German court to rule on eurozone fund

Posted on July 10, 2012

Wolfgang Schäuble, German finance minister, told the country’s highest court on Tuesday that any big delay to the eurozone’s permanent rescue fund could reignite market turmoil and cast the rescue of the single currency in doubt.

At a hearing about the legality of the European Stability Mechanism under the German constitution, he said any “considerable postponement” of the ESM could cause “considerable further uncertainty” among investors and “a considerable loss of trust in the eurozone’s ability to make necessary decisions” quickly.

    Eurozone leaders had hoped to have the ESM functional in the first days of July, but legislative delays in Italy and legal complaints in Germany have delayed the start of the successor to the temporary European Financial Stability Facility (EFSF).

    The court convened on Tuesday to decide whether legal complaints against the ESM fell into its remit and whether to block parliamentary ratification of the fund – which came on June 29 – until it ruled on the case, which could take months. The judges’ decision to allow or suspend ratification could come by the end of the day.

    While the court is expected to let the ESM start its work while it confers about its constitutionality – much as it did with loans to Greece and the start of the EFSF in 2010 – numerous members of the ruling coalition have spent the past few days reminding the court, based in Karlsruhe, south-western Germany, what is at stake.

    In court, Mr Schäuble said any “doubts about the constitutionality” and resulting doubts about “Germany’s readiness to stem the dangers for the financial stability of the eurozone” could cause market ructions and financing problems for some states.

    But the groups that have filed complaints – among them the far-left Left Party – say the ESM is an illegal intrusion into German sovereignty because it will bind taxpayers’ money – which constitutes about a third of the €500bn fund – for years.

    Herta Däubler-Gmelin, former justice minister and Social Democrat who speaks for a group called More Democracy, said the German voters had “a right” to elect a parliament that “really has a say in central issues like budget sovereignty”. The group says 12,000 citizens have added their signatures to its constitutional complaint.

    In two and a half years of eurozone crises, the court has consistently – if somewhat grudgingly – upheld the government’s line that using German taxpayers’ money to bail out eurozone partners prevents even bigger costs in the event of a break-up.

    But the court, led by Andreas Vosskuhle, its president, has also consistently called upon Berlin to alter legislation to allow the Bundestag, the lower house, more say in drafting rescue instruments, and more oversight of their implementation.

    “In politics, unusual situations and crises often require unusual measures,” Mr Vosskuhle said at the start of the hearing.

    Parliament had “broad leeway” to make budgetary decisions, especially if taken with a two-thirds majority such as ESM ratification. But he also said a decision would “in many respects” not be easy.

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