German court clears euro bailout deal

THE eurozone’s rescue fund used to bail out Ireland, Greece and Portugal was given the all clear by Germany’s constitutional court, but securing further loans could be more difficult.

The constitutionality of the fund and Germany’s role as its largest contributor was challenged by a group of politicians and academics, who criticised the court’s ruling as a failure to protect German taxpayers’ money.

But while the ruling permits the continuation of the EU’s rescue fund and prevents chaos in the eurozone, the judges made it clear that the German parliament, the Bundestag, was responsible for the spending of German taxpayers money and must have a full say in where it goes, and that this could even extend to how the recipient countries spend it.

They say the government must get the full approval of the parliament’s budget committee in the future for each loan made by the European Financial Security Fund and for the guarantees attached to each loan.

Court president Andreas Vosskuhle summed up their attitude when he said: “Parliamentary decisions about taxing and spending are a central element of democratic self-government under the constitution. As representatives of the people, the elected members of parliament thus also need to remain in control over elementary budgetary decisions”.

The ruling was welcomed by German Chancellor Angela Merkel, who said it justified her government’s actions in participating in the eurozone bailouts. She told parliament: “If the euro collapses, Europe collapses”.

But the court ruling is just the first step in a gruelling few months for Ms Merkel as she bids to have a series of decisions taken by EU leaders at their emergency euro summit in July passed.

The first vote will be on September 29 to agree reforms to the EFSF that will include allowing the fund to buy sovereign debt, a matter considered urgent to relieve the ECB, which is currently buying this debt. Germany’s share of the €750 billion fund will increase from €123bn to €211bn.

A vote on the new Greek package, worth €111bn, will take place separately later this year, when the details of private sector participation will be concluded.

A third vote, on the permanent European Stability Mechanism due to replace the EFSF in 2013, may be taken in December.

Ms Merkel is also facing mutiny among her own party members in the Christian Democrats and her coalition partners, the Free Democrats, with about 25 MPs saying they will abstain or vote against the EFSF reforms later this month.

Analyst Raoul Ruparel from the Open Europe think-tank said yesterday’s ruling appeared to entrench the government’s position against eurobonds. But, he added, it appeared to suggest that joint debt in the eurozone could be allowed if it involved a stronger German say over other member states’ fiscal policies.