German Chancellor Angela Merkel is not willing to move ahead quickly with allowing direct aid for European banks from either EFSF or ESM. Instead, she confirmed that every state will have to guarantee for its banks. This will lead to higher deficits in states where banks need to apply for money from the bailout funds.
In an analysis, Citi concludes that the current legal framework for the ESM does not offer special protection for taxpayers as suggested to the German parliament ahead of last week's vote. The subordination clause would trigger the CDS, why such a protection is legally not possible without blowing up the system. German politics finds itself under scrutiny over not telling parliament the truth.
The German constitutional court did not come up with a ruling over the question whether the European Stability Mechanism (ESM) conflicts with the German constitution. The hearing held in Karlsruhe showed the judges being overwhelmed by the complexity of legal challenges created by hasty decisions by leaders from the Euro zone.