German court backs eurozone's ESM bailout fund

German Constitutional Court judges - file pic The judges want a guarantee that Germany's financial liability will not rise

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Germany's top court has rejected calls to block the permanent eurozone rescue fund - the European Stability Mechanism (ESM) - and the European fiscal treaty.

Leader Angela Merkel called it "a good day", while markets rallied in relief.

But the Constitutional Court imposed conditions including a cap on Germany's contribution, which it said could only be overruled by the German parliament.

Critics had argued that the ESM commits Germany to potentially unlimited funding of debt-ridden eurozone states.

Some 37,000 people had signed a petition to the court asking it to block the ESM, and make it subject to a referendum.

Since Germany is due to contribute 27% of the fund, it cannot proceed without German ratification.

But, after weeks of deliberation, the court's Chief Justice Andreas Vosskuhle said it "rejected the injunctions", since there was a "high probability" that the ESM did not violate the constitution.


You could see the relief clearly: charts for stock prices jumped the moment the judgement was made public.

The positive sentiment was as much about what didn't happen as what did. If the panel of judges had blocked the ESM, there is little doubt that it would have halted the bailouts of eurozone countries in difficulty, and financial markets would have taken it badly.

The judgement, though, is qualified. The most significant string attached is that any raising of Germany's contribution could only be done with the full consent of parliament.

In the current political climate, there would be much opposition to any more money from Berlin. A recent poll showed that more than half of Germans wanted the judges to block the ESM, so there is no mood for digging deeper into pockets, should it be necessary.

However, he said ratification of the treaty could only be allowed under certain conditions.

He continued: "No rule of the treaty must be interpreted in a way which would result in higher payment obligations by Germany, without the consent of the German representative."

Correspondents said that meant that any future increase in the size of the 500bn-euro (£400bn) fund, or of Germany's contribution, could only be permitted with the express agreement of Germany's parliament.

When added to the money already committed to the existing temporary fund, Germany is liable for about 190bn euros.

'Smart decision'

The decision clears the way for Germany's President, Joachim Gauck, to sign the ESM and the fiscal pact - which is meant to enforce budget discipline - into law.

Correspondents said there would be huge relief in Brussels and European capitals at the verdict.

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The institutions that seem to be most keen to put control over the future of the euro into the hands of the voters are the ones that are least accountable to them”

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"Today, Germany is once again sending a strong signal to Europe and beyond: Germany is assuming with determination its responsibility as the biggest economy and as a reliable partner in Europe," Chancellor Merkel told parliament in Berlin hours after the ruling.

"This is a good day for Germany and it is a good day for Europe," she said.

Spanish, Italian and German share indexes all rose after the ruling, while the euro continued its recent gains to post a hit a new four-month high against the dollar, at $1.29.

The borrowing costs on Spanish and Italian 10-year bonds fell.

Analysts suggested that, combined with European Central Bank plans to buy the government bonds of struggling countries, Europe now had the tools it needed to combat its financial crisis.

"Within less than a week, the eurozone has finally received its long sought-after impressive bazooka," said Carsten Brzeski, an economist with Dutch bank ING.

"As a result, eurozone governments have now received more time to do their homework, implement reforms and austerity measures," he said.


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  • rate this

    Comment number 43.

    So the experiment gets to keep going a little longer to fund the fatcat beaurocrats in Brussels. Meanwhile the greeks are still jobless, and the quality of life all over europe is deteriorating rapidly. But hey! The experiment continues!

  • rate this

    Comment number 42.

    not a suprise!!!

  • rate this

    Comment number 41.

    It always amuses me when UKIP types try to talk up the possible demise of the Euro, not realising that if Europe fails, we fail too.

    Also : aren't UKIP MEPs hypocritical ? They criticise the Brussels "gravy train", yet are happy to receive all the benefits and perks that come with being an MEP.

    Fuzzy "thinking" at its worst !!!

  • rate this

    Comment number 40.

    Paulthebadger: Germany has merely profited from being an export-based economy in a currency which is devalued by the membership of weaker economies. It cannot expect to have its cake and eat it too. The price for this export growth should be support for the Greeces and the Irelands and acceptance of economic policy that allows growth in the EZ as a whole, rather than just helping itself.

