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.

Analysis

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
    -23

    Comment number 12.

    i'm very pleased with this decision, living in the USA it is in my best interests that the EU continues to drag down the economies of europe. less competition means more jobs here. keep it up, EU!

  • rate this
    -12

    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
    -10

    Comment number 187.

    I've said this from the onset and I'll say it again. The only way forward is a USE - a United States of Europe. We don't need less Europe, we need lots more of it. Degrade the Merkels, Camerons and Hollandes to state governors and elect the leaders of Europe properly.

  • rate this
    -8

    Comment number 172.

    The reason why the Euro project has temporarily hit the buffers is because the whole project is a half way house. No single european country will ever be stong enough ever again to go it alone, or have enough clout globaly either on an economic, political or military basis. A United States Of Europe is the only way forward otherwise we are all going to get kicked around by China Russia & USA

  • rate this
    -8

    Comment number 119.

    And..much to your surprise ( MANY ) ..now that people finally stop to short the EZ..

    ..OMTs won’t perhaps be needed

    Which why Weidemann is such a dumb. Kudos to Merkel & the German CC. Weidemann..Resign. Hewitt..Move to another topic.. ( Bild..“Phew" ? You bunch of schizos.. )

    You won’t see the collapse of the EZ anytime soon. Good on you Merkel & Draghi ( + Dutch & Finnish CBs ).

 

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