German court approves new European bailout fund
The euro zone cleared a key hurdle towards resolving its debt crisis on Wednesday as Germany’s top court approved a new European firewall for ratification, with some minor conditions.
In a landmark ruling watched around the world, the Constitutional Court overturned a raft of legal challenges aimed at preventing President Joachim Gauck from signing two crucial crisis-fighting tools into law.
Delivering a momentous decision with far-reaching implications for the euro’s future, the eight judges of the Bundesverfassungsgericht ruled Gauck could finally sign the European Stability Mechanism (ESM) and fiscal pact.
“The Second Senate of the Federal Constitutional Court has rejected the injunctions with the stipulation that a ratification of the ESM Treaty is only admissible if (certain conditions) can be guaranteed under international law,” Chief Justice Andreas Vosskuhle said.
Firstly, the court specified that any financial burdens for Germany arising from the ESM were strictly limited to its share of the fund’s capital or 190 billion euros (US$244 billion).If the burdens were to be increased beyond that amount, then it could only be done with the express approval of the German parliament, and both the upper and lower houses must be kept fully informed, the court said.
The professional secrecy to which the fund’s employees were bound “must not stand in conflict with the Bundestag and Bundesrat being comprehensively briefed,” the statement said, referring to the lower and upper chambers.
The court also ruled that Germany must ensure a de-facto opt-out clause if it felt its interests were not being considered.
“The Federal Republic of Germany must make it clear that it does not want to be bound to the ESM Treaty as a whole if any reservations it might have should prove ineffectual,” Vosskuhle said.
The 500-billion-euro ESM was set to replace the temporary European Financial Stability Facility (EFSF) and should have been in place by July 1.
But it needed Germany’s share of the rescue money to function and had thus been held up pending the court ruling.
It is designed to come to the aid of debt-stricken countries such as Spain and Italy.
Analysts had warned that a rejection of the ESM would trigger a fresh bout of chaos on the financial markets and throw the euro zone into a new political crisis.