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Wednesday, September 12, 2012 10:00 AM

German Court Approves ESM While Ruling "No Unlimited Liability, Parliament Must Approve Changes in Ceiling"; Sigh of Relief Reaction

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The German constitutional court approved the ESM, while stating there must be no unlimited liability for Germany. The court also stated the German parliament must approve any increase in the Germany's ceiling of €190bn.

Ho hum.

This is actually a wimpy decision, and basically what the market expected judging from the "sigh of relief" reaction as opposed to euphoria.

Because of soaring Target2 exposures, I would like to point out that Germany's potential liabilities already far exceed the ceiling of €190bn.

For further discussion, please see Target2 and the ELA (Emergency Liquidity Assistance) program; Reader From Europe Asks "Can You Please Explain Target2?"

Moreover, the recently hatched OMT plan of Mario Draghi in and of itself has potential unlimited liability in that it allows unlimited purchases of sovereign bonds for which Germany and other countries are responsible for their share of the pie in accordance with percentages noted in the above link.

Finally, please note that 37,000 people signed a petition against this deal, and polls show it likely would not have passed if put to a vote. Those petition signers, including a few top politicians looking out for their constituents (and for Germany itself), were seeking a referendum.

Once again the will of the people has been suppressed for the benefit of politicians wanting to protect their legacy, exactly as expected and exactly as opponents of the ESM feared.

Mike "Mish" Shedlock
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