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Euro bailouts legal but MPs need more say

The Local · 7 Sep 2011, 12:37

Published: 07 Sep 2011 10:23 GMT+02:00
Updated: 07 Sep 2011 12:37 GMT+02:00

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In a landmark ruling eagerly anticipated by jittery financial markets, the Constitutional Court in Karlsruhe said all "large-scale" future aid packages must be approved by the parliament's budget committee.

"The federal government is required to seek the approval of the parliament's budgetary committee before handing over guarantees," Chief Justice Andreas Voßkuhle said, reading out the judgement.

In addition, the court ruled that parliament must have "sufficient influence" over the conditions attached to future rescue deals, likely limiting Chancellor Angela Merkel's room for manoeuvre if new crises blow up.

It may not approve deals that could lead to an unforeseeable burden on future parliaments, the court also ruled.

Moreover, the judges insisted that parliament may not approve any deal that leads to a pooling of national debt, apparently ruling out the idea of "eurobonds."

German Chancellor Angela Merkel said the pivotal court ruling upholding rescue packages for stricken eurozone members confirmed Berlin's policies during the debt crisis.

"This is what the constitutional court confirmed without a doubt: responsibility for one's actions and solidarity - solidarity and a transparent, open way of operating, of course with the co-determination of the parliament," she told deputies. "That is exactly the road we have taken."

But economists fear that requiring parliamentary approval for future rescue deals may slow down the process of helping debt-wracked eurozone nations, where rapid decisions to stem swift market moves are often required.

The court was ruling on a case brought by six eurosceptics, who argued that the bailout of Greece in May 2010 and subsequent setting-up of the eurozone bailout fund, the EFSF, broke EU and German constitutional law.

The judges ruled against their argument that the rescue package removed parliament's budgetary room for manoeuvre and ability to debate future budgets.

The verdict comes weeks before the German parliament votes on extending the EFSF amid mounting scepticism both from politicians and from the public, with Merkel facing a rebellion from within her own centre-right coalition.

The ruling also came at a time of high political tension in Europe's other major economies over the debt crisis, with governments scrapping to get much-needed austerity measures agreed in parliament.

Story continues below…

In Spain, thousands marched on Tuesday against a plan to enshrine balanced budgets in the constitution - following Germany's example - and demanding that the issue be put to a referendum.

The Italian government has put forward new austerity measures and called for a confidence vote in parliament, allowing the Senate to vote on Wednesday on the €45.5-billion ($64.0-billion) plan.

French deputies are also in the process of debating strict austerity measures.


The Local (news@thelocal.de)

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Your comments about this article

12:15 September 7, 2011 by storymann
Are we now headed to pooling national debt issuances, introducing Eurobonds. They would be guaranteed by all participating countries including Germany. Would they enjoy an AAA credit rating ?because the aggregate fiscal position of the euro area is much better than that of the US or Japan,some think that it would be attractive even to external investors wishing to diversify away from the dollar, leading to a low yield. However, the aggregate fiscal position of the euro is not comparable to the position of the US or Japan: the eurozone doesn't have the equivalent of the IRS, it has no federal taxation power. It's a big difference. This is the reason why S&P recently argued that pooling the debts of eurozone countries would lead to a "weakest link" rating. You would first need to create a federal administration to collect taxes. It is not clear how this could work. In any case it would not nearly be the same as US or Japanese debt. In a way eurobonds are similar to asset backed securities: pooling together the debt of several debtors with dubious credit history was supposed to give birth to AAA securities. It was an illusion, as the subprime crisis showed. Should we make the same mistake again?
13:43 September 7, 2011 by nemo999
Like most legal ruling it is tepid, not really an out right victory for either side. The ruling does not undue what the Chancellor has done up to now. Iit does place some serious limits on what the Chancellor and the Parliament can do in the future. The final effect is that will reduced the speed at which German government can act on any future proposals, given now that the Parliament Budget Committee per the rulling get a say on the matter.

It would appear that the ruling effectively blocks Germany participation in the Euro Bond in that the court did rule that the Parliament does not have the authority under the constitution to approve pooling of national debt.
16:31 September 7, 2011 by Englishted
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