Germany’s highest court paved the way for the creation of Europe’s 500 billion euros (US$643 billion) rescue fund after it rejected calls to block it yesterday.
Investors breathed a sigh of relief that the Federal Constitutional Court removed the threat that Germany would be prevented from ratifying the treaty setting up the European Stability Mechanism (ESM) — a new, permanent 500 billion euros fund for the 17 countries that use the euro and a central part of efforts to contain 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.
However, the court did 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 German 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 German Chancellor Angela Merkel and signed by most EU countries. That call was also rejected.
“This is a smart decision in the pro-European spirit of our constitution,” German 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 Oct. 8.
Germany’s ratification of the ESM was key because without the country’s 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 — about 190 billion euros — to the overall European bailout scheme of 700 billion euros, which includes the ESM and remaining money from the current temporary fund, the European Financial Stability Facility.
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, 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.
Still, he said Germany must get legal guarantees before ratification that the provisions of the ESM cannot be interpreted in such a way that Germany’s financial liability could be increased without the approval of Berlin.
Germany must also ensure that provisions in the ESM treaty demanding “professional secrecy” from fund employees do not stand in the way of the German parliament being informed in full about fund decisions.
“These provisions are above all intended to prevent a flow of information to unauthorized third parties, for instance to actors on the capital market, but not to the parliaments of the member states,” the court said in its ruling.