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German Constitutional Court Rules in Favor of Euro Rescue Fund (ESM)

The Euro Zone is relieved. Germany’s Constitutional Court ruled in favor of the Euro Rescue Fund – European Stability Mechanism (ESM). However the judges limited Germany’s fund liability up to 190 billion euro unless the German Parliament decides to make more funds available. The court said that condition  for allowing the ESM-ratification was that any increase in German liability beyond 190 billion euros must first be approved by the Bundestag lower house of parliament. And that ESM decisions must be submitted to both houses of parliament for approval, rejecting a confidentiality clause in the treaty.

Germany’s Constitutional Court has dismissed a complaint against the proposed European rescue fund, the European Stability Mechanism.

The decision, which was months in the making, clears the way for the introduction of the ESM, which is due to become operational in October. The ruling included conditions to limit Germany’s liability under the fund.

In Germany’s biggest ever constitutional challenge, some 37,000 citizens had tried to block the fund, claiming it violated the country’s right to retain control of its own budget.

The citizens, who backed a legal push from “More Democracy” movement, claimed the mechanism could expose the country to unlimited demands for taxpayer money. They wanted a referendum to decide the issue.

Supporters of the rescue fund, including Chancellor Angela Merkel, said it was a vital part of measures to prop up ailing European economies and avert the collapse of the euro. (Full Article CNN)

 

 

 

 

 

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10 comments

  1. http://www.spiegel.de/international/germany/german-high-court-oks-permanent-bailout-fund-with-reservations-a-855338.html
    gives a slightly different version of the “conditions” outlined by court President Andreas Vosskuhle. It also quite specifically states that

    the decision on the permanent rescue fund is provisional and that full proceedings would follow

    It would seem from this that Germany wants to both have it’s cake and eat it. The functioning of the ESM, according to this verdict, can only happen with approval of the German representative on the board, and with the full knowledge of both Bundestag and Bundesrat. Despite a clause of secrecy in the rules of the ESM. Discussions in the houses of parliament are by the nature of things public, so how does that square with signing an agreement containing a secrecy clause?
    These conditions effectively make the ESM a tool in the hands of the German government, not a tool for the “independent” ECB

  2. of course, the constitutional court has to protect the rights of German taxpayers. I wish we had a similar institution here.

  3. pardon me if I’m wrong, but isn’t the proposed ESM a tool for the totally INDEPENDENT EUROPEAN CENTRAL BANK, which does not answer to any parliament, not even the EP?
    It would seem that the German courts have used this occasion to quite simply highjack the operations of the ECB and put it under the control of the German Parliament only, and the rest of us can take a hike.
    Something not quite right her, me thinks…

  4. you’re not wrong as you thinks and pays.. I spoke in the sense of German constitutional court, not in yours, mine or my Portuguese friend and Spanish colleague.

  5. No, the ESM is not a tool of the ECB. It’s a tool of the Eurozone governments and it answers to the governments which in recourse answer to their respective parliaments. So it fully makes sense if the German parliament wants to know what is going on at the ESM. Teh ECB is a different matter. Draghi could only decide to buy bonds from the secondary market because he can do it with his own tools. ESM and ECB are working independently from each other.

  6. Right, now, I’ve just been reading this treaty that allows for the setting up of the ESM. It reads suspiciously like the articles of incorporation of some financial institution.
    In the set-up are two things that, at first sight, don’t tally with the ruling by the German court. According to the court ruling, Germany will not play ball unless their representative agrees (after being instructed by both German Houses) to what the ESM is planning on doing. According to ESM rules there are no vetoes. An 80% majority is required to pass a motion. Meaning, Germany could find itself on the wrong side of 80%. What then?
    There is also a Secrecy clause in the set-up rules. Isn’t the whole idea of houses of parliament to prevent secrecy (or sneakiness). Meaning, a fully informed Bundesrat and Bundestag would automatically mean public knowledge of what is going on in the ESM. Or is Germany planning on allowing “closed” sessions in it’s Parliament?

  7. Hi Ephilant!

    The answer to your first question is easy: Germany can never be on the “wrong side” of the 80% as Germany has 27% of the voting rights (see Art. 4 para. 7).

    The second part is more tricky: the ESM treaty says ESM stuff is confidential, the constitutional court says German parliament needs to get all necessary information (and puts no obligation on the parliament in regard to secrecy). These two provisions clearly do not go togehter. The solution? Change the ESM treaty! The way this is done is a “trick” in international law: the court allows the German president to ratify the ESM treaty only when adding a reservation that the secrecy rules do not apply to Germany. He’ll send this reservation along with his signature to the General Secretariat of the Council of the European Union. Now if the other signatories to the Treaty do not file objections to this reservation it will become international law and therefore an amendment to the Treaty!

  8. Now, here you are wrong. Germany does indeed contribute 27% (with a German court imposed maximum of 190 billion €), but that does not give them 27 % of the vote. The ESM system is for the EZ countries only, meaning 17 countries, so Germany has a share of 5.88% of the vote, just like everybody else. The EU does keep some resemblance of being an equality based organisation.
    The treaty clearly states that decisions are made by majority vote, not by majority-stake vote!
    Changing the Treaty is going to go down really well in Ireland. It does mean a new referendum, and as the Irish only realised afterwards, (when their government released the fine print) that the Irish had in fact given away their right to vote on ANYTHING EU related in the future, and given the rapidly changing mood of the Irish towards the scam, it is anything but a given that this will pass…

  9. Well, that’s not how I understood Article 4 paragraph 7 of the ESM treaty: “The votings rights of each ESM member […] shall be equal to the number of shares allocated to it in the authorised capital stock of the ESM as set out in Annex II.”

  10. Just think about it. If that was the case, the whole thing simply cannot function with a German say so. It needs an 80% majorityvote to pass something. If you are right, then that 80% MUST include the German vote, otherwise it can only reach a maximum of 73%, which is insufficient according to the 80% majority vote.
    So, if you are correct, then the ESM is nothing but a tool for the German government to decide on who gets what. That 27% share is effectively a veto, and in the setup it quite specifically states “no vetoes”…