Germany green-lights the rescue fund

Germany’s Constitutional Court on Wednesday cleared the way for the European Stability Mechanism (ESM) to come into effect without excessive delay. Although the court imposed some restrictions that could limit the scope of the rescue fund to act in the future if the situation in the economies of significant size such as those of Spain and Italy worsens, the ESM should for the moment be sufficiently endowed to cope with bailouts of a limited dimension. “A good day for Germany and for Europe,” German Chancellor Angela Merkel said in response to the court’s ruling. And it was.

Germany was the last of the 17 countries in the euro zone to ratify the ESM and the European Fiscal Pact. The German parliament had approved it by a wide majority, but the president of the country, Joachim Gauck, had conditioned its necessary signing into law to the Constitutional Court in Karlsruhe ruling that the rescue fund was not at odds with Germany’s Basic Law. Some 37,000 euro-skeptics had lodged an appeal against the approval of the ESM in an effort to block further moves toward European economic integration.

The decision is provisional in the sense that we will have to wait some months for the final ruling. The Constitutional Court dictated that Germany’s contribution to the rescue fund could not exceed the agreed 190 billion euros (some 38 percent of total contributions) without the prior agreement of the Bundestag, the German lower house, which in the name of “fiscal responsibility” must give its approval to each and every major action undertaken by the ESM alongside the Bundesrat upper chamber. The court also ruled that parliament should have access to exhaustive information on the decisions of the board of directors that will manage the ESM, despite the confidentiality involved. The German government must now find the means — probably in the form of a protocol that would need to be accepted by other countries — to incorporate the court’s demands before Gauck puts his signature to German participation in the ESM and before the fund is up and running.

The Constitutional Court is opposed to the ESM borrowing money from the European Central Bank and raises serious doubts — on which we can expect more in its final ruling — as regards the legality of the ECB’s bond-purchasing program in the secondary market proposed by Mario Draghi. Such misgivings back the arguments of the president of the Bundesbank, Jens Weidmann.

After dealing this blow to the euro-skeptics, Germany is much more committed to Europe, but in an unequal manner with respect to other countries. The judges in Karlsruhe dwell on the need for democratic control over revenues and spending at the European level and over the delegation of German sovereignty. The court attributes to Germany a democratic control over Europe that other countries lack. It has also pushed ahead with its interpretation of European law, which could break with established check and balances. All of which lays bare, as was evident in previous rulings, that in order to proceed, it is increasingly necessary to construct a genuine European democracy.