Germany: Constitutional court paves way for ESM ratification
September 12, 2012
On 12 September, the German Constitutional Court presented its ruling on the European Stability Mechanism (ESM) - the proposed successor of the European Financial Stability Facility (EFSF) - and the fiscal compact, the mechanism that will give Eurozone members and the European Commission a larger influence in member states' budgetary policy. As widely expected, the court dismissed motions filed by complainants and stated that both the EUR 700 billion permanent rescue fund and the European fiscal compact are in line with the German constitution. However, the court ruled that Germany's liability to the rescue fund will be capped at its current EUR 190 billion contribution, and that any further increase to that amount, or any other changes to the ESM, would require prior approval by the German parliament. Moreover, the court demanded that the clauses on immunity and professional secrecy for ESM board members should not apply with regard to the information flow required by the parliament, thus providing German lawmakers with transparency on how the ESM funds are being used. While a final judgement is due in December or early 2013, the court concluded that the challenges were mostly unfounded, although the tribunal stated that it might re-evaluate the legality of the European Central Bank (ECB) bond-buying programme. However, the court's ruling eliminates any threat that Germany could be blocked from participating in the ESM, thus paving the way for the establishment of the fund on 8 October.
Author: Ricardo Aceves, Senior Economist