German court backs permanent rescue fund with liability cap

German Limit

“Some uncertainties” about the limit on Germany’s contribution to the ESM and the scope of the German parliament’s say over the fund were reviewed as part of the ruling, chief justice Andreas Vosskuhle said when delivering the ruling. The judges also said that Germany must state when ratifying that it won’t be bound by the treaty unless these reservations are efficiently met.

Today’s cases were filed after German lawmakers approved the ESM and the fiscal pact, a deficit-control treaty designed to impose budget discipline on European Union member states. About 37,000 people signed up to endorse a constitutional complaint filed by political group “Mehr Demokratie e.V.” Other plaintiffs include opposition party Die Linke as well as Peter Gauweiler, a lawmaker from Merkel’s CSU Bavarian sister party.

The lower house, or Bundestag, “must remain the place to autonomously decide about revenues and expenditures,” the court wrote in the judgment. Germany may not agree to “permanent international mechanisms, which would be tantamount to taking over liabilities incurred by other states, particularly when they amount to consequences that are hard to calculate.”

Oral Arguments

For today’s ruling, the court chose six cases. The judges only had to decide whether to halt ratification of the treaties while reviewing the suits more closely.

The German judges heard oral arguments on July 10 from groups challenging the viability of the EU’s fiscal pact and the ESM, which both houses of parliament approved with two-thirds majorities on June 29. The complaints by a group of lawmakers, academics and political groups sought an injunction while the court reviews the cases in detail.

The challengers argued that the crisis-fighting legislation transfers constitutionally mandated authority from German lawmakers and undermines democratic rule.

Previously, the court cleared each step of European integration. Last year, the judges cleared the Greek bailout and the EFSF, while saying Germany may not agree to take over unlimited future liabilities incurred by other EU member states.

Bloomberg News

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