German court ruling bolsters European bailout fund

BERLIN — Germany’s supreme court ruled Wednesday that the nation can participate in a permanent European bailout fund, giving the go-ahead for a key element of European leaders’ strategy for combating the continent’s long-running debt crisis.

The legal decision served to avert an international economic crisis that was likely to erupt if Germany was constitutionally blocked from participating in the $640-billion fund known as the European Stability Mechanism, or ESM. At the same time, the court placed conditions on Germany’s role in the fund, setting as a cap the government’s agreed-upon contribution of 190 billion euros, or about $243 billion.

Markets reacted positively to the news, with the euro reaching a four-month high against the dollar out of apparent relief that the conditions to be imposed on the bailout fund appeared to be less cumbersome than had been feared.

The Federal Constitutional Court had been petitioned by 37,000 Germans who argued that the ESM contravened the country’s constitution.

The contribution cap will go some way to appease German taxpayers whose enthusiasm for the euro has waned significantly over their growing dissatisfaction that their money is being used to prop up debt-laden, reform-wary economies in southern Europe. But the ruling will also allow the German Parliament in the future to grant approval for additional funding if it deems necessary.

“The review has concluded that the laws that were challenged, with high probability, do not violate the constitution,” Andreas Vosskuhle, the court’s president, said in a packed courtroom. “Hence the motions for a temporary injunction are to be rejected.”

The ruling was a major victory for Chancellor Angela Merkel, who has championed the rescue fund. She called it “a good day for Germany, a good day for Europe” in a speech to the Bundestag, Germany’s lower house of Parliament.

Merkel said that although Europe had yet to overcome its economic woes, “we have achieved our first steps” and Germany has sent a “strong message to Europe and further afield.”

Not only did the court pave the way for the ESM and fiscal pact, it also “strengthened the rights of Parliament,” she said.

Lawmakers expressed relief that the Bundestag’s backing of the bailout fund and Europe’s fiscal pact, which imposes budgetary discipline on its signatories, had not been toppled by the court.

“Finally the ESM can start to operate,” said Frank-Walter Steinmeier, head of the opposition Social Democrats.

Some analysts predicted that over time, the cap may become an issue.

“It will be a challenge for German negotiators to satisfy themselves in due course that the ESM treaty includes a watertight cap, failing which Germany’s position will be unconstitutional,” said Michael Wainwright of the international law firm Eversheds.

Conservative lawmaker Wolfgang Bosbach, an outspoken critic of the euro rescue policies of Merkel’s government, said the ruling left Germany greatly exposed. “If the [European Central Bank] purchases government bonds in an unlimited capacity as it has said it might do, that would automatically increase Germany’s potential liability.”

In the Netherlands on Wednesday, voters were choosing a parliament in a clash between radical “Euroskeptics” and longtime supporters of the Eurozone. Opinion polls and analysts predicted that Prime Minister Mark Rutte, a Liberal whose government had collapsed in April, would retain his position, helping to douse earlier fear that the nation was poised to leave the European Union or would deliberately violate its budget rules.

Kate Connolly is a special correspondent.