BERLIN — Barack Obama had a lot on his hands last week with attacks on U.S. embassies across the Middle East, but in Europe, a big story buried by the drama of firefights in Libya, Cairo riots, and tumult in Tunisia should have him sleeping a bit easier. In fact, he might want to send a thank-you note to Germany's top court, which on Wednesday, Sept. 12, upheld Chancellor Angela Merkel's plan to rescue the euro.
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"Germany today is sending again a strong signal to Europe and beyond," declared Merkel, who Forbes magazine last month called the most powerful woman in the world. The Federal Constitutional Court -- Germany's functional equivalent to the U.S. Supreme Court -- ruled that Merkel's administration can allocate funds to the European Stability Mechanism (ESM) to help bail out fledgling eurozone countries, as well purchase bonds from Italy and Spain's struggling economies.
Had
the German federal court in the southwestern city of Karlsruhe declared the ESM
to be unconstitutional, the ruling would have severely jolted the European (and
very likely the American) markets. Holger Schmieding, chief economist at
Berenberg Bank, termed the decision "another big step towards
defusing the euro crisis."
Merkel's tireless push for the European Stability Mechanism Treaty, under which Germany will contribute 190 billion euros to a 500 billion euro fund to prop up the faltering Italian, Spanish, and Greek economies, should come as welcome news to President Obama, helping to shore up his chances of winning reelection later this fall. At the very least, it won't hurt.
U.S. stock
markets were upbeat on the news of the German ruling, with the Dow Jones
Industrial Average rising 44 points shortly before the market opened
for the day. Major U.S. stock indexes -- Dow Jones, S&P 500, and Nasdaq -- closed
the week with notable gains. Yet the market indexes should be
taken with a heavy dose of salt; the Federal Reserve's announcement on Thursday
to inject $40 billion in mortgage-backed securities each month over an
indefinite period of time surely helped as well.
But at least Obama, Federal Chairman Ben Bernanke, and Treasury Secretary Tim Geithner are putting their (well, your) money where their mouths are. The administration has long warned Germany of the costs of imposing austerity on the rest of Europe. In late July, Geithner cracked the whip like a 19th-century German schoolmaster, warning Merkel to fall in line behind stimulus packages. "If you leave Europe on the edge of the abyss as your source of leverage, your strategy's unlikely to work," said Geithner, "because you're going to raise the ultimate cost of the crisis ... and you're going to ... do a lot of damage to the politics of those countries, because the human costs of what's happening not just in Greece but across Europe now are enormously high, and you're seeing that reflected in much more political extremism."
Geithner could have added that austerity-driven policies would have affected the U.S. economy, and thus, his boss's chances of reelection.
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