German court ruling stalls ESM ratification


GERMANY’S RATIFICATION of the European Stability Mechanism bailout fund is facing further delays after the country’s highest court resisted political pressure yesterday to deliver a swift preliminary ruling.

German finance minister Wolfgang Schäuble told constitutional court judges in Karlsruhe yesterday that undue delay on their part “could cause considerable nervousness on markets” and result in “negative economic consequences” for the euro zone crisis.

His remarks came during a hearing into whether the court should grant an injunction filed by complainants against the ESM and the fiscal treaty, preventing the Bills being signed into law while the court probes their constitutionality.

Last month, ahead of parliamentary ratification, the court requested president Joachim Gauck withhold his signature until after preliminary proceedings, expected to take three weeks.

That timetable was thrown into uncertainty yesterday when the court indicated it would dispense with the usual injunction process – which normally takes about three weeks and looks only at the negative effects of granting or rejecting an injunction – and go straight to a wider examination of all issues.

That process, expected to take at least until September, has buried hopes of activating the ESM this month. But the resulting preliminary ruling is expected to give a stronger indication of the direction of its final verdict, which will come after oral hearings later in the autumn.

Court president Andreas Vosskuhle said the court faced a legal quandary: how to balance the need for speed with the demands of prudent jurisprudence and avoid international newspaper headlines claiming Karlsruhe had “stopped the euro rescue”.

“In politics, unusual situations and crises often require unusual measures,” he said, outlining a plan of action that departs from the court’s approach to the precursor European Financial Stability Facility bailout fund in 2010.

Then, the court dismissed injunction applications ahead of their final ruling. The potential fallout of not allowing immediate activation of the temporary fund had, they said, outweighed concerns about the EFSF’s compatibility with the German constitution. Faced with the ESM’s permanent nature, however, the judges worry that dismissing the injunction and allowing the ESM Bill to pass will create a fait accompli ahead of their final ruling.

Complainants, including the group “More Democracy” and the opposition Left Party, say the €700 billion ESM is an unconstitutional intrusion into German budget sovereignty. They say there is no rush with the ESM: it was originally intended to be activated next year, along with the fiscal treaty; the EFSF still has bailout funds available, they add.

Bundesbank president Jens Weidmann told the court yesterday that all warnings about implementing or delaying ESM activation were “highly speculative”, adding that markets had already priced into their trading the likelihood of a Karlsruhe delay.

“A temporary ruling does not ensure that the risks can be comprehensively limited, conversely a quick ratification . . . is no guarantee that the crisis will not escalate further,” he said, describing the ESM as a way of buying time for countries facing a process of structural reform.

German politicians and financial analysts gave a mixed reaction to yesterday’s Karlsruhe hearing.

Gunther Krichbaum, head of the EU affairs committee for the ruling Christian Democratic Union (CDU), said he viewed a “longer examination as the right thing to do”.

The German government insists the ESM and fiscal treaty carry the legitimacy of two-thirds parliamentary majorities. Any future payments into the ESM fund, it argues, will require further Bundestag approval. Complainants dispute this argument, pointing to clauses they say oblige ESM members to top up fund capital automatically when requested to do so by ESM managers.

Explaining the court’s refusal to be rushed yesterday, Mr Vosskuhle said the constitutional order could not be sidelined in a financial crisis.

The European Union and the democratic, constitutional state place high demands on each other, he said. “Whoever dissolves this relationship,” he added, “loses the other”.