Challenging the bailout: German court decides

Chancellor Angel Merkel at the Bundestag, 11 September 2012 Chancellor Merkel is being challenged over the terms of the eurozone bailout and the "fiscal pact"

The panel of eight judges, resplendent in red robes and hats, have to decide on one of the biggest cases in post-war German history, not only in the number of plaintiffs but also in the importance of the decision.

Thirty-seven thousand people signed a petition to the court against the way the new eurozone bailout fund was set up, and against Chancellor Angela Merkel's plan to get commitments from the governments of the eurozone not to go into debt.

Politicians and lawyers from across the political spectrum joined the case against the government - from the left party, Die Linke, to dissidents from within the government party.

There have been demonstrations on the steps of the court.

On Saturday, hundreds of people chanted: "We are the people". There were placards reading: "Merkel who will pay for this?"

The number of interested parties in the hearing is matched by the magnitude of the cause.

'No exit clause'

If the judges take a hard line against the government and in favour of the plaintiffs, then the elaborate and laborious efforts to keep the euro together will be dealt a severe blow, perhaps a fatal one.

The case turns on two parts of the euro rescue effort.

Firstly, the European Stability Mechanism (ESM) - the new bailout fund for eurozone governments in trouble, like Greece.

Secondly, the so-called "fiscal pact" by which Chancellor Merkel is trying to get a binding commitment from European Union governments not to go into debt.

Judges of the second senate of German Constitutional Court, 19 June 2012 Some 37,000 people have petitioned the Constitutional Court against the conditions of the eurozone bailout fund

The plaintiffs claim that Chancellor Merkel has exceeded her power, and they want the court to instruct the president of Germany not to sign the two measures into law because, they say, the measures breach the country's constitution.

The "fiscal pact", for example, binds future governments, according to Michael Efler of the More Democracy movement which organised the petitions to the court.

He told the BBC: "The problem is that both treaties have no exit clause. That means that even if there is another government that has a different view on the treaties, they couldn't get rid of the treaties and that is not OK in our view.

"We want to have a democratic choice and this means that a government or parliament can say 'No' to this treaty or change the treaty, and that's not possible and that's why we try to fight them."

Strings attached

So will he win?

Few think that the court will block the treaties completely - if it did, then German participation in the eurozone rescue fund would have been declared illegal.

The markets would no doubt go into a spin - downwards - and there would be political, and perhaps economic, chaos.

More likely is that the judges will say that the treaties are within the constitution - but then put a string of caveats constraining Chancellor Merkel if she, for example, wanted to have the bailout fund expanded.

Professor Ingolf Pernice of Humboldt University in Berlin, a lawyer who has argued cases before the Constitutional Court, said that if the court did put new conditions on future changes to the bailout fund, one possibility would be that increasing its size would have to be approved by the Bundestag.

"There cannot be any extension without the consent of the German parliament," Professor Humboldt said.

EU crisis measures

  • European Financial Stability Facility (EFSF): the original eurozone bailout fund, set up in May 2010
  • European Stability Mechanism (ESM): due to replace the EFSF
  • Fiscal compact: an EU treaty to force states to balance their budgets, due to take effect in January 2013

That, he felt, would tie the government's hands.

On top of that, virtually any significant move by Chancellor Merkel would have to be debated by parliament and that would take time and a lot of political energy.

Even though a court decision giving Chancellor Merkel approval of her current policy but with strings attached would be welcomed by the government as a victory, her opponents would draw comfort from it too.

Democratic strengths

Michael Efler of More Democracy said that he expected more attempts by the German government to give more power to the European Union, so any constraints on them would be important.

In the end, he said he hoped there would be a "referendum or maybe a better treaty with more parliamentary control, with more transparency and with more people participation".

Government MPs are being cautious about saying what will happen if the court rules against the ESM, and so their policy.

But a partial victory - the "yes, but" option - would show the strength of German democracy, according to CDU MP Dr Michael Meister.

"We have a democracy with balanced power. The government and parliament have to be in line with the constitution, and I think it's a good thing for democracy if we are in line with the constitution.

"It shows that in Germany democracy works."

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