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Court rules new European bailout fund legal
Source: Agencies |
September 13, 2012, Thursday
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GERMANY'S highest court paved the way for the creation of Europe's 500 billion-euro rescue fund after it rejected yesterday calls to block it.
Investors breathed a sigh of relief the Federal Constitutional Court removed the threat that Germany would be prevented from ratifying the treaty setting up the European Stability Mechanism - a new, permanent 500 billion-euro fund for the 17 countries that use the euro and a central part of efforts to curb the debt crisis.
Stocks across Europe rallied strongly, the euro spiked to a four-month high of US$1.2906 and the borrowing rates of troubled economies, such as Spain and Italy, eased further.
The court did, however, insist that Germany must secure legal guarantees that Parliament must vote on any further increases in its contributions to the ESM. These guarantees must be secured before President Joachim Gauck signs the fund into law.
Opponents had challenged Germany's ratification of the ESM, arguing that it violated the country's constitution. They had sought an injunction preventing Gauck from signing the legislation into law.
They also had sought to block the so-called fiscal compact, the budget-discipline pact pushed by Chancellor Angela Merkel and signed by most European Union countries. That call was also rejected.
"This is a smart decision in the pro-European spirit of our constitution," Foreign Minister Guido Westerwelle said.
Jean-Claude Juncker, who leads meetings of the eurozone's finance ministers, said he plans to hold the first meeting of the ESM's board of governors on October 8.
Germany's ratification of the ESM was key because without its participation the fund could not have worked. Germany, as Europe's biggest economy, is the No. 1 contributor the fund.
Germany is liable for about 27 percent - 190 billion euros - to the overall European bailout scheme of 700 billion euros, which includes the ESM and remaining money from the temporary fund, the European Financial Stability Facility.
The taxpayer-backed fund is crucial to the eurozone's debt crisis resolution efforts because it can lend money to governments that can't borrow otherwise, and markets had been nervously awaiting the ruling.
Federal Constitutional Court Chief Justice Andreas Vosskuhle said the case posed "special challenges"? not just because of the political significance of the ESM, but because the financial and political consequences of a possible delay were "almost impossible to estimate reliably."
The court still has to deliver a full ruling on the substance of the plaintiffs' complaints. But Vosskuhle made clear that his court's ruling on the calls for a temporary injunction - delivered after two months of deliberations - reflected the likely outcome of the case.
"The examination showed that the laws that have been challenged with high probability do not violate the constitution," he said.
Still, he said Germany must get legal guarantees before ratification that the provisions of the ESM can't be interpreted in such a way that Germany's financial liability could be raised without Berlin's nod.
Investors breathed a sigh of relief the Federal Constitutional Court removed the threat that Germany would be prevented from ratifying the treaty setting up the European Stability Mechanism - a new, permanent 500 billion-euro fund for the 17 countries that use the euro and a central part of efforts to curb the debt crisis.
Stocks across Europe rallied strongly, the euro spiked to a four-month high of US$1.2906 and the borrowing rates of troubled economies, such as Spain and Italy, eased further.
The court did, however, insist that Germany must secure legal guarantees that Parliament must vote on any further increases in its contributions to the ESM. These guarantees must be secured before President Joachim Gauck signs the fund into law.
Opponents had challenged Germany's ratification of the ESM, arguing that it violated the country's constitution. They had sought an injunction preventing Gauck from signing the legislation into law.
They also had sought to block the so-called fiscal compact, the budget-discipline pact pushed by Chancellor Angela Merkel and signed by most European Union countries. That call was also rejected.
"This is a smart decision in the pro-European spirit of our constitution," Foreign Minister Guido Westerwelle said.
Jean-Claude Juncker, who leads meetings of the eurozone's finance ministers, said he plans to hold the first meeting of the ESM's board of governors on October 8.
Germany's ratification of the ESM was key because without its participation the fund could not have worked. Germany, as Europe's biggest economy, is the No. 1 contributor the fund.
Germany is liable for about 27 percent - 190 billion euros - to the overall European bailout scheme of 700 billion euros, which includes the ESM and remaining money from the temporary fund, the European Financial Stability Facility.
The taxpayer-backed fund is crucial to the eurozone's debt crisis resolution efforts because it can lend money to governments that can't borrow otherwise, and markets had been nervously awaiting the ruling.
Federal Constitutional Court Chief Justice Andreas Vosskuhle said the case posed "special challenges"? not just because of the political significance of the ESM, but because the financial and political consequences of a possible delay were "almost impossible to estimate reliably."
The court still has to deliver a full ruling on the substance of the plaintiffs' complaints. But Vosskuhle made clear that his court's ruling on the calls for a temporary injunction - delivered after two months of deliberations - reflected the likely outcome of the case.
"The examination showed that the laws that have been challenged with high probability do not violate the constitution," he said.
Still, he said Germany must get legal guarantees before ratification that the provisions of the ESM can't be interpreted in such a way that Germany's financial liability could be raised without Berlin's nod.
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