Europe shares hit new high on German ruling
Berlin, September 12, 2012
European shares climbed to their highest in nearly 14 months on Wednesday after Germany's Constitutional Court rejected complaints against the euro zone's new bailout fund and allowed its ratification under certain conditions.
The court said Germany could ratify the European Stability Mechanism and budget pact as long as it could guarantee there would be no increase in German financial exposure to the bailout fund without parliament's approval.
"The market was expecting it to be ratified but with some conditionality, which seems to be the case. The conditionally that I've seen so far doesn't come as a great surprise ... It hasn't shocked the market in a negative sense and therefore it allows the market to move forward," Kevin Lilley, European equities fund manager at Old Mutual Asset Management, said.
Approval of the ESM is a vital part of a European Central Bank plan to defuse the euro zone debt crisis by buying struggling peripheral countries' bonds in the secondary market.
The FTSEurofirst 300 index of top European shares was up 0.5 percent at 1,112.93 points after rising as far as 1,114.33, its highest since July 2011.
Cyclical sectors gained, with banks advancing 1.6 percent, insurers gaining 1.5 percent and autos rising 1.1 percent. Germany's DAX was up 0.9 percent, Spain's IBEX rose 1.3 percent and Italy's FTSE MIB gained 0.9 percent.
Investors also focused on a two-day US Federal Reserve, policy meeting starting on Wednesday. Markets widely expect some type of new monetary stimulus to boost the U.S. economy.
Equities have rallied strongly since early June, with the euro zone's blue chip Euro STOXX 50 index surging about 25 percent, lifted by expectations of central bank action to revive economic growth and tackle the euro zone debt crisis.
German approval of the 700 billion euro ($896 billion) ESM was crucial to boost the euro zone's crisis fighting powers and a key requirement for the European Central Bank's new plan to buy the bonds of struggling euro members.
President of the German Constitutional Court (Bundesverfassungsgericht ) Andreas Vosskuhle announced the court's ruling that the country can ratify the euro zone's new rescue fund and budget pact as long it can guarantee there will be no increase in German financial exposure to the bailout fund without parliament's approval.
Ruling that an injunction against the ESM and fiscal compact was largely unfounded, the court said. One condition for allowing ratification was that any increase in German liability beyond 190 billion euros must first be approved by the Bundestag lower house of parliament, it said. -Reuters