While the EU Summit produced relatively far reaching results, their implementation remains uncertain. Positively, the vicious circle between state and bank risk will be at least partly restricted once the ESM becomes fully operational and EU banks can be recapitalized directly from common rescue funds. However, the ESM is not fully operational and the German constitutional court must rule on both the fiscal compact and original ESM rules. In addition, the mandate conferred on the EFSF/ ESM enabling it to purchase government bonds also lacks firepower with ESM capital still limited, although there are at least no major political hurdles that Spain or Italy must overcome in order to apply to the ESM to buy their bonds. Yesterday, both Finland and the Netherlands declared they would block ESM secondary market buying, however an application by one euro-member could be approved (in emergency cases) by an 85% majority – they should not be able to block the ESM.
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