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19th Feb 2017

German court set to delay bailout fund decision

  • The ESM and fiscal treaty have been the subject of six complaints (Photo: jgieseking)

The tension between the need for quick eurozone reform and the necessities of democratic scrutiny took a further twist on Tuesday (10 July) when Germany's highest court indicated it may delay a decision on the permanent bailout fund.

A ruling on whether to grant an injunction against the fund - the European Stability Mechanism (ESM) - and the fiscal treaty had been expected within three weeks but now may not be taken until autumn.

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During Tuesday's hearing, constitutional court President Andreas Vosskuhle announced he would undertake a "thorough constitutional examination" of the complaints, something that could run over normal quick injunction proceedings and last up to three months, according to Spiegel Online.

The court's decision comes despite enormous political pressure.

German finance minister Wolfgang Schauble, also present at the hearing, warned of the "massive uncertainty on the markets" and "significant economic distortions" of a delay.

Once the judges make their decision on the injunction, now expected in autumn, they will then need much more time to examine the substance of the complaints - that Germany is handing over too much sovereignty and that there is a lack of democratic oversight.

Both the ESM and the fiscal treaty - enshrining budget discipline into law - have seen several groups raise objections.

Among the complainants are former justice minister Herta Daubler-Gmelin and the opposition Left Party.

Germany's highest court has been in the frontline of many key EU decisions in the past decade - with recent rulings on the current temporary bailout fund and the Lisbon Treaty. The court has often chided German MPs on the need to exercise their democratic rights more strongly.

"The Bundestag must remain at the center of political decisions, especially regarding its core competences such as responsibility for the federal budget," Udo di Fabio, a former Constitutional Court judge, told this week's Der Spiegel.

The court's final decision - but also the delay - has important implications for the eurozone crisis.

The €500 billion ESM was supposed to come into force on 1 July and be involved in the planned rescue of Spain's banks. The stalling is likely to raise further doubts in the already febrile markets about whether the eurozone has enough firewall capacity.

"Some eurozone member states would end up having further big problems financing themselves, which could raise questions over the stability of the euro zone as a whole," said Schauble.

The ESM can come into force once countries representing 90 percent of its fund commitments have ratified. But Germany, representing the greatest share, needs to be among those that have ratified. The fiscal treaty can enter into force once 12 of the 17 euro countries have ratified it.

The parliament ratified both the ESM and the fiscal compact on 29 June, but President Joachim Gauck refused to sign them into law due to the legal complaints.

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