If There’s Both Clarity and Confusion, It Must Be Wednesday in Europe

Wednesday, September 12, 2012 delivered some clarity and some confusion in Europe. In Germany, the judges of the Constitutional Court, wearing their red robes and hats, cleared away objections to German approval of the European Stability Mechanism, the Eurozone’s permanent bailout fund. Ratification of the ESM was challenged based on an argument that it contravened the German constitution. With this obstacle removed, the proposed €700 billion fund can continue to move forward; however, the German high court established a price. The judges ruled that a cap of €190 billion must be placed on German contributions before official ratification could occur. The ruling evidently doesn’t preclude Germany from contributing more in the future, it just establishes that the parliament would have to return, hat in hand, to ask for approval.

Overall, I think the move ahead for the ESM is a good thing – even for just the modicum of policy clarity that the step brings to the Eurozone. It certainly beats the panic that would have ensued had the court upheld the challenge. The confusion comes from the questions that are now left. What are the practical implications of a €190 billion cap on Germany’s contribution? Will €700 billion be enough to do any good if more than one teetering European economy heads for the bottom of the abyss? The hype will be worth it if the resolution means that European policy matters can move on to put out the next fire.

Across the border from Germany, the people of the Netherlands went to the polls to decide among moderate pro-European parties, far-left socialists, and an extreme-right anti-immigration party in their parliamentary elections. The impact for Europe stems from a Dutch electorate that faces austerity at home, but is contributing money to prop up failing Eurozone economies that resist their own austerity measures. Poll results showed a narrow victory for the pro-European VVD and Labor parties. They win the day, but neither won a majority. Likely, VVD and Labor will have to hammer out a ruling coalition government.

A small measure of comfort can be taken from the pro-Europe victory in the Netherlands, given the fading influence of the euro-phobe Socialist party in the waning days of the election. With Prime Minister Mark Rutte set back in his post, he becomes one of only a few European incumbents to have survived a post-crisis election, and he’s likely to continue the Dutch support for his neighbor, Angela Merkel’s clarion call of “austerity, austerity, austerity.” While it may seem like “back to normal” in Amsterdam, that just means a return to a fractious coalition government, and a return to Dutch citizens groaning at having to swallow austerity at the same time as they cough up billions of euros for Greece.

Now that I think about it, it does have a ring of familiarity – contentious election, populace angry at austerity, upstart party advocating leaving the EU. Maybe Greece and the Netherlands are just opposite sides of the same coin?