German court gets to have last word on bailout

Wed, Sep 12, 2012, 01:00

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.

The court’s increasingly critical role in Germany’s European debate arises from its interpretation of the so-called “eternity clause” in the Basic Law. This states that certain fundamental principles in the constitution – human dignity and basic principles of democratic rule – cannot be overturned.

Every European constitutional challenge is fed through Karlsruhe’s reading of the “eternity clause”, an approach welcomed by some in Germany but attacked by European integrations. They say the clause, drafted to prevent Germany sliding back into a dictatorship, has been co-opted by Karlsruhe to award itself unforeseen powers over the pace and depth of the transfer of sovereignty.

Karlsruhe’s judges shrug off such complaints. Court president Andreas Vosskühle insisted recently that Karlsruhe is aware of its responsibilities and remains “open” towards European integration – but not at the price of democracy and the rule of law.

His court’s priority, he said, is to ensure that “citizens don’t wake up one morning and realise that the people they elected no longer have anything to decide”.

Prof Christian Pestalozza, law professor at Berlin’s Free University, suggests the court enjoys playing to a national gallery – Karlsruhe lectures Berlin on democracy – but has yet to understand how its crisis-era rulings are perceived beyond Germany’s borders.

“We’ve had finger-wagging from the court of late but nothing really anti-European ever comes out in the end. The permit is always granted and the barrier goes up,” he said.

“But I know many would wish the court would stay focused on the immediate issues at stake, deliver short verdicts and leave aside the commentary on European affairs.”

So what will Karlsruhe do today? Stepping on the EU brake to strike out the ESM is an unlikely option, but the judges are wary of the integration accelerator. Instead it’s likely they will flex their legal muscles and deliver one of their infamous “Yes, but . . .” verdicts.

This would give the green light for the ESM, on condition that Berlin agrees to extra safeguards, perhaps copper-fastening liability guarantees to limit ESM financial obligations of future German parliaments and taxpayers.

With only a handful of countries still to ratify the ESM, demanding changes to the ESM rulebook is a no-go. Instead judges may insist on attaching a special caveat or conditional clause to Germany’s ESM Bill, or even present their own interpretation of Germany’s ESM obligations.

With the world watching, the eight judges know they are walking a legal and financial tightrope. Unless deftly handled, they could undermine euro zone crisis efforts or find itself on a collision course with its little-loved rival, the European Court of Justice.