Partners in recovery
The German Constitutional Court has decided that the two major instruments in resolving the Euro debt crisis — the European Stability Mechanism (ESM) and the Fiscal Compact— are in accordance with the German constitution. This verdict is good news for Europe.india Updated: Sep 14, 2012 23:07 IST
The German Constitutional Court has decided that the two major instruments in resolving the Euro debt crisis — the European Stability Mechanism (ESM) and the Fiscal Compact— are in accordance with the German constitution. This verdict is good news for Europe.
Germany, Europe's anchor of stability, is now able to ratify the ESM and the Fiscal Compact and will do so swiftly. Germany is committed to the euro. This is an overwhelming cross-party consensus; from Chancellor Angela Merkel and foreign minister Guido Westerwelle to the Social Democrats and the Green's Party.
Political leaders of not only Germany but Europe and the rest of the world — including India — have welcomed the verdict. Political backing is essential, but the true litmus test was the international financial market's reactions. The verdict has immediately boosted global stocks from Rome to Frankfurt, from New York to Mumbai.
Now we have something which I call a true 'Elephant's tool box' to stabilise the Euro zone. It consists of a powerful triad. First, a maximum firepower of €780 billion (around $1 trillion). The ESM paves the way for a sustainable financial assistance to euro countries in need. Second, the fiscal compact — in reality the nucleus for economic governance in the eurozone and the missing link between the national fiscal policy and the European monetary policy. The fiscal compact paves way to fiscal responsibility of all euro countries. Third, the decision of the European Central Bank to buy, if necessary, unlimited sovereign bonds of countries in need, of course, provided they apply for assistance under the rules of the ESM.
The verdict of the Constitutional Court is a clear signal that Germany is firmly committed to a united Europe. Germany wants to have a stable and prosperous eurozone. This requires a solution based on three pillars: solidarity, fiscal sustainability and growth.
Solidarity with countries having liquidity problems is indispensable — and Germany stands by its eurozone partners. They just have to take the approval of the ESM by the German Parliament. This entails a German share of financial guarantees, which correspond to more than 15% of India's GDP.
Equally important is fiscal sustainability. The ESM ties assistance to strict conditions under the new fiscal compact, as it requires eurozone members to adopt national debt-brake rules, limiting structural debt to 0.5% of GDP. Finally, growth. Members of the eurozone are going through major structural reforms in order to become even more competitive. Europe has decided to no longer ease the symptoms of the crisis by fighting debt with more debt, but to go for better spending and reforms.
The verdict of the Cons-titutional Court is also good news for India. India is fundamentally a power house. But going it alone is not an option for India no matter how strong its economy might become. The situation in the eurozone matters directly to India. As Europe needs a strong, solid and prosperous India, so does India need a strong, solid and prosperous Europe. The European Union (EU) is India's largest trading partner and Germany its biggest trading partner in Europe.
India's economic growth depends on foreign investment and international trade. It needs fundamental structural reforms and a step-by-step market liberalisation as soon as possible. India is going through difficult economic times. Therefore, an EU-India free trade agreement in due time would be a powerful signal to the markets — to the benefit of both our continents.
The verdict is good news for Europe and India. I am confident that we will emerge stronger from this crisis. Europe is a vibrant continent. Don't forget that the World Economic Forum's 'Global Competitiveness Index' lists seven European countries in its World Top Ten list.
Yes, the crisis is far from over and there is no quick and easy solution. We need more reforms. But we have already achieved results unthinkable till two years ago. We are pro-European. And this has now been legally certified by the highest judicial institution in Germany, the Constitutional Court.
Michael Steiner is the German ambassador to India. The views expressed by the author are personal.