The euro’s exchange rate is set to fall further against most major currencies in the short term at least as Europe’s debt crisis rages on with more uncertainty as German courts said yesterday that they could take up to 8 weeks before deciding whether or not Germany can legally participate in the launch of the ESM.
Germany, the largest contributor to the new fund are questioning the legality of its participation and the ESM’s launch has been put on hold.
Germany’s Federal Constitution Court could throw the euro zone rescue into complete disarray if they decide against the 500 billion euro ESM.
Without the ESM, the euro zone firewall would be restricted to the 440 billion euro European Financial Stability Facility, the temporary bailout fund, about half of which most already committed.
A Sliding Euro
The truth of the matter is, whether the ESM gets the green light or not may have little effect on the slide in the euro’s value. Assuming that the ESM makes an appearance, then pooling Europe’s debts together in this way could have a big effect on 17 euro zone members credit ratings and government bond interest rates. The biggest looser could in fact be Germany, Europe’s number 1 economy, winners would include the countries which are seeing the most pain through austerity programs (Greece, Spain, Portugal).
If the ESM plan fails to get the go-ahead this will also be negative for the euro with investors and traders wondering how the block will fund bailouts in future. So a sliding euro should continue to be seen as nearly guaranteed.
About the ESM Treaty
The ESM Treaty is an international legal agreement made between the 17 countries whose currency is the euro. Like the Fiscal Treaty, the ESM Treaty is not an EU Treaty. The ESM Treaty will establish an independent financial institution. This will have a Board of Governors, a Board of Directors, a Managing Director and a Board of Internal Auditors. It will be based in Luxembourg and will have an office in Brussels. The ESM Institution would be a permanent body.
If a Member country fails to repay loans from the Institution leading to losses, then the other Member countries may be required to make additional payments of capital to cover the losses, putting countries like Germany on the hook for debts of others (Greece, Spain etc…).
Moreover, the ESM Institution will be an independent legal entity with legal immunity so that it will not be subject to regulation under the laws of any state or the EU. The European Court of Justice will have a limited role in determining certain disputes arising under the Treaty. The Institution shall not be liable to pay any taxes to any country. Similarly the employees of the ESM will pay no taxes in any country but the ESM will have power to levy an internal tax on its employees payable to the ESM Institution itself.
Latest Euro Exchange Rates
As of 08.39 GMT today, one euro bought £0.78500 British pounds, or 0.04 percent lower, whilst a euro bought $1.22840 US dollars, or 0.09 percent lower.