German court gets to have last word on bailout

WITH A rustle of scarlet silk robes, eight German judges – three women and five men – will this morning troop into Germany’s highest court.

A stern warden will bring the court to order using the court’s official name – “Das Bundesverfassungsgericht” – a German word so long that, as Mark Twain complained, it has its own perspective.

For most of its 61-year history, the federal constitutional court in Karlsruhe had a German-only audience. This morning, all is different. In a globalised world where markets never sleep, and a crisis-wracked euro zone, every word uttered in Karlsruhe affects us all.

Ostensibly, the court is presenting a preliminary ruling on whether the European Stability Mechanism (ESM), a permanent euro zone bailout fund, complies with the German constitution.

EU leaders say the permanent bailout, with a financial capacity of €700 billion, as the ultimate financial backstop against years of euro zone turbulence.

German ESM critics disagree. They went to the constitutional court arguing that the bailout fund is a flagrant breach of democratic principles. No government can earmark future taxpayers’ money and override future parliaments, they argue, even if their intention is honourable: to prop up a currency.

Berlin dismisses this claim and says the ESM treaty limits German exposure, in a worst-case scenario, to €190 billion. Any future top-ups of ESM capital will be subject to Bundestag approval in Berlin.

After an oral hearing in July, the Karlsruhe judges will present their final verdict early next year. Aware of the crisis realities, however, expectations are high that today’s preliminary ruling on several injunctions against the ESM will send a clear signal.

No one expects the court to stop the ESM. But if the judges feel Berlin’s promises on liability are not legally watertight, the red-robed judges will wield their red pens and amend the ESM Bill.

European law experts say the growing global interest in Karlsruhe reflects the increased attention on Germany, the largest member of a currency bloc grappling with existential issues.

“The recent EU treaties are more frequent and more intrusive into previously national issues like budgetary affairs,” said Dr Gavin Barrett, senior lecturer in European Law at UCD. “Germany’s constitutional court has become more assertive in recent rulings. And German Eurosceptics are now willing to try their luck by going before the court because they know they’ll get something.”

While the Karlsruhe court is built on a firmly EU-friendly foundation, its current batch of judges have proven critical of Berlin’s EU policies. European integration may be a laudable goal, they warn, but it remains subject to national constitutional controls. In its most recent EU rulings, the court ordered greater co-determination for the Bundestag on bailouts and even imposed limits on German participation in European integration under the current constitution, the Basic Law.