CORRECTED: German court clears euro rescues, gives MPs more say

7th September 2011, Comments 0 comments

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 EU paymaster, to continue its 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, apparently ruling out the idea of "eurobonds" which many have proposed as a possible solution to the crisis.

The European Commission welcomed the ruling approving the rescue arrangements, 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."

Markets initially cheered the news, 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 also hailed the judgement, telling parliament the ruling confirmed Berlin's euro policy.

The decision came as 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.

However, Christian Waldhoff, an expert for constitutional law at Bonn University, told Phoenix television: "The rights of the German parliament have been strengthened but without tying the hands of the German government on the European stage."

Delivering the verdict, chief justice Andreas Vosskuhle 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 that 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 court's 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 centre-right coalition when parliament votes on the fund on September 29.

Several deputies have indicated they might abstain or vote against the bill, conscious of public anger that Germany's guarantees for the extended fund are set to rise from 123 billion euros ($173 billion) to about 211 billion euros.

Merkel is assured of a majority as the opposition Social Democrats and Greens have both said they will back the bill, but it would be a humiliating defeat for the chancellor if she has to rely on her political foes.

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.

© 2011 AFP

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