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Europe

German court upholds participation in bailouts

Video by Jessica SALTZ

Text by News Wires

Latest update : 2011-09-07

Germany’s highest court on Wednesday blocked attempts by eurosceptics to halt participation in eurozone bailouts but said parliament must approve future aid, warning that the ruling was not a "blank cheque authorising further rescue measures".

REUTERS - Germany's highest court said parliament must have a bigger say in euro zone rescue packages, a landmark ruling that may make it more difficult for Europe to respond swiftly in delivering aid to crisis-hit member states.

As expected, the German Constitutional Court rejected a series of lawsuits filed by eurosceptics aimed at blocking the participation of Europe's biggest economy in bailout packages for Greece and other euro zone countries.

But its ruling on Wednesday said the government must seek the approval of parliament's budget committee before granting aid and spelled out that the ruling should not be misinterpreted as a "blank cheque" for future rescue packages.

"The constitutional complaint has been rejected," said the president of the court, Andreas Vosskuhle, in a ruling closely watched by policymakers and investors because of its impact on the decision-making process in the 17-nation currency bloc.

"This was a very tight decision. But it should not be mistakenly interpreted as a constitutional blank cheque authorising further rescue measures," the red-robed judge told the plaintiffs, government officials and members of parliament in the courtroom in Karlsruhe.

Greece, Portugal and Ireland have already received aid from Europe and the International Monetary Fund while Italy -- the third largest economy in the euro zone -- looks increasingly vulnerable as it struggles to implement a savings programme.

The prospect of having urgent rescue decisions bogged down in legislation in Germany -- and potentially other euro zone parliaments, if more states follow suit -- will not please policymakers trying to streamline that process.

Chancellor Angela Merkel already faces a revolt in the Bundestag (lower house of parliament) over European leaders' decision in July to grant new powers and extra funds to the current bailout fund -- the European Financial Stability Facility (EFSF) -- which goes to a vote on Sept. 29.

Chaos avoided

Parliament also has to ratify by the end of the year the fund which will replace the EFSF from mid-2013 -- the European Stability Mechanism (ESM) -- and the court ruling is likely to influence how it allocates rescue funds in future too.

Carsten Brzeski, an economist at ING, said markets should find some relief in the ruling "as a total chaos scenario has been avoided" but the reaction would not be euphoric.

The euro briefly rose against the dollar after the court ruling and Bunds extended their losses, with currency traders saying it was being broadly interpreted as "good news" in that Europe could carrying on bailing out struggling euro countries.

But Brzeski cautioned that "a bigger say for German parliament in future bailouts could easily find copycats in other euro zone countries, undermining the clout of the beefed-up EFSF and later the ESM".

Merkel's handling of the euro crisis has been criticised in Germany. After hesitating over the first Greek bailout, she gradually ceded more emergency powers to the bailout funds -- despite growing unease in Germany that the taxpayer was being overburdened and parliament's influence undermined.

Recent opinion polls suggest most Germans are not satisfied with the performance of the chancellor, who is expected to seek a third term in 2013, and her centre-right coalition has fared badly in a string of state election tests this year.

Frank-Walter Steinmeier of the opposition Social Democrats (SPD) -- Merkel's foreign minister in the Grand Coalition until 2009 -- said the European Central Bank had been lumped with billions of euros of debt because of a "lack of courage and lack of leadership" in government in Europe and Germany.

Merkel should get the EFSF approved by parliament at the end of the month, as the europhile centre-left opposition also supports it. But she will be weakened politically if she fails to get a majority from her own centre-right coalition because of a handful of conservative dissenters.

Her Christian Democrats' junior coalition partners, the Free Democrats (FDP), take a tough line on bailouts and FDP budget expert Otto Fricke welcomed the ruling as making it clear there can be no "carte blanche" for rescue schemes.

He said the ruling also ruled out common bonds in the euro zone, which some favour as a way of lowering the debt costs of struggling states but others, including Germany, argue remove the incentive for countries to lower their debts and deficits.
 

Date created : 2011-09-07

  • EUROPEAN UNION

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  • GERMANY

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