The financial world got a boost from the Germany’s Constitutional Court allowing the ratification of the European Stability Mechanism, the eurozone’s new bailout fund, though with certain conditions.
After the decision was announced, European shares climbed to their highest level in 14 months, the euro rose and the amount of interest the Spanish government is having to offer on its bonds dropped.
The court’s approval was vital for the European Central Bank to go ahead with its plan to defuse the eurozone debt crisis by buying the bonds of struggling peripheral countries – like Spain.
Frankfurt based trader Oliver Roth was reasonably cheerful, saying: “This was the verdict that the markets were expecting. Now there has to be a limit to the ESM, which must be controlled by Germany’s parliament. There will be corrections to the ESM, and I believe there will be delays to it because of those necessary corrections. But overall, the markets can live with this result.”
“It’s a confirmation that Germany is engaged in the project to rebuild and reconstruct Europe. There is a kind of Draghi economics going on. There is a clear receding risk of a euro break up and people are readjusting their portfolios,” said Didier Duret, chief investment officer at ABN-AMRO Private Banking.
Hopes this will put the eurozone’s economy back on a recovery path pushed the euro to its highest level in four months against the US dollar – over $1.29.
It also benefited from the fact that the dollar is weakening as the US central bank contemplates monetary stimulus there, that is printing more dollars to boost the economy.