THE EUROPEAN Stability Mechanism (ESM) was yesterday approved by the European Court of Justice, removing another hurdle in the way of troubled governments like Spain getting bailed out.
The Irish High Court had challenged the ESM’s compatibility with EU law, after a member of parliament argued that the country’s rules require a referendum on any major transfer of power to the EU.
But the top court rejected the claim, arguing the fund’s establishment is within EU law.
The fund’s maximum lending capacity stands at €500bn (£403bn).
It is designed to show the Eurozone nations’ determination to keep the currency together, as they can bail out countries like Spain and Italy if need be.
But some analysts fear the fund is not large enough to save both governments if such drastic action was required. In such an event the ESM would only be able to delay the panic, not stop it entirely as hoped.
However, if Spain does request aid, it is also likely to be helped by the European Central Bank which said it may purchase government bonds. That would push down government borrowing costs and again ease tensions while Spain pushes through economic reforms to restore competitiveness and improve its long-term prospects.