ESM chief welcomes dismissal of challenge to EU bailout fund

Regling says ruling in favour of his fund ‘good decision for Europe and for Germany’

Andreas Vosskuhle, presiding judge of the Second Senate of the Federal Constitutional Court of Germany, puts on his cap after the ESM verdict in Karlsruhe, Germany. Photograph: Uli Deck/EPA

Andreas Vosskuhle, presiding judge of the Second Senate of the Federal Constitutional Court of Germany, puts on his cap after the ESM verdict in Karlsruhe, Germany. Photograph: Uli Deck/EPA

 

ESM chief Klaus Regling has welcomed the dismissal by Germany’s highest court of constitutional challenges to the EU’s permanent bailout fund.

Judges at the constitutional court in Karlsruhe dismissed as “partly inadmissible, partly baseless” claims that Germany’s involvement in the €500 billion fund undermined budgetary autonomy of the Bundestag in Berlin.

But, after a two-year legal wrangle, the court conceded that the ESM fund was part of a “multifaceted” problem for which European political leaders had yet to find a permanent solution.

Ahead of Wednesday’s ruling the court openly questioned the legality of an additional rescue measure – the permanent bond-buying programme (OMT) of the European Central Bank – and asked the European Court of Justice to deliver its ruling.

With that not likely until later this year, Mr Regling said the ruling in favour of his fund was a “good decision for Europe and for Germany”.

“The successful exit of Spain and Ireland at the end of 2013, the progress in other programme countries and the economic recovery of the currency union as a whole show that the strategy works,” the ESM managing director said said.

Wednesday’s final ESM ruling followed a preliminary ruling in September 2012 that the fund appeared to be in line with German constitutional provisions. At the time, however, the judges said Berlin’s contribution could not be increased beyond the projected €190 billion – including €22 billion in cash – without legislative approval.

“We succeeded in ensuring the burden on taxpayers will not get out of hand,” said Dr Peter Gauweiler, a Bavarian MP and leading complainant.

The ruling also cleared the way for Berlin’s participation in the fiscal treaty, an inter-governmental agreement on fiscal discipline measures agreed in return for Berlin’s contribution to euro area rescue measures.

German finance minister Wolfgang Schäuble said the ruling “strengthens credibility and creates confidence” in the euro area.

The Karlsruhe court dismissed most of the ESM complaints before it as inadmissible, saying it was up to parliament and elected officials to make decisions on state income and expenditure and to weigh up whether financial guarantees were justifiable or risks acceptable.

Germany’s ESM contributions would only be unconstitutional, they added, with concrete proof that an obligation to divert funds to the ESM fund impeded domestic spending.

Though “risks . . . cannot be ruled out”, the judges said it was not their role to second-guess the judgment of the executive branch of government.

This decision was criticised by complainants and critical observers in Karlsruhe as setting the constitutional bar too high.

“With this ruling a constitutional breach only takes place when the Bundestag’s budgetary competence has hit the wall,” said Prof Hans-Werner Sinn of Munich’s Ifo economic institute.