Court Rejects German Challenges to Euro Rescue

By Karin Matussek – Sep 7, 2011 8:43 AM ET

Challenges to Germany’s participation in the euro rescue funds were rejected by the nation’s top court today, which said the government must seek some parliamentary approval for any future bailout payments.

The Federal Constitutional Court in Karlsruhe threw out suits targeting Germany’s share of the 110 billion-euros ($155 billion) in loans for Greece from euro-region governments and the International Monetary Fund as well as a separate 750 billion-euro rescue fund approved last year to halt the spread of Greece’s debt crisis.

The ruling will aid German Chancellor Angela Merkel’s efforts to gain support for participation in a new round of European Financial Stability Facility programs. She pledged last week to consult lawmakers as her Cabinet agreed on a reworked plan that will raise Germany’s share of EFSF loan guarantees to 211 billion euros from 123 billion euros.

“This gives a green light for continued bailouts which is the only track available to euro-zone leaders right now,” Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said in a telephone interview.

The court said the ruling shouldn’t be seen as “blanket” approval for additional rescue package authorizations and the government must seek approval from the parliament’s budget committee for guarantees it assumes under the EFSF.

‘Elementary Budgetary Decisions’

“Parliamentary decisions about taxing and spending are a central element of democratic self government under the constitution,” Andreas Vosskuhle, president of the court, said in the ruling. “As representatives of the people, the elected members of parliament thus also need to remain in control over elementary budgetary decisions.”

Merkel welcomed the ruling in a speech to parliament in Berlin, saying it “absolutely confirmed” her approach of offering aid to indebted countries in exchange for commitments to debt reduction. Finance Minister Wolfgang Schaeuble told reporters that “the question of whether it’s unconstitutional will hopefully be put to rest once and for all.”

The judges stressed the principles of self-responsibility while observing solidarity, transparency and the approval of parliament, Merkel said. “That’s exactly the path we’ve taken,” she said.

The euro rose as much as 1.1 percent after the ruling before erasing gains. It was up 0.4 percent at $1.4039 as of 2:25 p.m. in Berlin.

Step-by-Step Participation

Lower-house lawmakers are due to hold a first reading of the EFSF bill in parliament tomorrow, after the government last month said that they would have an increased role in formulating the legislation before it goes to a final vote on Sept. 29.

“The step-by-step participation of the Bundestag as we plan it even goes beyond what the Constitutional Court stipulates,” Norbert Barthle, a lawmaker from Merkel’s Christian Democratic Union, said in an e-mailed statement. “We will include the legal stipulations of the court in our current deliberations on the EFSF.”

Barthle also said the court’s comments that the EU may not be transferred into a “liability union” would mean that joint- euro bonds would be illegal under the current legal framework. These instruments are being studied by the EU as a tool to tackle the debt crisis.

The court said parliament may not relinquish its budget autonomy by “surrendering” to mechanisms that could lead to unpredictable burdens. EU treaties ban such mechanisms, the court said.

‘Monetary Union’

“Current rules of the monetary union” don’t allow assuming liability for financial decisions by other states, “including direct or indirect communitization of government debt,” the court said.

In regard to the bailout packages at the heart of today’s case, the court said parliament didn’t disregard the principle of democracy when authorizing the German government to assume guarantees under the two packages approved last year.

In case these limits are “evidently” transgressed in the future, Germans can sue again, the judges said.

“The government already adheres to the requirements to seek approval from the budget committee for new payouts under the rescue fund,” German Deputy Finance Minister Steffen Kampeter said in the courtroom after the ruling. “The government got full backing from the court.”

‘Historic Responsibility’

Plaintiffs in the suit included law professor Karl Schachtschneider, economists Joachim Starbatty, Wilhelm Hankel and Wilhelm Noelling, former Thyssen AG Chief Executive Officer Dieter Spethmann and Peter Gauweiler, a lawmaker from the Bavarian sister party of Merkel’s Christian Democrats.

“The court bears the historic responsibility for the destruction of the euro — and even more so: for the destruction of the EU,” said Schachtschneider. “The ruling is a blow especially for the poor in Germany as the court declines to protect the value of our money, which will hit the poor most.”

They argued German participation in the rescue packages undermines the budgetary rights of parliament and violates the right to democratic representation as well as the protection of property.

The plaintiffs have unsuccessfully turned to the court before in an attempt to block German participation in EU treaties, including the introduction of the common currency.

The cases are BVerfG, 2 BvR 987/10, 2 BvR 1099/10 and 2 BvR 1485/10.

To contact the reporters on this story: Karin Matussek in Karlsruhe via kmatussek@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@Bloomberg.net.