro-area bailouts. With all the enthusiasm of a bride on her way to an arranged marriage, the country's voters can now be dragged kicking and screaming to help finance the European Stability Mechanism.

But the champagne corks may not be popping in peripheral capitals over the court's decision because the conditions imposed only add to those already in place. Euro members that tap the ESM will have to meet tough budget criteria similar to those demanded by the International Monetary Fund of its aid recipients. The question now is whether indebted countries are willing to meet those conditions.

European Central Bank President Mario Draghi took the courageous and laudable step last week of offering to buy an unlimited number of bonds in the secondary market as a way to bring down the borrowing costs of troubled euro members. Again, that type of aid would come with strict conditions. Clearly, the ECB and the German constitutional court have now drawn a line in the sand over measures to help Europe's fiscally challenged nations, five of which have already asked for bailouts.

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