German court clears euro rescues, gives MPs more say
KARLSRUHE—Germany’s top court on Wednesday spared the eurozone new dangers by upholding bailouts for debt-wracked nations but insisted parliament have a bigger say in future.
The ruling, nervously anticipated on volatile financial markets, paved the way for Germany, the European Union’s paymaster, to continue its multibillion-euro (dollar) contributions to bailouts.
But the decision also raised concerns that it may slow procedures in crisis situations when speed is vital.
The judges also insisted that parliament may not approve any deal that leads to a pooling of national debt, which analysts said may rule out the idea of “eurobonds” proposed by many as a possible solution to the crisis.
“One possible interpretation is that instruments such as eurobonds … may run afoul of the German constitution,” said Holger Schmieding, an analyst at Berenberg Bank.
The European Commission welcomed the ruling, saying: “It has an important bearing on the capacity of the Union and of its member states to act, to surmount the sovereign debt crisis affecting certain member states.”
French Budget Minister Valerie Pecresse also welcomed the news.
And markets initially cheered the judgement, sending the euro sharply higher, but the single currency later fell back as traders refocused on resurgent strains in the 17-nation eurozone.
Greece and Italy are under renewed pressure on bond debt markets.
European stocks were also sharply higher, as market players welcomed the ruling but also hunted for bargains after a series of painful losses in equity markets.
A relieved Chancellor Angela Merkel told parliament the court’s decision confirmed Berlin’s euro policy and warned that the eurozone’s problems could not be “swept under the carpet”.
“The problems of a single country can imperil the currency,” she told MPs.
But Finance Minister Wolfgang Schaeuble told reporters: “It doesn’t change the fact that the decisions in the eurozone remain difficult.”
Meanwhile, Italy, Spain and France were rushing additional austerity measures through parliament in a bid to stave off the debt crisis, which threatens to propel the zone into a new recession.
“Today’s ruling should bring some relief to financial markets as a total chaos scenario has been avoided but it should not lead to euphoria,” said Carsten Brzeski, an analyst at ING.
“A bigger say for German parliament in future bailouts could easily find copycats in other eurozone countries,” which could reduce the room for manoeuvre of the rescue fund, added the economist.
Delivering the verdict, Andreas Vosskuhle, president of the constitutional court, said: “The federal government is required to seek the approval of the parliament’s budgetary committee before handing over guarantees.”
But the court stopped short of requiring the approval of a full parliamentary majority for such rescues.
In addition, the judges ruled parliament must have “sufficient influence” over the conditions attached to future rescue deals and may not approve deals that could lead to an unforeseeable burden on future parliaments.
The ruling should not be seen as a “blank cheque for future rescue deals,” the court stressed.
The decision will have a major impact on the approval in Germany of an EU agreement in July to increase the volume and scope of the rescue fund (EFSF) that is already beset with problems.
Finland has thrown a spanner in the works by insisting on collateral as a precondition for its participation in the fund.
And Merkel, weakened politically by a raft of disastrous state election results, is facing a possible rebellion from within her own center-right coalition when parliament votes on the fund on September 29.
The exact wording of the bill, including the extent of parliament’s involvement in future bailouts, had been left until the court handed down its ruling.
Alexander Koch, an analyst from Unicredit, said the inclusion of a greater role for parliament in the bill could bring some of the the rebels into line.
“Hence, the chances for a successful adoption of the EFSF extension by the end of September appear high in Germany,” said the economist.
