German Court Upholds ESM

Investors celebrated after Germany's highest court rejected calls to block Europe's permanent rescue fund, the European Stability Mechanism (ESM). Critics had argued that the ESM commits Germany to potentially unlimited support of debt-laden Eurozone states. The ruling allows for the ESM to come into force by early next year. Since Germany is due to contribute 27 percent of the fund, it cannot proceed without German approval. The Constitutional Court did impose some conditions on its participation, including a cap on Germany's contribution, which it said can only be overruled by the German parliament. The news from the court sent the euro above $1.29 for the first time in four months. Stocks also benefitted from the news, with Germany's DAX rallying about 0.9 percent and the CAC-40 in France moving about 0.7 percent higher. The British FTSE 100 index was up about 0.2 percent. The ESM fund is important not only because it can loan money to needy governments, but also because it will play a key role in the bond-buying plan unveiled by the European Central Bank. The rates on sovereign debt of the countries at the center of Europe's debt crisis eased, as the yield on Spain's 10-year bonds fell 0.07 points to 5.60% and Italy's dropped about 0.03 points to 4.98%. The next big event for markets will come Thursday from the Federal Reserve. Expectations are now that more monetary stimulus is likely given that recent economic data has been poor.