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EURO CRISIS

Constitutional Court approves euro rescue

The eurozone cleared a key hurdle towards resolving its debt crisis Wednesday as Germany's top court approved a new European firewall for ratification, with some minor conditions.

Constitutional Court approves euro rescue
Photo: DPA

“This is a good day for Germany, this is a good day for Europe,” said Chancellor Angela Merkel in a speech to parliament after the keenly anticipated ruling.

In a landmark ruling watched around the world, the Constitutional Court overturned a raft of legal challenges aimed at preventing President Joachim Gauck from signing two crucial crisis-fighting tools into law.

Delivering a momentous decision with far-reaching implications for the euro’s future, the eight scarlet-robed judges said Gauck could finally sign the European Stability Mechanism (ESM) and fiscal pact.

“The Second Senate of the Federal Constitutional Court has rejected the injunctions with the stipulation that a ratification of the ESM Treaty is only admissible if (certain conditions) can be guaranteed under international law,” Chief Justice Andreas Voßkuhle said.

“Our examination has shown that the laws with a high probability do not infringe upon the German constitution. That is why we have rejected the injunction,” he added.

The ruling came on a day of risks for the euro, which has enjoyed calmer times in recent weeks, as an anti-austerity party is seen likely to score big gains in Dutch elections and EU leaders unveiled plans for the first step towards a eurozone banking union.

It will come as an enormous relief to Chancellor Angela Merkel and her fellow European leaders as a rejection of the ESM would have triggered a fresh bout of chaos on financial markets and thrown the eurozone into a new political crisis.

The constitutional court specified that any financial burden for Germany arising from the ESM be strictly limited to its share of the fund’s capital or €190 billion ($244 billion).

If the burden were to increase beyond that amount, then it could only be done with the express approval of the German parliament, and both the upper and lower houses must be kept fully informed, the court said.

The professional secrecy to which the fund’s employees were bound “must not stand in conflict with the Bundestag and Bundesrat being comprehensively briefed,” the statement said, referring to the lower and upper chambers.

The court also ruled that Germany must ensure a de-facto opt-out clause, if it felt its interests were not being considered.

“The Federal Republic of Germany must make it clear that it does not want to be bound to the ESM Treaty as a whole if any reservations it might have should prove ineffectual,” Voßkuhle said.

The €500-billion ESM was set to replace the temporary European Financial Stability Facility (EFSF) and should have been in place by July 1.

But it needed Germany’s share of the rescue money to function and had thus been held up pending the court ruling.

It is designed to come to the aid of debt-stricken countries such as Spain and Italy.

Technically, the court ruling was solely on whether to grant applications for temporary injunctions by eurosceptic politicians and groupings and delay ratification of both the ESM and the fiscal pact.

It will decide only at a later date whether the two are compatible with the German constitution, and that ruling could take several months yet.

Nevertheless, the court did provide some strong guidance as what that final ruling might look like.

The plaintiffs included the Left party, an initiative called More Democracy including 37,000 citizens and an outspoken critic from the Bavarian sister party of Merkel’s conservatives, Peter Gauweiler.

They had argued that the ESM and the fiscal pact were incompatible with Germany’s Basic Law because they irreversibly delegate national sovereignty to the European level and interfere with parliament’s right to draw up budgets.

Moreover, this was all being decided without the necessary democratic backing, they complain.

But the court said such arguments were “unfounded”. There was no such democratic deficit and the stability-orientated framework of currency union remained intact, it argued.

And “the possibility of setting up a permanent stability mechanism does not lead to a loss of national budgetary autonomy because the Bundestag has not yet transferred budgetary competence to organs of the EU or its institutions,” it argued.

AFP/hc

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ECONOMY

Brexit and an aging population said to shade German economy

Germany's "wise men" council of economic experts on Wednesday sharply lowered its economic outlook as Europe's powerhouse battles headwinds from trade conflicts, Brexit uncertainty and an ageing population.

Brexit and an aging population said to shade German economy
A famous sculpture of the euro in Frankfurt am Main. Photo: DPA

The experts, who advise the government on economic policy, said they expected Germany's economy to grow by 1.6 percent this year and 1.5 in 2019.

That was well below their previous forecast of 2.3 percent and 1.8 percent respectively.

“The uncertain future of the global economic order and unavoidable demographic change represent major challenges to the German economy,” said chairman Christoph Schmidt in the council's latest annual report.

The so-called “wise men”, actually four men and one woman, urged Chancellor Angela Merkel's government to take action to prepare Germany for the threats ahead.

The warning comes as Germany braces for a period of political turbulence at home following Merkel's announcement that she will step down as head of her centre-right CDU in December and will not seek re-election as chancellor when her fourth term ends in 2021.

Brexit and baby-boomers

The German economy enjoyed stellar growth in 2017 underpinned by brisk domestic and international demand, record-low unemployment and low interest rates.

But Europe's top economy has hit a soft patch this year against a backdrop of slower global growth. The German economy ministry last month lowered its growth estimates and is now pencilling in expansion of 1.8 percent this year and the next.

Clouding the outlook is concern about US President Donald Trump's aggressive “America First” trade agenda which has seen him lock horns with China and the European Union, unsettling Germany's export-reliant companies.

Other outside risks stem from an increased chance of a no-deal Brexit when Britain quits the bloc in March, which could badly disrupt trade, and rising euroscepticism in countries like Italy, the “wise men” said.

“An escalation of the trade conflict, a disorderly Brexit, or a resurgence of the euro area crisis harbour risks for economic development,” they warned.

They urged Germany and the European Union to forcefully reject protectionism and stand up for free trade.

Domestically, the experts singled out Germany's ageing workforce as a “major challenge”.

German companies are already grappling with a shortage of skilled workers as the baby-boomer generation retires, and the problem is expected to worsen in the years ahead.

To get more people into the workforce, especially women, the experts urged Berlin to encourage flexible working hours and improve childcare options.

Immigrants could likewise help plug the gap, they added, while also advocating a gradual rise in retirement age.

The experts pressed Berlin to make greater strides in preparing Germany for the digital economy, urging investments to improve the country's creaking internet infrastructure.

Berlin should also do more to support tech start-ups and modernize its education system to prepare youngsters for the “digital transformation”, they added.

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