BERLIN—The enactment of the new eurozone bailout fund has been delayed at least three more months by Germany’s highest court—thwarting hopes for a quick end to the European debt crisis and putting the future of Europe into further uncertainty.
The European Stability Mechanism (ESM) was set up last February by the eurozone as a permanent institution with a total capacity of 700 billion euros ($854 billion) to replace existing fund instruments.
It was supposed to come into effect on July 1, after being ratified by both houses of Germany Parliament last month.
However, on Tuesday, Germany’s constitutional court heard plaintiffs objecting to Germany’s participation of the ESM in an 11th-hour hearing and decided to put off making a final decision.
“The so-called euro rescue makes Europe less democratic,” said Dietrich Murswiek, a professor of law, according to the newspaper Süddeutsche Zeitung. At the trial, Murswiek is representing Peter Gauweiler, a dissident member of the Christian Social Union, the sister party of Chancellor Angela Merkel’s ruling Christian Democratic Union.
Other plaintiffs include Germany’s hard-line leftist party, Die Linke, and a grass-roots democracy group that represents 12,000 citizens that is calling for a national referendum, which would be a first in German history.
Opponents fear that the ESM will undermine Germany’s sovereignty and the ability of national parliaments in Europe to decide budget matters.
Existing funds that have supported several affected countries, like Greece, will expire in 2013. Spain was promised last month 100 billion euros for its struggling banks, something these temporary funds can still handle. Many fear, however, that Italy, the eurozone’s third largest economy, might be the next recipient in need—which would require the ESM.
The German government called the ESM the “foundation for solving the crisis” in a press release, and a complementary measure to tighten fiscal discipline.
After Parliament ratified the ESM, Germany’s president refused to sign it into law responding to a last minute request from the German Federal Constitutional Court.
The court has ruled on the constitutionality of several previous euro rescue measures. As result, it demanded that the rights of the German Parliament be strengthen when cases affecting the budget are decided.
It is common procedure for the court, after deciding to take on a pending law, to make a tentative ruling immediately, before moving on to an in-depth inquiry. This time, the judges, knowing the financial and political significance of the case, decided to postpone the ruling for about three more months.
Stefan Homburg, professor of public finance at the University of Hanover in Germany, called the court’s move a “wise decision” via email, since it avoids sending a message that could be misunderstood by the markets.
Homburg calls it meaningless whether or not the ESM will take effect since member states can simply extend the existing bailout funds and “make up a new acronym.”
Finance Minister Wolfgang Schäuble, at the court, however, said that postponing the ESM might lead to “a major uncertainty for the markets,” and could fuel speculation on EU members leaving the euro, according to Frankfurter Allgemeine Zeitung newspaper. He promised in an interview with Deutschlandfunk radio, that the government would not to put pressure on the court.
Overall, the ruling appears to have satisfied both sides in the debate. The plaintiffs are happy that they stopped the ESM—at least for now. And the German government seems confident of winning the future ruling.
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