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German court clears Greek bailout

Greek bailout judgment ‘should not be misinterpreted as a blank cheque for further rescue packages,’ says judge

Germany’s highest court has ruled that Angela Merkel’s controversial decision to contribute billions of euros to the first rescue package of Greece and other fiscally troubled countries last year was not illegal. But the federal constitutional court also decreed that parliament should be more involved in such decisions.

The ruling means that while Germany’s agreement to take part in the financial rescue of Greece will not be affected, participation in future bailouts might be more complicated. European stock markets were boosted by the ruling, which heads off the prospect of total chaos in the eurozone but could lead to delays in further interventions.

Presiding judge Andreas Vosskuhle told the court that although Germany’s participation had not violated parliament’s right to control spending, “the government is obligated in the cases of large expenditures to get the approval of the parliamentary budgetary committee”. The verdict “should not be misinterpreted as a constitutional blank cheque for further rescue packages,” he added.

The three cases had been brought by a group of eurosceptic academics and a rebel MP from the Bavarian sister party of chancellor Merkel’s Christian Democratic Union (CDU). They argued that the bailouts violate German law, as well as European treaties, and could turn the EU into a “transfer union”, where rich states like Germany finance the fiscal indiscretions of poorer members like Greece.

Had the claimants won, analysts feared the euro would have been thrown into crisis as the German government could theoretically have been forced to retrospectively withdraw its substantial contribution to the eurozone rescue fund, the EFSF – a debilitating move given that a quarter of the initial €440bn package pledged by eurozone leaders last year came from German coffers. But many investors still fear that the court ruling will further slow the already sluggish decision-making process in the eurozone.

Europe’s response to the debt crisis has already been criticised for its lack of urgency, and additional requirements to consult parliament could slow the fund’s reaction time to the crisis.

Merkel’s next challenge begins almost immediately when the Bundestag, Germany’s lower house of parliament, begins debating the second bailout, increasing Germany’s share of guarantees to as much as €211bn.

European leaders agreed to increase the bailout fund’s flexibility at a 21 July summit, giving it the right to buy the bonds of financially weak governments, help recapitalise banks, and quickly loan money to countries before they get into a full-blown debt crisis.

More than 20 MPs from Merkel’s centre-right coalition have indicated they will vote against the government when the package is put to parliament at the end of the month. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds