Financial experts have welcomed the Karlsruhe ESM ruling, but warn against too much euphoria. Rescue funds must not undermine efforts at structural reforms, they say.
The sigh of relief from financial markets was clearly audible - even if most expected the outcome from Germany's highest court. There was, of course, always that slimmest of possibilities that the court could have ruled in the other direction.
Investors in Germany's most important financial market, the Frankfurt stock exchange, reacted with relief: the German stock market index, DAX, continued its upward trend and registered a yearly high shortly after the court announced its verdict. Other European exchanges rose as well and the euro made a healthy leap, climbing to 1.29, its highest level in four months.
Relief 'yes,' euphoria 'no'
German Economics Minister Philipp Rösler was delighted: "With the clear and unambiguous ruling of the constitutional court we are an important step closer to our goal of keeping the euro stable," Rösler said. Now we can "create a stable bulwark around the euro," he added.
Even so, financial market experts, like Michael Koetter from the Frankfurt School of Finance and Management, warn against too much euphoria: "Nobody can seriously claim that now the euro is safe." That cannot be achieved with a court ruling alone. "We have bought time to put out the fire on the roof," Koetter told DW. "To strengthen the foundation, structural reforms must now be implemented as quickly as possible. And only time will tell if the political leaders are capable of doing that."
Ulrich Kater, chief economist at Deka Bank, shares that view. He does not expect any rapid improvement of the situation in the indebted countries of southern Europe from the Karlsruhe ruling. The calm that has returned to the markets shows, however, that "what was decided has substance," he said.
For Holger Schmieding, chief economist at Berenberg Bank, the court's decision was a "big step toward overcoming the euro crisis."
But Jörg Rocholl, President of the European School of Management and Technology in Berlin, like many of his colleagues, does not see the euro crisis resolved any time soon just because of the Karlsruhe verdict. "Europe's problems have not been solved by the court's ruling," he said. "The rescue packages, along with the ECB's announcement that it would buy government bonds, really only buy some time. But they will not change the fundamental problems - especially in the southern European countries." The real solution to the problem still lies in the reform steps that must be taken by Italy and Spain.
Incentives for reform
Hans-Peter Burghof, a banking expert at the University of Hohenheim, commented in the same vein. "The crisis is a structural crisis in certain European countries," he said. "It is quite possible that the money [from the ESM] will actually extend the crisis, if it reduces the incentive to quickly come to grips with the structural problems."
Burghof pointed out that the situation was similar to distributing development aid. "You have to consider how much money you are going to make available and then consider what effect that money will have in the place that it is put to use," he said. Burghof believes that Greece, for example, would have done better "had it gone bankrupt at the time it was really bankrupt." Then, at least, Athens would now already be a couple of years into rebuilding and perhaps already much better off.
The upshot from the finance experts is that they are relieved that the uncertainty is now over and that Germany's highest court has not blocked the path for the ESM rescue fund. However, this relief is coupled with the advice that the rescue funds, no matter how big, must be democratically legitimized and are only short-term measures that must not get in the way of structural reforms.