As predicted, Germany’s Bundesverfassungsgericht (Federal Constitutional Court, or “FCC”) has blessed (link no longer available) the European bailout fund (European Stability Mechanism, or “ESM”) as compatible with Germany’s Constitution, with several provisos, qualifications, and restrictions.
Much as I’d like to take credit for my crystal ball, the outcome was foreordained at least in its broad outlines. By institutional design, the FCC is much closer to the political branches than our Supreme Court. Especially with respect to European affairs, there’s a mutual understanding that the government won’t force the Court’s hand; in return, the Court won’t say anything that seriously derails the government’s policies and commitments. (When the players are uncertain about their counterpart’s tolerance, they pick up the phone and ask in advance.) The FCC’s rulings are best understood as part of a signaling game. So what are the signals in this case, and what are they worth?