Germany's highest court approves creation of rescue fund for crisis-hit eurozone countries

 

Germany’s constitutional court today approved the ratification of a permanent rescue fund for crisis-hit eurozone countries in a landmark ruling which sought to defuse fierce opposition to the project by giving parliament the power to veto increases in the amount contributed by taxpayers.

The eagerly awaited verdict came after weeks of deliberation and legal opposition from a record 3,700 plaintiffs who had argued that the permanent fund – known as the European Stability Mechanism (ESM) – committed Germany to unlimited funding of ailing eurozone members.

But the Karlsruhe court’s chief justice, Andreas Vosskuhle, declared that the panel of eight crimson robed judges ruling in the case had “rejected the injunctions” as there was a “high probability” that the ESM was not in breach of the constitution.

The ruling was welcomed by all the parties in the German parliament apart from the reform communist Left party which was one of the plaintiffs. “This is a good day for Germany and a good day for Europe – Germany is once again sending a strong signal to Europe and beyond,” a visibly relieved Chancellor Angela Merkel told MPs. There was also relief on the currency markets, with the euro rising to a four month high against the dollar following the ruling.

Germany is the last country in the 17-nation eurozone which still has to ratify the ESM and few had expected the court to block its progress. While saying that the Germany can now ratify the fund, the Karlsruhe judges responded to the plaintiffs’ concerns by imposing a €190 billion cap on Germany’s contribution to the €500 billion ESM. The court ruled that any increases in the contribution would require parliamentary approval.

The court also ruled that a clause in the ESM treaty which seeks to keep the fund decisions confidential should not prevent Germany’s upper and lower houses of parliament from being fully informed about the fund’s activities.

The decision opened the way for Germany’s President Joachim Gauck to sign the ESM and the fiscal pact – the measure to enforce European budgetary discipline – into law. The ruling followed last Wednesday’s unveiling of European Central Bank (ECB) plans to buy up short-term government bonds of struggling eurozone countries, something which met with intense criticism in Germany.

But analysts suggested today that the Europe now had important tools at hand to deal with its crisis. “Within less than a week, the eurozone has finally received its long sought after impressive bazooka,” said Carsten Brzeski, an economist with the Dutch bank ING. 

The decision also amounted to a political boost for Angela Merkel who faces a general election in a year’s time. However, she still faces considerable opposition to her European policies from the German public and from within her own party. A recent poll conducted ahead of yesterday’s ruling showed that half of all Germans wanted the court to block the ESM.

Rebel conservative MPs have also become vociferous in their criticism of Ms Merkel’s backing for Greece and the ECB’s government bond-buying plan, which many eurosceptics see as a backdoor way to facilitate unlimited German funding for ailing eurozone countries.

“We can be very sure that this has not been the last decision of the German constitutional court,” Kai von Lewinski, a law professor at Berlin’s Humboldt University, said yesterday. “The ESM is safe but the role of the European Central bank is definitely not.”

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