The German Constitutional Court weighed in on Tuesday. What does it mean?
By upholding the law that commits Germany to the European rescue fund, the German court removed the last barrier to the fiscal pact. German taxpayers are now on the line for up to 190 billion Euros. For a country of 82 million people, that’s a lot of money. It’s much bigger, proportionally, than the $700 billion TARP fund the Bush administration put in place in 2008. The ESM will now be able to commence operations; Germany was the last nation to ratify the treaty.
German Chancellor Angela Merkel has to be pleased. So far, the Court has yet to reject a single law enacted by her government try to save the Euro. Her political position should also be strengthened: as leader of the center-right coalition, it hasn’t been easy getting these rescue measures through the Bundestag. But she received support from the center-left SPD Party as well. In effect, the enactment of the ESM represents a victory of the pragmatic center over the far right and left ends of the political spectrum, both of which opposed the measure.
The German Court’s ratification of the ESM is reminiscent of the US Supreme Court’s support for President Obama’s Affordable Care Act. Both measures wound their way through a fractious political process, and still face bitter opposition. Still, in both cases the courts acted pragmatically, deferring to the legislative process. After all, Chief Justice John Roberts noted during his confirmation hearing that he was well aware that he hadn’t been elected to anything.
This is how democracy should work: when faced with messy, complicated problems, legislatures often come up with messy, divisive solutions. The courts shouldn’t try to clean up that mess; they should simply opine on the framework. Whether you agree or disagree with the law, policy is best left to the politicians.
Douglas R. Tengdin, CFA
Chief Investment Officer
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