  • rate this

    Comment number 39.

    "Interesting to see what those who WANT the Euro to fail with come up with next as evidence it is bound to fail......"
    How about
    Didn't take him long to pop up with his little 'cock-a-doodle-do'.

  • rate this

    Comment number 38.

    The picture if the Judges look like Chinese Manderins getting read for lunch

  • rate this

    Comment number 37.

    You have to love the way that those who hope the Euro fails are making allegation of a malfunctioning German judicial system because they don't like the rulling, despite not one of you apparently having any special knowledge of how the German Courts opperate - you just assume it must be dodgy & that it cannot simply have made the rulling on the basis of the law as it stands......

  • rate this

    Comment number 36.

    Germany will at some point have to protect itself from the sinking ship. I've never expected the euro to collapse overnight, but I've long since believed its the beginning of the end for the euro as we know it. this decision doesn't change that in the long term. ultimately the markets, not politicians, will decide the ultimate solution

  • rate this

    Comment number 35.

    The much-maligned (by me!) Gordon Brown kept us out of the euro.
    Salmond used to bether on about Scotland joining the euro and the arc of prosperity. He sings a different tune now.
    (Phew, it could have been us! )

  • rate this

    Comment number 34.

    I is well surprised that dem dudes in da red have whacked a cap on da unlimited bailout fund. Yo wud tink dat markets wud react bad to dat but no way jose, dax and cac looking healthy on dis news yo. Thanks to da Germans we can all see a stabilised bond market with only small fear dat Spain and/or Italy will ask for a cash money bailout yo. Yield spread will fall and da crisis is ova!... Maybe not

  • rate this

    Comment number 33.

    German court backs bailout fund, maybe, but German people and businesses definitely don't.

    Yet another example of European democracy in action.

  • rate this

    Comment number 32.

    What happens when you bend the rules.

    Germany will look back at this decision with regret.

  • rate this

    Comment number 31.

    I reckon the Greeks, Spainish and Irish must be laughng all the way to the German banks.

    Watch the Italians dip in next.

    Boy am I glad we are not a member of that house of madness.

  • rate this

    Comment number 30.

    Very sad for the industrious German workers who have shown restraint and dilligence and are rewarded by having to subsidise the Greeks and others.

    There has to come a point where we all recognise the Euro cannot survive. There is just not enough coming from the industrious nations to keep the others afloat while they refuse to cut spending.

  • rate this

    Comment number 29.

    That's one small decision for the court, one giant decision for the Euro - there's all but nothing left now with a realistic chance of scuppering the Euro.

    As every week passes it becomes even more likely the Euro will survive than it already was.

    Interesting to see what those who WANT the Euro to fail with come up with next as evidence it is bound to fail......

  • rate this

    Comment number 28.

    Every developed nation now operates on a borrow for leverage principal. As long as GDP to debt ratio is positive they can keep on borrowing. Why is so much money being pumped into the system? So countries can get back into growth and borrow even more. We are now all slaves to they system. Ask yourself why every political decision is now made on the basis of how it will impact on the markets.

  • rate this

    Comment number 27.

    @18 are you suprised they are blaming the uk. here in the uk it seems to be thatwe blame everything on them. its actually kind of zen when you think about it.

    and people in this country wonder why we are seen as arrogant (insert expletive of choice).

  • rate this

    Comment number 26.

    Interesting that German politicians are able to influence the court's decision on a case. In our country, we just appoint a judge we know thinks the same way as we do in the first place. Ha! So much for German efficency!

  • rate this

    Comment number 25.

    What is the exit strategy for the ECB when they have manipulated bond prices to well below the 'true market price'?
    Sorry! I meant well ABOVE the true market price (with them as the only buyer/holder in town).

    Must have been fretting about the dreadful news elsewhere!

  • rate this

    Comment number 24.

    Hooray the markets Are up on the news as If the almighty market is the only thing that matters.

    As long as We can keep The Market happy

    Meanwhile other news : house prices falling, consumers not spending, no jobs etc in real economy

    You get the picture


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