German court halts stability fund ratification

CONSTITUTIONAL COMPLAINTS ON ESM:EURO ZONE members face a new wave of financial uncertainty after Germany's constitutional court yesterday halted German ratification of the €500 billion European Stability Mechanism before its launch next month.

The court in Karlsruhe has asked German president Joachim Gauck not to sign into law the Bill for the permanent bailout fund until the judges have ruled on several constitutional complaints, likely to be filed as early as next week.

EU leaders meeting next week in Brussels were scheduled to announce July 9th as the day the ESM treaty goes into force, according to a leaked draft of summit conclusions.

That date was increasingly in doubt, with nine countries still to ratify the treaty. Anxious not to be among that number, the German government secured opposition party support for the ESM yesterday after months of negotiations, guaranteeing the necessary two-thirds Bundestag majority in a vote scheduled for next Friday.

That in turn put President Gauck under pressure to examine and sign the Bill in the days before the July 9th activation deadline. Hours after the Bundestag vote deal, conscious of widespread criticism in Germany of the ESM, the constitutional court intervened to ask Mr Gauck to withhold his signature.

“We take it that, as in the past, the president will follow this request to give the court enough time for its deliberations,” said a court spokesperson.

German finance minister Wolfgang Schäuble attacked the announcement of the delay, saying: “I don’t view it as clever when constitutional organs communicate with each other in public.”

Recent challenges suggest the court is likely to schedule oral hearings to hear arguments before issuing its verdict in the autumn.

Such a delay would raise fresh doubts about the euro zone leaders’ stabilisation strategy. Originally intended to come on stream next year, the ESM’s launch date was moved forward to July because of market concerns that the temporary European Financial Stability Facility would be inadequate should Spain or Italy be hit by financial instability – a situation that has come to pass. Of its €440 billion lending capacity, the EFSF has €240 billion still available.

The Irish government declined to comment on the possible consequences of a German ESM delay.

With that deadline rapidly approaching, and eight countries besides Germany yet to ratify, European officials are increasingly gloomy about the prospects of timely ESM ratification.

The delay complicates life for Chancellor Angela Merkel as she travels today to Rome to meet her Italian, French and Spanish colleagues. They are likely to seize on the window of opportunity provided by Karlsruhe to step up their demands for changes to the ESM.

They want the ESM empowered to buy up bank debt directly or given a bank licence allowing it to draw down funding directly from the European Central Bank. Both measures are opposed by the German government, which fears further exposure to any potential debts. Now Berlin faces a difficult summer, fighting off efforts for a beefed-up ESM before the original is even ratified.