September 12, 2012

German High Court Clears European Stability Mechanism

Budget pact also passes muster, but court says ‘conditions’ may apply

Europe breathed a bit easier as the German Federal Constitutional Court rendered its long-awaited decision on the European Stability Mechanism (ESM) and the accompanying fiscal pact. The court turned back several challenges to the ESM, although it did attach conditions to the move.

Bloomberg reported Wednesday that the Karlsruhe-based court turned back several challenges to Germany’s ratification of the ESM and pact, although its decision laid out some limits to be observed. In the report, Chief Justice Andreas Vosskuhle announced the court’s decision, saying, “The review has concluded that the laws that were challenged, with high probability, do not violate the constitution.”

However, Vosskuhle added some caveats. The ruling included “some uncertainties” over the maximum amount Germany would contribute to the ESM, as well as how much say the German Parliament would have over the ESM. Therefore, the judges added that Germany must stipulate when it ratifies the treaty that it will not consider itself bound by the treaty unless its concerns are met to its satisfaction.

In a statement, the court said in part, "No provision of this treaty may be interpreted in a way that establishes higher payment obligations for the Federal Republic of Germany without the agreement of the German representative." With the “proviso” that Germany’s liability would be limited to 190 billion euros ($245.496 billion), the amount specified in the ESM treaty, Germany could proceed with ratification.

The ruling also specified that the Bundestag “must remain the place to autonomously decide about revenues and expenditures.” The court also said that 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.”

Another concern addressed by the court, according to a Reuters report, was a clause in the treaty that would keep decisions of the fund confidential. As a result, its ruling also specified that such confidentiality "must not stand in the way of the comprehensive information of the Bundestag and of the Bundesrat,” which means that both houses of Parliament would have the right to be consulted by the ESM on its decisions.

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