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A real step forward for our economic hopes

Yesterday's judgment by the German Constitutional Court, ruling against a case challenging the legality of the European Stability Mechanism, removes a potentially huge obstacle to Ireland's emergence from the EU/IMF bailout and our full return to the bond markets as scheduled next year.

The reaction of the markets said it all. Not alone did the value of the euro rise against other currencies on the foreign exchange markets, long-term Irish bond yields fell to 5.43pc. This is the first time since the summer of 2010 that the yield or implied interest rate on long-term Irish government bonds has traded under 5.5pc.

Quite clearly investors believe that yesterday's judgment will not seriously hinder ECB president Mario Draghi's efforts to resolve the long-running eurozone crisis.

That's the good news. While the news from the Constitutional Court could have been much, much worse, the judges did deliver one or two stings in the tail. Firstly they ruled that if Germany's contribution to the ESM were to exceed €190bn, something that will almost certainly be the case if Spain were to apply for an Irish or Greek-style bailout, then the German government would have to seek parliamentary approval for any increase.

The Constitutional Court's judgment also appears to rule out granting the ESM a banking licence, something that would be necessary for it to engage in unlimited purchases of the bonds of peripheral eurozone countries. It also stated that any bond purchases by the ECB itself aimed at "financing the members' budgets" would be illegal. Mr Draghi's task, never easy, has just got a little bit more difficult.

However, while the Constitutional Court could be accused of nitpicking, an outright rejection of the ESM could have had catastrophic consequences for the entire eurozone, not least for us here in Ireland.

Now that the external environment, over which we have very little if any control, has improved somewhat, we must redouble our efforts to improve those matters over which we do have control.

As he prepares to deliver his second Budget next December, Finance Minister Michael Noonan must steel his nerve, and those of his sometimes wobbly cabinet colleagues, to take the tough decisions necessary to bridge the €18bn gap between Irish public spending and taxation revenue. If this involves facing down powerful interest groups and lobbies, then this is what they must do.

By ruling in favour of the ESM, the German Constitutional Court has provided this country with a valuable breathing space. We now wish Mr Noonan good luck in his attempt to put that breathing space to good use.

Irish Independent